UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
  ______________
   FORM
10-Q
  ______________
   þ
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended March 31, 2009
  OR
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  Commission
File Number 1-13237
  ______________
   CENTERLINE
HOLDING COMPANY
 (Exact
name of Registrant as specified in its Trust Agreement)
 ______________
 
 Delaware
                
                13-3949418(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)
 
 (212)
317-5700
 Registrant’s
telephone number
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes  þNo  o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes þNo  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
 
 Large
      accelerated filer  o
                
                Accelerated
      filer  þNon
      - accelerated filer  o  (Do
      not check if a smaller reporting company)
                
                Smaller
      reporting company  o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 o þ
 
 As of May
8, 2009, there were 53,410,662 outstanding shares of the registrant’s shares of
beneficial interest.
 
 
 Table
of Contents
  CENTERLINE
HOLDING COMPANY
  FORM
10-Q
  PART
      I – Financial Information
              PageItem
      1
              Financial
      StatementsCondensed
      Consolidated Balance Sheets
              3Condensed
      Consolidated Statements of Operations
              4Condensed
      Consolidated Statement of Changes in Equity
              5Condensed
      Consolidated Statements of Cash Flows
              6Notes
      to Condensed Consolidated Financial StatementsNote
      1 – Description of Business and Basis of Presentation
              8Note
      2 – Market Conditions and Liquidity
              9Note
      3 – Fair Value Disclosures
              10Note
      4 – Variable Interest Entities and Qualifying Special Purpose
      Entities
              14Note
      5 – Assets Pledged as Collateral
              16Note
      6 – Available-for-Sale Investments
              17Note
      7 – Equity Method Investments
              23Note
      8 – Other Investments
              24Note
      9 – Goodwill and Intangible Assets, Net
              24Note
      10 – Deferred Costs and Other Assets, Net
              27Note
      11 – Assets of Consolidated Partnerships
              27Note
      12 – Notes Payable
              36Note
      13 – Financing Arrangements and Secured Financing
              36Note
      14 – Accounts Payable, Accrued Expenses and Other
    Liabilities
              37Note
      15 – Liabilities of Consolidated Partnerships
              37Note
      16 – Redeemable Securities
              38Note
      17 – Non-Controlling Interests
              39Note
      18 – Comprehensive Loss
              40Note
      19 – General and Administrative Expenses
              41Note
      20 – Loss on Impairment of Assets
              41Note
      21 – Revenues and Expenses of Consolidated Partnerships
              42Note
      22 – Earnings per Share
              43Note
      23 – Financial Risk Management and Derivatives
              44Note
      24 – Related Party Transactions
              47Note
      25 – Business Segments
              48Note
      26 – Commitments and Contingencies
              48Item
      2
              Management’s
      Discussion and Analysis of Financial Condition and
                Results
      of Operations (see Table of Contents at front of section)
              53Item
      3
              Quantitative
      and Qualitative Disclosures about Market Risk
              89Item
      4
              Controls
      and Procedures
              89PART
      II – Other InformationItem
      1
              Legal
      Proceedings
              90Item
      1A
              Risk
      Factors
              91Item
      2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              93Item
      3
              Defaults
      Upon Senior Securities
              93Item
      4
              Submission
      of Matters to a Vote of Security Holders
              93Item
      5
              Other
      Information
              93Item
      6
              Exhibits
              93SIGNATURES
 
  - 2
-
  PART
I.  FINANCIAL INFORMATION
 Item
1.  Financial Statements
 
 CENTERLINE
HOLDING COMPANY
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (in
thousands)
 
 
 
 March
      31,
                                                    2009
                                                  
                                                  December
      31,
                                                    2008(Unaudited)ASSETSCash
      and cash equivalents
                                                  
                                                  $
                                                  105,675
                                                  
                                                  
                                                  $
                                                  103,879Restricted
      cash
                                                  
                                                  
                                                  10,800
                                                  
                                                  
                                                  
                                                  10,852Investments:Available-for-sale
      (Note 6)
                                                  
                                                  
                                                  568,936
                                                  
                                                  
                                                  
                                                  539,213Equity
      method (Note 7)
                                                  
                                                  
                                                  9,050
                                                  
                                                  
                                                  
                                                  31,367Other
      (Note 8)
                                                  
                                                  
                                                  153,811
                                                  
                                                  
                                                  
                                                  134,227Investments
      in and loans to affiliates, net (Note 24)
                                                  
                                                  
                                                  16,563
                                                  
                                                  
                                                  
                                                  19,222Goodwill
      and intangible assets, net (Note 9)
                                                  
                                                  
                                                  346,090
                                                  
                                                  
                                                  
                                                  351,766Deferred
      costs and other assets, net (Note 10)
                                                  
                                                  
                                                  129,525
                                                  
                                                  
                                                  
                                                  135,679Consolidated
      partnerships (Note 11):Investments:Available-for-sale
                                                  
                                                  
                                                  181,502
                                                  
                                                  
                                                  
                                                  225,884Held
      to maturity
                                                  
                                                  
                                                  295,197
                                                  
                                                  
                                                  
                                                  288,960Equity
      method
                                                  
                                                  
                                                  4,066,323
                                                  
                                                  
                                                  
                                                  4,234,251Other
                                                  
                                                  
                                                  239,380
                                                  
                                                  
                                                  
                                                  248,469Land,
      buildings and improvements, net
                                                  
                                                  
                                                  691,661
                                                  
                                                  
                                                  
                                                  697,422Other
      assets
                                                  
                                                  
                                                  375,024
                                                  
                                                  
                                                  
                                                  373,932Total
      assets
                                                  
                                                  $
                                                  7,189,537
                                                  
                                                  
                                                  $
                                                  7,395,123LIABILITIES
      AND EQUITYLiabilities:Notes
      payable (Note 12)
                                                  
                                                  $
                                                  355,227
                                                  
                                                  
                                                  $
                                                  358,061Financing
      arrangements and secured financing (Note 13)
                                                  
                                                  
                                                  460,450
                                                  
                                                  
                                                  
                                                  411,413Accounts
      payable, accrued expenses and other liabilities (Note 14)
                                                  
                                                  
                                                  212,433
                                                  
                                                  
                                                  
                                                  218,580Preferred
      shares of subsidiary (subject to mandatory repurchase)
                                                  
                                                  
                                                  273,500
                                                  
                                                  
                                                  
                                                  273,500Consolidated
      partnerships (Note 15):Financing
      arrangements
                                                  
                                                  
                                                  1,121,475
                                                  
                                                  
                                                  
                                                  1,121,475Notes
      payable
                                                  
                                                  
                                                  575,276
                                                  
                                                  
                                                  
                                                  672,730Repurchase
      agreements
                                                  
                                                  
                                                  26,525
                                                  
                                                  
                                                  
                                                  39,125Due
      to property partnerships
                                                  
                                                  
                                                  407,375
                                                  
                                                  
                                                  
                                                  577,160Other
      liabilities
                                                  
                                                  
                                                  202,300
                                                  
                                                  
                                                  
                                                  208,664Total
      liabilities
                                                  
                                                  
                                                  3,634,561
                                                  
                                                  
                                                  
                                                  3,880,708Redeemable
      securities (Note 16)
                                                  
                                                  
                                                  327,940
                                                  
                                                  
                                                  
                                                  326,379Commitments
      and contingencies (Note 26)Equity:Centerline
      Holding Company beneficial owners’ deficit:Convertible
      CRA preferred shares; no par value; 519 shares issued and outstanding in
      2009 and 2008
                                                  
                                                  
                                                  2,952
                                                  
                                                  
                                                  
                                                  3,144Special
      preferred voting shares; no par value; 13,131 shares issued and
      outstanding in 2009 and 2008
                                                  
                                                  
                                                  131
                                                  
                                                  
                                                  
                                                  131Common
      shares; no par value; 160,000 shares authorized; 57,236 issued and 53,368
      outstanding in 2009 and 56,662 issued and 52,970 outstanding in
      2008
                                                  
                                                  
                                                  312,541
                                                  
                                                  
                                                  
                                                  338,619Treasury
      shares of beneficial interest – common, at cost; 3,868 shares in 2009 and
      3,692 shares in 2008
                                                  
                                                  
                                                  (65,312
                                                  )
                                                  
                                                  
                                                  (65,283
                                                  )Accumulated
      other comprehensive loss (Note 18)
                                                  
                                                  
                                                  (1,155,886
                                                  )
                                                  
                                                  
                                                  (1,144,122
                                                  )Centerline
      Holding Company total
                                                  
                                                  
                                                  (905,574
                                                  )
                                                  
                                                  
                                                  (867,511
                                                  )Non-controlling
      interests (Note 17)
                                                  
                                                  
                                                  4,132,610
                                                  
                                                  
                                                  
                                                  4,055,547Total
      equity
                                                  
                                                  
                                                  3,227,036
                                                  
                                                  
                                                  
                                                  3,188,036Total
      liabilities and equity
                                                  
                                                  $
                                                  7,189,537
                                                  
                                                  
                                                  $
                                                  7,395,123
  See
accompanying notes to condensed consolidated financial
statements.
 - 3
-
  
 CENTERLINE
HOLDING COMPANY
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (in
thousands, except per share amounts)
 (Unaudited)
 
 
 
 Three
      Months Ended
                    March
      31,2009
                  
                  2008Revenues:Interest
      income
                  
                  $
                  18,013
                  
                  $
                  26,116Fee
      income
                  
                  
                  14,432
                  
                  
                  17,406Other
                  
                  
                  1,032
                  
                  
                  1,898Consolidated
      partnerships (Note 21):Interest
      income
                  
                  
                  60,481
                  
                  
                  70,136Rental
      income
                  
                  
                  16,922
                  
                  
                  16,989Other
                  
                  
                  1,857
                  
                  
                  1,642Total
      revenues
                  
                  
                  112,737
                  
                  
                  134,187Expenses:General
      and administrative (Note 19)
                  
                  
                  34,638
                  
                  
                  43,902Interest
                  
                  
                  13,415
                  
                  
                  27,149Interest
      – distributions to preferred shareholders of subsidiary
                  
                  
                  4,724
                  
                  
                  4,724Depreciation
      and amortization
                  
                  
                  11,939
                  
                  
                  11,901Loss
      on impairment of assets (Note 20)
                  
                  
                  15,155
                  
                  
                  8,023Consolidated
      partnerships (Note 21):Interest
                  
                  
                  29,770
                  
                  
                  34,892Loss
      on impairment of assets
                  
                  
                  176,604
                  
                  
                  688Other
      expenses
                  
                  
                  34,830
                  
                  
                  31,858Total
      expenses
                  
                  
                  321,075
                  
                  
                  163,137Loss
      before other income
                  
                  
                  (208,338
                  )
                  
                  (28,950
                  )Other
      (loss) income:Equity
      and other (loss) income, net
                  
                  
                  (6,926
                  )
                  
                  (1,895
                  )Gain
      (loss) from repayment or sale of investments, net
                  
                  
                  2,746
                  
                  
                  (5,170
                  )Other
      losses from consolidated partnerships (Note 21)
                  
                  
                  (115,839
                  )
                  
                  (94,113
                  )Loss
      before income taxes
                  
                  
                  (328,357
                  )
                  
                  (130,128
                  )Income
      tax (provision) benefit
                  
                  
                  (115
                  )
                  
                  (1,049
                  )Net
      loss
                  
                  
                  (328,472
                  )
                  
                  (131,177
                  )Net
      loss attributable to non-controlling interests (Note 17)
                  
                  
                  301,524
                  
                  
                  109,538Net
      loss attributable to Centerline Holding Company
    shareholders
                  
                  
                  (26,948
                  )
                  
                  (21,639
                  )Dividends
      for preferred and participating securities (including dividends in
      arrears)
                  
                  
                  (5,013
                  )
                  
                  (5,276
                  )Effect
      of redeemable share conversions
                  
                  
                  (1,562
                  )
                  
                  (11,920
                  )Net
      loss for earnings per share calculations
                  
                  $
                  (33,523
                  )
                  $
                  (38,835
                  )Net
      loss per share (Note 22):Basic
                  
                  $
                  (0.62
                  )
                  $
                  (0.75
                  )Diluted
                  
                  $
                  (0.62
                  )
                  $
                  (0.75
                  )Weighted
      average shares outstanding (Note 22):Basic
                  
                  
                  53,654
                  
                  
                  51,864Diluted
                  
                  
                  53,654
                  
                  
                  51,864Dividends
      declared per common share
                  
                  $
                  --
                  
                  $
                  0.15
 
  See
accompanying notes to condensed consolidated financial
statements.
 - 4
-
 CENTERLINE
HOLDING COMPANY
 CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 (in
thousands)
 (Unaudited)
  4.4%
                                                          Convertible
                                                          CRA
      preferred
                                                        
                                                        
                                                        Convertible
                                                          CRA
      Shares
                                                        
                                                        
                                                        Special
                                                          Preferred
                                                          Voting
      Shares
                                                        
                                                        
                                                        Common
      Shares
                                                        
                                                        
                                                        Treasury
      Shares
                                                        
                                                        
                                                        Accumulated
                                                          Other
                                                          Comprehensive
                                                          Income/(loss)
                                                        
                                                        
                                                        Non-Controlling
      Interests
                                                        
                                                        
                                                        Total
                                                        
                                                        
                                                        Comprehensive
                                                          Income/(loss)SharesJanuary
      1, 2009
                                                        
                                                        $
                                                        --
                                                        
                                                        
                                                        $
                                                        3,144
                                                        
                                                        
                                                        $
                                                        131
                                                        
                                                        
                                                        
                                                        52,970
                                                        
                                                        
                                                        $
                                                        338,619
                                                        
                                                        
                                                        $
                                                        (65,283
                                                        )
                                                        
                                                        $
                                                        (1,144,122
                                                        )
                                                        
                                                        $
                                                        4,055,547
                                                        
                                                        
                                                        $
                                                        3,188,036
                                                        
                                                        
                                                        $
                                                        --Net
      loss
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (26,948
                                                        )
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (301,524
                                                        )
                                                        
                                                        
                                                        (328,472
                                                        )
                                                        
                                                        
                                                        (328,472
                                                        )Allocation
      of earnings
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (192
                                                        )
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        192
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --Unrealized
      losses (gains)
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (11,764
                                                        )
                                                        
                                                        
                                                        125,533
                                                        
                                                        
                                                        
                                                        113,769
                                                        
                                                        
                                                        
                                                        113,769Share-based
      compensation
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        574
                                                        
                                                        
                                                        
                                                        2,240
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        2,240
                                                        
                                                        
                                                        
                                                        --Fair
      value accretion
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (1,562
                                                        )
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (1,562
                                                        )
                                                        
                                                        
                                                        --Contributions
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        254,787
                                                        
                                                        
                                                        
                                                        254,787
                                                        
                                                        
                                                        
                                                        --Treasury
      shares
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (176
                                                        )
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (29
                                                        )
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (29
                                                        )
                                                        
                                                        
                                                        --Distributions
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        --
                                                        
                                                        
                                                        
                                                        (1,733
                                                        )
                                                        
                                                        
                                                        (1,733
                                                        )
                                                        
                                                        
                                                        --March
      31, 2009
                                                        
                                                        $
                                                        --
                                                        
                                                        
                                                        $
                                                        2,952
                                                        
                                                        
                                                        $
                                                        131
                                                        
                                                        
                                                        
                                                        53,368
                                                        
                                                        
                                                        $
                                                        312,541
                                                        
                                                        
                                                        $
                                                        (65,312
                                                        )
                                                        
                                                        $
                                                        (1,155,886
                                                        )
                                                        
                                                        $
                                                        4,132,610
                                                        
                                                        
                                                        $
                                                        3,227,036
                                                        
                                                        
                                                        $
                                                        (214,703
                                                        )
 
 
 4.4%
                                                            Convertible
                                                            CRA
      preferred
                                                          
                                                          
                                                          Convertible
                                                            CRA
      Shares
                                                          
                                                          
                                                          Special
                                                            Preferred
                                                            Voting
      Shares
                                                          
                                                          
                                                          Common
      Shares
                                                          
                                                          
                                                          Treasury
      Shares
                                                          
                                                          
                                                          Accumulated
                                                            Other
                                                            Comprehensive
                                                            Income/(loss)
                                                          
                                                          
                                                          Non-Controlling
      Interests
                                                          
                                                          
                                                          Total
                                                          
                                                          
                                                          Comprehensive
                                                            Income/(loss)SharesJanuary
      1, 2008
                                                          
                                                          $
                                                          51,281
                                                          
                                                          
                                                          $
                                                          66,879
                                                          
                                                          
                                                          $
                                                          143
                                                          
                                                          
                                                          
                                                          50,567
                                                          
                                                          
                                                          $
                                                          592,505
                                                          
                                                          
                                                          $
                                                          (64,312
                                                          )
                                                          
                                                          $
                                                          (105,904
                                                          )
                                                          
                                                          $
                                                          4,065,428
                                                          
                                                          
                                                          $
                                                          4,606,020
                                                          
                                                          
                                                          $
                                                          --Net
      loss
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (21,639
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (109,538
                                                          )
                                                          
                                                          
                                                          (131,177
                                                          )
                                                          
                                                          
                                                          (131,177
                                                          )Allocation
      of earnings
                                                          
                                                          
                                                          22
                                                          
                                                          
                                                          
                                                          (361
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (4,508
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (4,847
                                                          )
                                                          
                                                          
                                                          --Unrealized
      losses
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (163,599
                                                          )
                                                          
                                                          
                                                          (331,854
                                                          )
                                                          
                                                          
                                                          (495,453
                                                          )
                                                          
                                                          
                                                          (495,453
                                                          )Share-based
      compensation
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          408
                                                          
                                                          
                                                          
                                                          5,006
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          5,006
                                                          
                                                          
                                                          
                                                          --Conversions
      or redemptions
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (2
                                                          )
                                                          
                                                          
                                                          166
                                                          
                                                          
                                                          
                                                          1,245
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (1,245
                                                          )
                                                          
                                                          
                                                          (2
                                                          )
                                                          
                                                          
                                                          --Reclassification
      to redeemable securities
                                                          
                                                          
                                                          (49,346
                                                          )
                                                          
                                                          
                                                          (58,036
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (10,448
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (117,830
                                                          )
                                                          
                                                          
                                                          --Fair
      value accretion
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (1,472
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (1,472
                                                          )
                                                          
                                                          
                                                          --Contributions
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          425,424
                                                          
                                                          
                                                          
                                                          425,424
                                                          
                                                          
                                                          
                                                          --Treasury
      shares
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (127
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (175
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (175
                                                          )
                                                          
                                                          
                                                          --Distributions
                                                          
                                                          
                                                          (22
                                                          )
                                                          
                                                          
                                                          (161
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (14,624
                                                          )
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          (19,757
                                                          )
                                                          
                                                          
                                                          (34,564
                                                          )
                                                          
                                                          
                                                          --March
      31, 2008
                                                          
                                                          $
                                                          1,935
                                                          
                                                          
                                                          $
                                                          8,321
                                                          
                                                          
                                                          $
                                                          141
                                                          
                                                          
                                                          
                                                          51,014
                                                          
                                                          
                                                          $
                                                          546,065
                                                          
                                                          
                                                          $
                                                          (64,487
                                                          )
                                                          
                                                          $
                                                          (269,503
                                                          )
                                                          
                                                          $
                                                          4,028,458
                                                          
                                                          
                                                          $
                                                          4,250,930
                                                          
                                                          
                                                          $
                                                          (626,630
                                                          )
 
 
 
 
  See
accompanying notes to condensed consolidated financial
statements.
 - 5
-
  CENTERLINE
HOLDING COMPANY
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
 (Unaudited)
 
 
 
 
 Three
      Months Ended
                            March
      31,2009
                          
                          2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                          
                          $
                          (328,472
                          )
                          $
                          (131,177
                          )Reconciling
      items:Net
      non-cash losses of consolidated partnerships
                          
                          
                          302,319
                          
                          
                          101,030(Gain)
      loss from repayment or sale of investments
                          
                          
                          (2,746
                          )
                          
                          5,170Impairment
      of investments and other assets
                          
                          
                          15,155
                          
                          
                          8,023Depreciation
      and amortization
                          
                          
                          11,939
                          
                          
                          11,901Equity
      in losses of unconsolidated entities, net
                          
                          
                          6,926
                          
                          
                          1,895Share-based
      compensation expense
                          
                          
                          2,235
                          
                          
                          5,006Non-cash
      interest expense, net
                          
                          
                          773
                          
                          
                          1,413Other
      non-cash expense, net
                          
                          
                          (622
                          )
                          
                          3,702Deferred
      taxes
                          
                          
                          --
                          
                          
                          (356
                          )Reserves
      for bad debts, net of reversals
                          
                          
                          1,860
                          
                          
                          1,250Changes
      in fair value of interest rate derivatives
                          
                          
                          (4,860
                          )
                          
                          9,149Changes
      in operating assets and liabilities:Mortgage
      loans held for sale
                          
                          
                          (32,878
                          )
                          
                          (111,897
                          )Deferred
      revenues
                          
                          
                          (5,831
                          )
                          
                          (8,706
                          )Receivables
                          
                          
                          1,014
                          
                          
                          (7,260
                          )Other
      assets
                          
                          
                          (385
                          )
                          
                          6,065Accounts
      payable, accrued expenses and other liabilities
                          
                          
                          6,251
                          
                          
                          (27,183
                          )Net
      cash flow from operating activities
                          
                          
                          (27,322)
                          
                          
                          (131,975
                          )CASH
      FLOWS FROM INVESTING ACTIVITIES:Sale
      and repayment of available-for-sale securities
                          
                          
                          1,633
                          
                          
                          6,844Purchases
      of available-for-sale securities
                          
                          
                          --
                          
                          
                          (3,664
                          )Acquisition
      of mortgage loans held for investment
                          
                          
                          --
                          
                          
                          (649
                          )Sale
      and repayments of mortgage loans held for investment
                          
                          
                          1,687
                          
                          
                          4,954Advances
      to partnerships
                          
                          
                          (2,788
                          )
                          
                          (12,973
                          )Collection
      of advances to partnerships
                          
                          
                          18,425
                          
                          
                          27,251Sale
      and repayment of other investments
                          
                          
                          1,088
                          
                          
                          3,117Deferred
      investment acquisition costs
                          
                          
                          --
                          
                          
                          (746
                          )Decrease
      (increase) in restricted cash, escrows and other cash
      collateral
                          
                          
                          12,018
                          
                          
                          (45,136
                          )Return
      of capital from equity investees
                          
                          
                          --
                          
                          
                          127Acquisition
      of furniture, fixtures and leasehold improvements
                          
                          
                          (325
                          )
                          
                          --Loan
      to AMAC
                          
                          
                          --
                          
                          
                          (1,146
                          )Equity
      investments and other investing activities
                          
                          
                          2,480
                          
                          
                          (65,706
                          )Net
      cash flow from investing activities
                          
                          
                          34,218
                          
                          
                          (87,727
                          )
 
 
  See
accompanying notes to condensed consolidated financial
statements.
 - 6
-
  
 CENTERLINE
HOLDING COMPANY
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in
thousands)
 (Unaudited)
 
 
 
 
 Three
      Months Ended
                        March
      31,2009
                      
                      2008CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayments
      of financing arrangements
                      
                      
                      (151
                      )
                      
                      --Distributions
      to equity holders
                      
                      
                      (1,898
                      )
                      
                      (36,277
                      )Repayment
      of term loan
                      
                      
                      (24,813
                      )
                      
                      (15,000
                      )Proceeds
      from term loan
                      
                      
                      --
                      
                      
                      10,000Increase
      in mortgage loan warehouse line and ASAP Plus facility
                      
                      
                      33,037
                      
                      
                      112,367Decrease
      in other notes payable
                      
                      
                      (11,058
                      )
                      
                      (11,002
                      )Non-controlling
      interests contribution
                      
                      
                      --
                      
                      
                      1,800Proceeds
      from 11.0% Preferred shares
                      
                      
                      --
                      
                      
                      131,235Deferred
      financing and equity offering costs
                      
                      
                      (217
                      )
                      
                      (970
                      )Net
      cash flow from financing activities
                      
                      
                      (5,100
                      )
                      
                      192,153Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      1,796
                      
                      
                      (27,549
                      )Cash
      and cash equivalents at the beginning of the period
                      
                      
                      103,879
                      
                      
                      137,111Cash
      and cash equivalents at the end of the period
                      
                      $
                      105,675
                      
                      $
                      109,562Non-cash
      investing and financing activities:Recognized
      sale of re-securitized mortgage revenue bonds:Reduction
      in secured financing liability
                      
                      $
                      --
                      
                      $
                      14,415Reduction
      in mortgage revenue bonds
                      
                      $
                      --
                      
                      $
                      15,172Increase
      in Series B Freddie Mac Certificates
                      
                      $
                      --
                      
                      $
                      1,345Increase
      in mortgage servicing rights
                      
                      $
                      1,430
                      
                      $
                      2,161Re-recognition
      of previously re-securitized mortgage revenue bonds:Increase
      in secured financing liability
                      
                      $
                      49,723
                      
                      $
                      23,255Increase
      in mortgage revenue bonds
                      
                      $
                      (61,353
                      )
                      $
                      (28,582
                      )Decrease
      in Series B Freddie Mac Certificates
                      
                      $
                      --
                      
                      $
                      2,503Decrease
      in Series A-1 Freddie Mac Certificates
                      
                      $
                      11,630
                      
                      $
                      2,794Share
      grants issued
                      
                      $
                      --
                      
                      $
                      5,077Conversion
      of non-controlling interests to common shares
                      
                      $
                      --
                      
                      $
                      2,977Treasury
      stock purchase via employee withholding
                      
                      $
                      29
                      
                      $
                      636
 
  See
accompanying notes to condensed consolidated financial
statements.
 - 7
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE
1 – Description of Business and Basis of Presentation
  A.  Description
of Business
  Centerline
Holding Company, together with its subsidiaries, provides real estate financial
and asset management services, including institutional debt and equity fund
management, mortgage banking, and primary and special loan servicing. We have
more than $14.3 billion of assets under management. We conduct substantially all
of our business through our subsidiaries, generally under the designation
Centerline Capital Group.  For ease of readership the term “we” (as
well as “us”, “our” or “the Company”) as used throughout this document may mean
a subsidiary or the business as a whole, while the term “parent trust” refers
only to Centerline Holding Company as a stand-alone entity.
  We manage
our operations through six reportable segments including two segments not
involved in direct operations.  Our four operating segments
include:
  Affordable Housing, which
provides debt and equity financing and investment products for the affordable
multifamily rental industry and manages the related assets;
  Commercial Real Estate, which
provides a broad spectrum of financing and investment products for multifamily,
office, retail, industrial, mixed-use and other properties;
  Portfolio Management, which
comprises the monitoring, management and servicing of the Commercial Real Estate
assets for our own account, for funds we manage and for third parties;
and
  Credit Risk Products, which
provides credit intermediation, through our subsidiaries, to affordable housing
debt and equity products.
  Our
Corporate group, comprised of Executive, Finance, Legal, Corporate
Communications, and Operations departments, supports these four business
groups.
  Consolidated
Partnerships comprises certain funds we control, notwithstanding the fact that
we may only have a minority or no economic interest in such entities. For
segment purposes, the Consolidated Partnerships segment includes the investment
fund partnerships we originate and manage through the Affordable Housing and
Commercial Real Estate Groups and certain property partnerships, all of which we
are required to consolidate in accordance with various accounting
pronouncements.  The Consolidated Partnerships invest in low income
housing tax credit (“LIHTC”) properties or other structures aimed at promoting
the development of multifamily properties (collectively “Tax Credit”),
high-yield commercial mortgage backed securities (“CMBS”), collateralized debt
obligation (“CDO”) equity and high-yield debt.
  B.  Basis
of Presentation
  The
accompanying unaudited condensed consolidated financial statements have been
prepared on a basis consistent with generally accepted accounting principles in
the United States (“GAAP”) for interim financial information and pursuant to the
rules of the Securities and Exchange Commission (“SEC”).  In the
opinion of management, the condensed consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial statements of interim periods.  Given
that some of our businesses have a higher volume of transactions in the second
and fourth quarterly periods, the operating results for interim periods may not
be indicative of the results for the full year.
  These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in our
Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”), which
contains a summary of our significant accounting policies.  Certain
footnote detail is also omitted from the condensed consolidated financial
statements unless there is a material change from the information included in
the 2008 Form 10-K.
  With the
exception of the adoption of Financial Accounting Standards Board (“FASB”) Staff
Position (“FSP”) EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities
(“FSP EITF 03-6-1”) and FASB Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51(“SFAS
160”), there have been no material changes to these policies since December 31,
2008.  New accounting pronouncements pending adoption that could
impact future presentation or results are described below.  See Note
22 regarding the adoption of FSP EITF 03-6-1 and Note 17 regarding the adoption
of SFAS 160. Both pronouncements were effective for us on January 1, 2009 and
all prior-period data presented have been adjusted retrospectively.
   - 8
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Certain
amounts from the prior year have been reclassified to conform to the 2009
presentation, principally due to the adoption of SFAS 160.  In
addition, the reserve for our estimated exposure for mortgage loan loss sharing,
which was previously reflected as a reduction to the balance of mortgage
servicing rights (“MSRs”), has been reclassified to accounts payable, accrued
expenses and other liabilities.
  C.  Accounting
Pronouncements to be Adopted
  In April
2009, the FASB issued three FSPs.  All three FSPs are effective for us
in the second quarter of 2009 and must be adopted and applied at the same
time:
  (1)
                FSP
      FAS 157-4, Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly, provides guidance on the application of fair value
      accounting and establishes criteria to determine when a market has varied
      from normal conditions to the extent that observable transactions may not
      be determinative of fair value.  In such cases, more reliance
      must be placed on management’s judgment as to what would represent fair
      value in an orderly transaction.
  (2)
                FSP
      FAS 115-2 and FAS 124-2, Recognition and Presentation
      of Other-Than-Temporary Impairments, addresses other-than-temporary
      impairment (“OTTI”) of debt securities.  FSP FAS 115-2 and FAS
      124-2 modifies the determination of OTTI to isolate the amount
      attributable to credit factors as opposed to market liquidity
      factors.  Only the portion of OTTI associated with credit losses
      would be recognized as a charge in the statement of
      operations.  The remainder of OTTI would be recorded in other
      comprehensive income.
  (3)
                FSP
      FAS 107-1 and APB 28-1, Interim Disclosures About Fair
      Value of Financial Instruments, expands the disclosures called for
      by FASB Statement No. 107, Disclosures About Fair Value
      of Financial Instruments, as a quarterly
    requirement.
 We are
currently evaluating the impact of the FSPs on our consolidated financial
statements.
   NOTE
2 – Market Conditions and Liquidity
  Recent
economic events have limited our liquidity in three key areas:
  ·
              a
      significant decline in transaction related revenues, primarily due to
      fewer investors for our Affordable Housing and Commercial Real Estate
      funds, as many of our earnings streams involve establishing and managing
      such funds while many of our costs are
fixed;
  ·
              a
      sharp decline in our common share price and the general environment for
      equity offerings have made obtaining equity capital extremely difficult;
      and
  ·
              a
      decline in available debt financing and an increase in
    cost.
  Further
to the last point, turbulence in the credit markets that began in 2007 has led
to decreased availability of many forms of financing.  Specifically,
since mid-2007 we have experienced more constrained credit in the following
areas:
  ·
              for
      asset-backed financing (such as we use to fund Fannie Mae and Freddie Mac
      mortgage originations in our Commercial Real Estate and Affordable Housing
      groups), the capacity of our financing facilities has decreased while the
      cost of borrowing has increased.  In addition, we anticipate a
      further increase in the cost of funds and lower capacity upon renewal of
      the facility in the second quarter of
2009;
  ·
              for
      our Term Loan and Revolving Credit Facility, the terms include a higher
      rate of interest and more stringent covenants (including restrictions on
      funding new business opportunities and incurring any additional debt
      without lender approval) than had been the norm in prior periods. In
      addition, with the exception of dividends related to our Equity Issuer
      Trust I (“Equity Issuer”) subsidiary and distributions from our REIT
      subsidiary, our Term Loan and Revolving Credit Facility prohibit us from
      paying common and preferred dividends;
and
    - 9
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 ·
              under
      the terms of our Term Loan and Revolving Credit Facility, we are required
      to utilize any excess cash available (as defined in the
      agreement)  to pay down the debt each quarter end, which creates
      capacity on the revolver that may be drawn upon for working capital
      purposes.  We were also required to generate specified levels of
      cash from sale or collection of certain non-core assets, although we
      satisfied this requirement prior to March 31, 2009.  In
      addition, we were required to reduce the balance of the Term Loan to $39.0
      million by July 15, 2009; as of April 30, 2009, we had already reduced it
      beyond that level.
  Our
ability to execute our business operations is dependent upon making required
amortization payments on or refinancing our debt and improving liquidity.
Management continues to actively pursue strategies to maintain and improve our
liquidity, particularly during periods of market disruption.  Steps
and strategies we are pursuing include:
  ·
              increasing
      revenues by leveraging our operational expertise in the areas of mortgage
      originations, asset management and special
  servicing;
  ·
              exploring
      financing alternatives for investments that are not pledged as security
      for asset-based borrowings (which is subject to lender
      approval);
  ·
              instituting
      measures to reduce general and administrative
  expenses;
  ·
              continuing
      to sell investments that do not meet our long-term investment criteria,
      and
  ·
              exploring
      alternatives that would allow the release of cash in escrow associated
      with various historical
transactions.
  Our
access to capital markets can be affected by factors outside our control, as
discussed above.  In addition, with respect to both short and
long-term business needs, access to capital markets is impacted by market
conditions, and the short- and long-term debt ratings assigned by independent
rating agencies.  As previously disclosed, we do not expect to
continue obtaining ratings for Centerline Holding Company for the foreseeable
future.
  NOTE
3 – Fair Value Disclosures
  A.  General
  We have
categorized our assets and liabilities recorded at fair value based upon the
fair value hierarchy specified by SFAS No. 157, Fair Value Measurements(“SFAS 157”). The levels of fair value hierarchy are as
follows:
  ·
              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, 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.
  In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy.  In such cases, we categorize such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety.  Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
  Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category.  As a
result, the unrealized gains and losses for assets within the Level 3 category
presented in the tables below may include changes in fair value that were
attributable to both observable (e.g., changes in market interest rates) and
unobservable (e.g., changes in historical company data) inputs.
    - 10
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 B.  Assets
and Liabilities of Operating Groups
  The
following tables present the information about our financial assets and
liabilities measured at fair value on a recurring or non-recurring basis as of
March 31, 2009, and indicate the fair value hierarchy of the valuation
techniques we utilize to determine fair value:
  (in
      thousands)
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              Balance
                as
      of
                March
      31, 2009Measured
      on a recurring basis:AssetsAvailable-for-sale
      investments:Freddie
      Mac Certificates:Series
      A-1
              
              $
              --
              
              $
              --
              
              $
              317,564
              
              $
              317,564Series
      B
              
              
              --
              
              
              --
              
              
              109,365
              
              
              109,365Mortgage
      revenue bonds
              
              
              --
              
              
              --
              
              
              131,076
              
              
              131,076Retained
      CMBS Certificates
              
              
              --
              
              
              --
              
              
              6,600
              
              
              6,600CMBS
              
              
              --
              
              
              --
              
              
              2,394
              
              
              2,394Syndicated
      corporate debt
              
              
              --
              
              
              1,937
              
              
              --
              
              
              1,937Total
      available-for-sale investments
              
              $
              --
              
              $
              1,937
              
              $
              566,999
              
              $
              568,936Derivatives
              
              $
              --
              
              $
              764
              
              $
              --
              
              $
              764LiabilitiesDerivatives
              
              $
              --
              
              $
              34,145
              
              $
              --
              
              $
              34,145Measured
      on a non-recurring basis:AssetsMortgage
      loans held-for-sale
              
              $
              --
              
              $
              79,790
              
              $
              --
              
              $
              79,790Mortgage
      loans held for investment - impaired
              
              
              --
              
              
              400
              
              
              --
              
              
              400Goodwill
              
              
              --
              
              
              --
              
              
              248,978
              
              
              248,978Mortgage
      servicing rights
              
              
              --
              
              
              --
              
              
              63,506
              
              
              63,506Other
      intangible assets
              
              
              --
              
              
              --
              
              
              33,606
              
              
              33,606
 
    - 11
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The
following table presents additional information about assets measured at fair
value on a recurring basis and for which we utilized Level 3 inputs to determine
fair value:
  Three
      Months Ended March 31, 2009(in
      thousands)
              
              Series
      A-1 Freddie Mac Certificates
              
              Series
      B Freddie Mac
                Certificates
              
              Mortgage
      revenue bonds
              
              Retained
      CMBS certificates
              
              CMBS
              
              TotalBalance
      at January 1, 2009
              
              $
              335,047
              
              $
              123,122
              
              $
              69,217
              
              $
              7,313
              
              $
              2,550
              
              $
              537,249Total
      realized and unrealized gains or (losses):Included
      in earnings
              
              
              --
              
              
              (8,549
              )(1)
              
              571
              (2)
              
              --
              
              
              (6,592
              )
              
              (14,570
              )Included
      in other comprehensive loss
              
              
              (5,853
              )
              
              (4,320
              )
              
              33
              
              
              (630
              )
              
              6,460
              
              
              (4,310
              )Amortization
      or accretion
              
              
              --
              
              
              (1,669
              )
              
              117
              
              
              (83
              )
              
              (24
              )
              
              (1,659
              )Purchases,
      issuances, settlements and other adjustments
              
              
              (11,630
              )
              
              781
              
              
              61,138
              
              
              --
              
              
              --
              
              
              50,680Net
      transfers in and/or out of Level 3
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --Balance
      at March 31, 2009
              
              $
              317,564
              
              $
              109,365
              
              $
              131,076
              
              $
              6,600
              
              $
              2,394
              
              $
              566,999Amount
      of total gains (losses) for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets still held
      at March 31, 2009
              
              $
              --
              
              $
              (8,549
              )(1)
              $
              180
              
              $
              --
              
              $
              (6,592
              )
              $
              (14,961
              )
 
 (1)
              Recorded
      in “Loss on impairment of assets” in the Condensed Consolidated Statement
      of Operations.
  (2)
              Recorded
      in “Gain (loss) from repayment or sale of investments, net” in the
      Condensed Consolidated Statement of
Operations.
   Three
      Months Ended March 31, 2008(dollars
      in thousands)
                
                Series
      B Freddie Mac Certificates
                
                Mortgage
      revenue bonds
                
                Retained
      CMBS certificates
                
                CMBS
                
                TotalBalance
      at January 1, 2008
                
                $
                153,468
                
                $
                376,432
                
                $
                75,328
                
                $
                13,361
                
                $
                618,589Total
      realized and unrealized gains or (losses):Included
      in earnings(1)
                
                
                --
                
                
                (6,832
                )
                
                --
                
                
                --
                
                
                (6,832
                )Included
      in other comprehensive income
                
                
                (960
                )
                
                (884
                )
                
                204
                
                
                (5,775
                )
                
                (7,415
                )Amortization
      or accretion
                
                
                (1,420
                )
                
                38
                
                
                (1,860
                )
                
                163
                
                
                (3,079
                )Purchases,
      issuances, settlements and other adjustments
                
                
                (327
                )
                
                (15,840
                )
                
                --
                
                
                3,664
                
                
                (12,503
                )Net
      transfers in and/or out of Level 3
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Balance
      at March 31, 2008
                
                $
                150,761
                
                $
                352,914
                
                $
                73,672
                
                $
                11,413
                
                $
                588,760Amount
      of total gains (losses) for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets still held
      at March 31, 2008
                
                $
                --
                
                $
                (6,832
                )(1)
                $
                --
                
                $
                --
                
                $
                (6,832
                )
 
 (1)
              Recorded
      in “Loss on impairment of assets” in the Condensed Consolidated Statement
      of Operations.
   - 12
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
   C.  Assets
and Liabilities of Consolidated Partnerships
  The
following tables present the information about assets and liabilities of
consolidated partnerships measured at fair value on a recurring or non-recurring
basis as of March 31, 2009:
  (in
      thousands)
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              Balance
                as
      of
                March
      31, 2009Measured
      on a recurring basis:AssetsAvailable-for-sale
      investments:CMBS
              
              $
              --
              
              $
              --
              
              $
              157,975
              
              $
              157,975Retained
      CMBS certificates
              
              
              --
              
              
              --
              
              
              10,034
              
              
              10,034CDO
      debt and equity
              
              
              --
              
              
              --
              
              
              13,493
              
              
              13,493Total
      available-for-sale investments
              
              $
              --
              
              $
              --
              
              $
              181,502
              
              $
              181,502Measured
      on a non-recurring basis:AssetsMortgage
      loans held for investment – impaired
              
              $
              --
              
              $
              10,981
              
              $
              --
              
              $
              10,981
 
  The
following table presents additional information about assets measured at fair
value on a recurring basis and for which the consolidated partnerships utilized
Level 3 inputs to determine fair value:
  Three
      Months Ended March 31, 2009(in
      thousands)
              
              CMBS
              
              Retained
      CMBS certificates
              
              CDO
      debt and equity
              
              TotalBalance
      at January 1, 2009
              
              $
              182,828
              
              $
              9,867
              
              $
              33,189
              
              $
              225,884Total
      realized and unrealized gains (losses):Included
      in earnings(1)
              
              
              (98,567
              )
              
              (13
              )
              
              (74,774
              )
              
              (173,354
              )Included
      in other comprehensive loss
              
              
              72,854
              
              
              (47
              )
              
              52,783
              
              
              125,590Amortization
      or accretion
              
              
              860
              
              
              227
              
              
              2,295
              
              
              3,382Purchases,
      issuances, settlements and other adjustments
              
              
              --
              
              
              --
              
              
              --
              
              
              --Net
      transfers in and/or out of Level 3
              
              
              --
              
              
              --
              
              
              --
              
              
              --Balance
      at March 31, 2009
              
              $
              157,975
              
              $
              10,034
              
              $
              13,493
              
              $
              181,502Amount
      of total gains (losses) included in earnings attributable to the change in
      unrealized gains or losses relating to assets still held at March 31,
      2009(1)
              
              $
              (98,567
              )
              $
              (13
              )
              $
              (74,774
              )
              $
              (173,354
              )
 
 (1)
              Included
      in “Loss on impairment of assets of consolidated partnerships” in the
      Condensed Consolidated Statement of Operations (see Note
    21).
    - 13
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Three
      Months Ended March 31, 2008(dollars
      in thousands)
              
              CMBS
              
              Retained
      CMBS certificates
              
              CDO
      debt and equity
              
              TotalBalance
      at January 1, 2008
              
              $
              1,235,059
              
              $
              482,424
              
              $
              65,060
              
              $
              1,782,543Total
      realized and unrealized gains (losses):Included
      in earnings(1)
              
              
              --
              
              
              (688
              )
              
              --
              
              
              (688
              )Included
      in other comprehensive income
              
              
              (406,520
              )
              
              (3,037
              )
              
              (56,490
              )
              
              (466,047
              )Amortization
      or accretion
              
              
              1,049
              
              
              762
              
              
              415
              
              
              2,226Purchases,
      issuances, settlements and other adjustments
              
              
              47,540
              
              
              --
              
              
              129,521
              
              
              177,061Net
      transfers in and/or out of Level 3
              
              
              --
              
              
              --
              
              
              --
              
              
              --Balance
      at March 31, 2008
              
              $
              877,128
              
              $
              479,461
              
              $
              138,506
              
              $
              1,495,095Amount
      of total gains (losses) for the period included in earnings attributable
      to the change in unrealized gains or losses relating to assets still held
      at March 31, 2008 (1)
              
              $
              --
              
              $
              (688
              )
              $
              --
              
              $
              (688
              )
 
 (1)
              Included
      in “Loss on impairment of assets of Consolidated Partnerships” in the
      Condensed Consolidated Statement of
Operations.
  NOTE
4 – Variable Interest Entities and Qualifying Special Purpose
Entities
  Variable Interest
Entities
  As
required by FIN 46(R), Consolidation of Variable Interest
Entities – an interpretation of ARB No. 51(“FIN 46R”), we consolidate
numerous fund partnerships that we sponsor, manage and service. The funds invest
equity capital raised from the investor partners and finance their investments
and operations using debt and operating cash flows.  Our involvement
with the funds includes:
  ·
              providing
      asset management and fund management
services;
  ·
              acting
      as general partner;
  ·
              managing
      and servicing their assets;
  ·
              warehousing
      investments on our balance sheet and selling them to the fund;
      and
  ·
              in
      certain cases, co-investing in the
funds.
  The
funds’ assets and liabilities are detailed and described in Notes 11 and 15,
respectively.
  Beyond
any co-investment in a fund, we are not obligated to provide financial support
to the entities.  Regardless, we may elect to provide financial
support to protect our investments and the investments of our
clients.  During the three months ended March 31, 2009, we provided
financial support to certain of the entities included in our designation of
Consolidated Partnerships through loans to Tax Credit Fund Partnerships (see
Note 26).
  Qualifying Special Purpose
Entities
  Through
our Commercial Real Estate group and the funds it manages, we invest in CMBS and
are named special servicer of the trusts that issue the CMBS.  For
most of those trusts, we are a non-transferor servicer, having acquired the CMBS
positions through investment rather than retaining interests from
securitizations of assets we owned.
    - 14
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The CMBS
trusts invest in mortgage loans, financed by the CMBS they
issue.  Total assets of those trusts where we are the non-transferor
servicer aggregated $112.3 billion as of March 31, 2009.  The carrying
value of our investment in those trusts and those held by the funds we manage
were as follows:
  (in
      thousands)
                      
                      March
      31,
                        2009Held
      for our own account
                      
                      $
                      2,394Held
      by CMBS and High-Yield Debt Fund Partnerships
                      
                      
                      157,975Total
      at fair value
                      
                      $
                      160,369
 
  As
special servicer, we are not contractually obligated to provide any financial
support to the CMBS trusts and we have provided no financial support to the
trusts to date.  Our maximum exposure to loss with respect to the CMBS
trusts is limited to the cost of our co-investment in the fund that holds the
CMBS entitling us to be special servicer.  With respect to the
investments held by the CMBS and High-Yield Debt Fund Partnerships, our exposure
to such loss would be reduced by the percentage of the fund held by other
investors (typically 95%).
    - 15
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE
5 – Assets Pledged as Collateral
  In
connection with our Term Loan and Revolving Credit Facility (Note 12), the stock
of all of our subsidiaries is pledged as collateral as are all of our other
assets subject to the liens detailed below.  The following table
details assets we have specifically pledged as collateral for various debt
facilities or contingent liabilities (that provide first liens ahead of the Term
Loan and Revolving Credit Facility):
  Collateral
              
              Balance
      Sheet Classification
              
              Carrying
                Amount
      of
                Collateral
      at
                March
      31,
                2009
                (in
      thousands)
              
              Associated
      Debt Facility/LiabilityCash
              
              Restricted
      cash
              
              $
              10,401
              
              Mortgage
      loan loss sharing agreements (Note 26)Series
      A-1 Freddie Mac certificates
              
              Investments
      – available-for-sale – Freddie Mac certificates (Note 6)
              
              $
              317,564
              
              Preferred
      shares of subsidiaryMortgage
      revenue bonds
              
              Investments
      – available-for-sale – Mortgage revenue bonds (Note 6)
              
              $
              50,106
              
              Financing
      arrangements and secured financing (Note 13)CMBS
      and retained CMBS certificates
              
              Investments
      – available-for-sale – CMBS and retained CMBS certificates (Note
      6)
              
              $
              8,994
              
              CMBS
      term loan (Note 12)Stabilization
      escrow
              
              Other
      investments – stabilization escrow(Note
      8)
              
              $
              62,073
              
              December
      2007 re-securitizationMortgage
      loans
              
              Other
      investments – mortgage loans held for sale (Note 8)
              
              $
              79,790
              
              Mortgage
      Banking warehouse line/Multifamily ASAP plus facility (Note
      12)Mortgage
      servicing rights
              
              Goodwill
      and intangible assets – mortgage servicing rights (Note 9)
              
              $
              752
              
              Debt
      facilities of third party for which Centerline provides loan
      servicingCash
      deposits
              
              Deferred
      costs and other assets (Note 10)
              
              $
              67,200
              
              Yield
      guarantees (Note 26)Cash
      deposits
              
              Deferred
      costs and other assets (Note 10)
              
              $
              8,667
              
              Financing
      arrangements and secured financing (Note 13)CMBS
      and retained CMBS certificates held by Consolidated
      Partnerships
              
              Consolidated
      partnerships – investments – available-for-sale (Note 11)
              
              $
              379,102
              
              Consolidated
      partnerships – financing arrangements (Note 15)(1)CMBS
      held by Consolidated Partnerships
              
              Consolidated
      partnerships – investments – available-for-sale (Note 11)
              
              $
              7,000
              
              Consolidated
      partnerships – repurchase agreements (Note 15)(2)Mortgage
      loans held by Consolidated Partnerships
              
              Consolidated
      partnerships – investments – other (Note 11)
              
              $
              62,856
              
              Consolidated
      partnerships – repurchase agreements (Note 15)(2)Land,
      building and improvements held by Consolidated
Partnerships
              
              Consolidated
      partnerships – land, buildings and improvements, net (Note
    11)
              
              $
              691,661
              
              Consolidated
      partnerships – notes payable(Note
      15)(2)
 
 (1)
              Included
      in a collateralized debt obligation and assets are restricted solely to
      satisfy those obligations.  Debt is non-recourse to the
      Consolidated Partnership and the
Company.
 (2)
              Assets
      are restricted solely to satisfy the debt obligations. Debt is
      non-recourse to the Company.
    - 16
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE
6 – Available-for-Sale Investments
  The table
below provides the components of available-for-sale investments as of the dates
presented:
  (in
      thousands)
                      
                      March
      31,
                        2009
                      
                      December
      31, 2008Freddie
      Mac Certificates:Series
      A-1
                      
                      $
                      317,564
                      
                      $
                      335,047Series
      B
                      
                      
                      109,365
                      
                      
                      123,122Mortgage
      revenue bonds
                      
                      
                      131,076
                      
                      
                      69,217Retained
      CMBS certificates
                      
                      
                      6,600
                      
                      
                      7,313CMBS
                      
                      
                      2,394
                      
                      
                      2,550Syndicated
      corporate debt
                      
                      
                      1,937
                      
                      
                      1,964Total
                      
                      $
                      568,936
                      
                      $
                      539,213
 
  A.  Freddie
Mac Certificates
  We
retained Series A-1 and Series B Freddie Mac Certificates in connection with the
December 2007 re-securitization of the mortgage revenue bond portfolio with
Federal Home Loan Mortgage Corporation (“Freddie Mac”).  The Series
A-1 Freddie Mac Certificates are fixed rate securities, whereas the Series B
Freddie Mac Certificates are residual interests of the re-securitization
trust.
  Series
A-1
  Information
with respect to the Series A-1 Freddie Mac Certificates is as
follows:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31, 2008Fair
      value
                
                $
                393,028
                
                $
                400,026Less:
      eliminations(1)
                
                
                (75,464
                )
                
                (64,979
                )Consolidated
      fair value
                
                $
                317,564
                
                $
                335,047(1)A portion of the Series A-1 Certificates relate to re-securitized
      mortgage revenue bonds that were not reflected as
      sold.  Accordingly, that portion is eliminated in
      consolidation.
 
  During
each of the three months ended March 31, 2009 and 2008, we received $6.3 million
in interest from the Series A-1 Freddie Mac Certificates.
   - 17
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Series B
  Information
with respect to the Series B Freddie Mac Certificates is as
follows:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31, 2008Face
      amount
                
                $
                140,028
                
                $
                140,028Interest
      receivable
                
                
                2,404
                
                
                1,481Gross
      unrealized (losses) gains
                
                
                (6,082
                )
                
                5,215Subtotal/fair
      value
                
                
                136,350
                
                
                146,724Less:
      eliminations(1)
                
                
                (26,985
                )
                
                (23,602
                )Consolidated
      fair value
                
                $
                109,365
                
                $
                123,122(1)A portion of the Series B Certificates relates to re-securitized
      mortgage revenue bonds that were not reflected as
      sold.  Accordingly, that portion is eliminated in
      consolidation.
 
  Key fair
value assumptions used in measuring the Series B Freddie Mac Certificates are
provided in the table below:
  March
      31,
                  2009
                
                December
      31, 2008Weighted
      average discount rate
                
                16.5
                %
                16.5
                %Constant
      prepayment rate
                
                90.0
                %
                90.0
                %Weighted
      average life
                
                10.7
                years
                10.9
                yearsConstant
      default rate
                
                2.0
                %
                2.0
                %
 
  The fair
value and the sensitivity on the fair value to immediate adverse changes in
those assumptions are as follows:
  (in
      thousands)
                
                March
      31,
                  2009Fair
      value of Freddie Mac B Certificates
                
                $
                109,365Constant
      prepayment rate:Fair
      value after impact of 5% increase
                
                
                109,048Fair
      value after impact of 10% increase
                
                
                108,017Discount
      rate:Fair
      value after impact of 1% increase
                
                
                104,869Fair
      value after impact of 2% increase
                
                
                100,694Constant
      default rate:Fair
      value after impact of 1% increase
                
                
                96,020Fair
      value after impact of 2% increase
                
                
                83,506
 
  These
sensitivities are hypothetical changes in fair value and cannot be extrapolated
because the relationship of the changes in assumption to the changes in fair
value may not be linear.  Also, the effect of a variation in a
particular assumption is calculated without changing any other assumption,
whereas change in one factor may result in changes to
another.  Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
  During
the three months ended March 31, 2009 and 2008, we received $6.5 million and
$7.3 million, respectively, in interest from the Series B Freddie Mac
Certificates.
    - 18
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Delinquent
collateral loans underlying the certificates had an unpaid principal balance of
$87.3 million at March 31, 2009 and projected remaining losses are estimated at
5.13% of the underlying securitization.  At March 31, 2009, there were
no actual losses in the underlying securitization.
  The
Series B Freddie Mac Certificates have all been in an unrealized loss position
for less than twelve months.  Due to our expectation of increased
severity of credit losses in the mortgage revenue bonds underlying the Series B
Freddie Mac certificates, we reduced the projected cash flows we will receive
over the life of the investment. Accordingly, we recognized the resulting $8.5
million decrease in value as an impairment (see Note 20).
  B.  Mortgage
Revenue Bonds
  The
following table summarizes our mortgage revenue bond portfolio:
  (in
      thousands)
                      
                      March
      31,
                        2009
                      
                      December
      31, 2008Securitized:Included
      in December 2007 re-securitization transaction and accounted for as
      financed
                      
                      $
                      492,910
                      
                      $
                      432,092Included
      in other securitizations
                      
                      
                      50,106
                      
                      
                      49,642Subtotal
                      
                      
                      543,016
                      
                      
                      481,734Not
      securitized
                      
                      
                      8,167
                      
                      
                      9,525Eliminations(1)
                      
                      
                      (420,107
                      )
                      
                      (422,042
                      )Total
      at fair value
                      
                      $
                      131,076
                      
                      $
                      69,217(1)Certain bonds are recorded as liabilities on the balance sheets of
      consolidated partnerships and therefore eliminated in
      consolidation.
 
  The
amortized cost basis of our portfolio of mortgage revenue bonds and the related
unrealized gains and losses were as follows:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31, 2008Amortized
      cost basis
                
                $
                562,469
                
                $
                502,579Gross
      unrealized gains
                
                
                2,562
                
                
                3,260Gross
      unrealized losses
                
                
                (13,848
                )
                
                (14,580
                )Subtotal/fair
      value
                
                
                551,183
                
                
                491,259Less:
      eliminations(1)
                
                
                (420,107
                )
                
                (422,042
                )Consolidated
      fair value
                
                $
                131,076
                
                $
                69,217(1)Certain bonds are recorded as liabilities on the balance sheets of
      consolidated partnerships and therefore eliminated in
      consolidation.
 
  For
mortgage revenue bonds in an unrealized loss position, the fair value and gross
unrealized losses, aggregated by length of time that individual bonds have been
in a continuous unrealized loss position, is summarized in the table
below:
   - 19
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (dollars
      in thousands)
                        
                        Less
      than
                          12
      Months
                        
                        12
      Months
                          or
      More
                        
                        TotalMarch 31, 2009Number
                        
                        
                        17
                        
                        
                        12
                        
                        
                        29Fair
      value
                        
                        $
                        57,931
                        
                        $
                        158,570
                        
                        $
                        216,501Gross
      unrealized losses
                        
                        $
                        11,585
                        
                        $
                        2,263
                        
                        $
                        13,848December 31, 2008Number
                        
                        
                        17
                        
                        
                        12
                        
                        
                        29Fair
      value
                        
                        $
                        50,596
                        
                        $
                        158,733
                        
                        $
                        209,329Gross
      unrealized losses
                        
                        $
                        12,315
                        
                        $
                        2,265
                        
                        $
                        14,580
 
  Unrealized
losses greater than 12 months on mortgage revenue bonds are primarily a result
of unamortized yield adjustments related to the bonds and unrealized losses less
than 12 months are due to liquidity discount as a result of market conditions,
and we believe are not necessarily reflective of the operating performance of
the assets.
  During
the first quarter of 2009, nine mortgage revenue bonds in the 2007
re-securitization defaulted.  As our role as servicer of the bonds
allows us to repurchase the bonds upon default (although we do not intend to) we
re-recognized the bonds as assets at their aggregate fair value of $61.4 million
and recognized a corresponding Freddie Mac secured financing liability (see Note
13).
  Sixteen
bonds (associated with seven properties) with an aggregate fair value of $50.1
million are associated with $62.3 million of securitized debt at March 31, 2009
(see Note 13).
  Under our
Term Loan and Revolving Credit Facility (see Note 12), eight bonds (associated
with seven properties) with an aggregate fair value of $8.2 million as of March
31, 2009, remain pledged as collateral.
  C.  Retained
CMBS Certificates
  Retained
CMBS certificates are not direct investments in CMBS, but rather investments in
the debt of trusts that hold CMBS investments.  Retained CMBS
certificates we hold for our own account are comprised of the following
classes:
  (dollars
      in thousands)
                  
                  Face
                    Amount
                  
                  Purchase
                    Cost
                  
                  Accreted
                    Cost(1)
                  
                  Unrealized
                    Gain
                  
                  Unrealized
                    Loss(1)
                  
                  Fair
      Value
                  
                  Percentage
                    of
      Fair
                    ValueMarch 31, 2009
                    Security
      rating:BBB-
      interest only
                  
                  $
                  --
                  
                  $
                  24,612
                  
                  $
                  2,272
                  
                  $
                  56
                  
                  $
                  --
                  
                  $
                  2,328
                  
                  35.3
                  %CC
                  
                  
                  110,269
                  
                  
                  39,902
                  
                  
                  40,642
                  
                  
                  3
                  
                  
                  (36,846
                  )
                  
                  3,799
                  
                  57.6C
                  
                  
                  9,402
                  
                  
                  564
                  
                  
                  --
                  
                  
                  94
                  
                  
                  --
                  
                  
                  94
                  
                  1.4D
                  
                  
                  9,226
                  
                  
                  1,126
                  
                  
                  --
                  
                  
                  92
                  
                  
                  --
                  
                  
                  92
                  
                  1.4Non-rated
                  
                  
                  28,661
                  
                  
                  8,639
                  
                  
                  1,371
                  
                  
                  --
                  
                  
                  (1,084
                  )
                  
                  287
                  
                  4.3Non-rated
      interest only
                  
                  
                  --
                  
                  
                  581
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  --Total
                  
                  $
                  157,558
                  
                  $
                  75,424
                  
                  $
                  44,285
                  
                  $
                  245
                  
                  $
                  (37,930
                  )
                  $
                  6,600
                  
                  100.0
                  %December 31, 2008
                    Security
      rating:AAA
      interest only
                  
                  $
                  --
                  
                  $
                  24,612
                  
                  $
                  2,328
                  
                  $
                  --
                  
                  $
                  --
                  
                  $
                  2,328
                  
                  31.8
                  %CCC-
                  
                  
                  119,671
                  
                  
                  40,466
                  
                  
                  40,565
                  
                  
                  --
                  
                  
                  (36,024
                  )
                  
                  4,541
                  
                  62.1D
                  
                  
                  15,240
                  
                  
                  1,126
                  
                  
                  --
                  
                  
                  152
                  
                  
                  --
                  
                  
                  152
                  
                  2.1Non-rated
                  
                  
                  29,147
                  
                  
                  8,639
                  
                  
                  1,477
                  
                  
                  --
                  
                  
                  (1,185
                  )
                  
                  292
                  
                  4.0Non-rated
      interest only
                  
                  
                  --
                  
                  
                  581
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --
                  
                  --Total
                  
                  $
                  164,058
                  
                  $
                  75,424
                  
                  $
                  44,370
                  
                  $
                  152
                  
                  $
                  (37,209
                  )
                  $
                  7,313
                  
                  100.0
                  %
    - 20
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1)
              The
      unrealized losses presented above do not include cumulative impairment
      write-downs of $10.7 million at March 31, 2009 and December 31, 2008 due
      to credit losses related to the underlying assets.  Accreted
      cost is shown net of this amount.
  At March
31, 2009, the BBB- interest only certificate had a notional amount of $465.7
million and the non-rated interest only certificates had a combined notional
amount of $191.9 million.  At December 31, 2008, the AAA interest only
certificate had a notional amount of $465.7 million, and the non-rated interest
only certificates had a combined notional amount of $192.4 million.
  For
retained CMBS certificates in an unrealized loss position, the fair value and
gross unrealized losses, aggregated by length of time that individual
investments have been in a continuous unrealized loss position, is summarized in
the table below:
  (dollars
      in thousands)
                      
                      Less
      than
                        12
      Months
                      
                      12
      Months
                        or
      More
                      
                      TotalMarch 31, 2009Number
                      
                      
                      6
                      
                      
                      7
                      
                      
                      13Fair
      value
                      
                      $
                      3,105
                      
                      $
                      887
                      
                      $
                      3,992Gross
      unrealized losses
                      
                      $
                      25,895
                      
                      $
                      12,035
                      
                      $
                      37,930December 31, 2008Number
                      
                      
                      10
                      
                      
                      9
                      
                      
                      19Fair
      value
                      
                      $
                      4,093
                      
                      $
                      3,220
                      
                      $
                      7,313Gross
      unrealized losses
                      
                      $
                      25,218
                      
                      $
                      11,991
                      
                      $
                      37,209
 
  The
unrealized losses are due to liquidity discount as a result of market conditions
and we believe do not reflect the credit quality of the underlying
assets.  We have the ability and intent to hold these investments
until recovery; as such, we have concluded that the decreases in fair value are
temporary.
  The
retained CMBS certificates are pledged as collateral under a term loan agreement
(see Note 12).
  Fair
value of the retained CMBS certificates was previously determined by market
yields applied to paid as agreed cash flows.  Currently, the retained
CMBS certificates are generally treated as Credit Interest Only Strips marked on
a dollar price basis and the value depends on the number of months of estimated
cash flows.
 At March
31, 2009, the remaining key assumptions used in measuring fair value and the
sensitivity of the current fair value of the retained CMBS certificates to
potential adverse changes are as follows:
  Expected
                Credit
      Loss
              
              Discount
      Rate
                Applied
      to Cash Flows(dollars
      in thousands)
              
              Weighted
                Average
                Life
      (yrs)
              
              Discount
      Rate
                applied
      to
                Cash
      Flows
              
              1.0%
                CDR(1)
              
              2.0%
                CDR(1)
              
              1.0%
                Adverse
                Change
              
              2.0%
                Adverse
                ChangeSecurity
      rating:BBB-
      interest only
              
              0.50
              
              252.60
              %
              $
              2,328
              
              $
              2,328
              
              $
              2,322
              
              $
              2,315CC
              
              3.44
              
              186.88
              
              
              3,791
              
              
              3,786
              
              
              3,777
              
              
              3,755C
              
              13.65
              
              187.81
              
              
              40
              
              
              8
              
              
              93
              
              
              92D
              
              --
              
              54.29
              
              
              --
              
              
              --
              
              
              87
              
              
              82Non-rated
              
              --
              
              430.08
              
              
              284
              
              
              281
              
              
              286
              
              
              286Non-rated
      interest only
              
              6.88
              
              24.22
              
              
              24
              
              
              24
              
              
              56
              
              
              55
 
 (1)
              Constant
      Default Rate
    - 21
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 These
sensitivities are hypothetical changes in fair value and cannot be extrapolated
because the relationship of the changes in assumption to the changes in fair
value may not be linear.  Also, the effect of a variation in a
particular assumption is calculated without changing any other assumption,
whereas change in one factor may result in changes to
another.  Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
  The
interest rates on the principal classes range from zero to 21.79% and from zero
to 0.73% on the interest only class.  During the three months ended
March 31, 2009 and 2008, we received interest of $3.0 million and $3.6 million,
respectively, from the retained CMBS certificates.
  Delinquencies
on the collateral loans underlying the retained CMBS certificates totaled 1.9%
at March 31, 2009.  At March 31, 2009, actual losses to date were 5.8%
of the underlying CMBS bonds, and projected remaining losses are estimated at
14.8% of the underlying CMBS bonds.
  D.  CMBS
  CMBS
investments we hold for our own account were comprised of the
following:
  (dollars
      in thousands)
                  
                  Face
                    Amount
                  
                  Purchase
                    Cost
                  
                  Accreted
                    Cost(1)
                  
                  Unrealized
                    Gain
                  
                  Unrealized
                    Loss(1)
                  
                  Fair
      Value
                  
                  Percentage
                    of
      Fair
                    ValueMarch 31, 2009
                    Security
      rating:BB+
                  
                  $
                  3,898
                  
                  $
                  2,244
                  
                  $
                  2,360
                  
                  $
                  --
                  
                  $
                  (2,126
                  )
                  $
                  234
                  
                  9.8
                  %BB
                  
                  
                  3,898
                  
                  
                  2,097
                  
                  
                  2,217
                  
                  
                  --
                  
                  
                  (1,983
                  )
                  
                  234
                  
                  9.8BB-
                  
                  
                  3,898
                  
                  
                  1,959
                  
                  
                  2,082
                  
                  
                  --
                  
                  
                  (1,848
                  )
                  
                  234
                  
                  9.8B+
                  
                  
                  10,395
                  
                  
                  4,308
                  
                  
                  520
                  
                  
                  --
                  
                  
                  --
                  
                  
                  520
                  
                  21.7B
                  
                  
                  2,599
                  
                  
                  542
                  
                  
                  130
                  
                  
                  --
                  
                  
                  --
                  
                  
                  130
                  
                  5.4B-
                  
                  
                  6,698
                  
                  
                  1,375
                  
                  
                  691
                  
                  
                  --
                  
                  
                  (423
                  )
                  
                  268
                  
                  11.2Non-rated
                  
                  
                  25,819
                  
                  
                  5,269
                  
                  
                  3,139
                  
                  
                  --
                  
                  
                  (2,365
                  )
                  
                  774
                  
                  32.3Total
                  
                  $
                  57,205
                  
                  $
                  17,794
                  
                  $
                  11,139
                  
                  $
                  --
                  
                  $
                  (8,745
                  )
                  $
                  2,394
                  
                  100.0
                  %December 31, 2008
                    Security
      rating:BB+
                  
                  $
                  3,898
                  
                  $
                  2,244
                  
                  $
                  2,336
                  
                  $
                  --
                  
                  $
                  (2,063
                  )
                  $
                  273
                  
                  10.7
                  %BB
                  
                  
                  3,898
                  
                  
                  2,097
                  
                  
                  2,191
                  
                  
                  --
                  
                  
                  (1,918
                  )
                  
                  273
                  
                  10.7BB-
                  
                  
                  3,898
                  
                  
                  1,959
                  
                  
                  2,056
                  
                  
                  --
                  
                  
                  (1,783
                  )
                  
                  273
                  
                  10.7B+
                  
                  
                  10,395
                  
                  
                  4,308
                  
                  
                  4,365
                  
                  
                  --
                  
                  
                  (3,846
                  )
                  
                  519
                  
                  20.4B
                  
                  
                  2,599
                  
                  
                  542
                  
                  
                  520
                  
                  
                  --
                  
                  
                  (390
                  )
                  
                  130
                  
                  5.1B-
                  
                  
                  6,698
                  
                  
                  1,375
                  
                  
                  1,321
                  
                  
                  --
                  
                  
                  (1,014
                  )
                  
                  307
                  
                  12.0Non-rated
                  
                  
                  25,819
                  
                  
                  5,269
                  
                  
                  4,968
                  
                  
                  --
                  
                  
                  (4,193
                  )
                  
                  775
                  
                  30.4Total
                  
                  $
                  57,205
                  
                  $
                  17,794
                  
                  $
                  17,757
                  
                  $
                  --
                  
                  $
                  (15,207
                  )
                  $
                  2,550
                  
                  100.0
                  %(1)The
      unrealized losses presented above do not include cumulative impairment
      write-downs of $6.6 million at March 31, 2009 due to credit losses related
      to the underlying assets (see Note 20).  Accreted cost is shown
      net of this amount.
   
 - 22
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For CMBS
investments in an unrealized loss position, the fair value and gross unrealized
losses, aggregated by length of time that individual investments have been in a
continuous unrealized loss position, is summarized in the table
below:
  (dollars
      in thousands)
                  
                  Less
      than
                    12
      Months
                  
                  12
      Months
                    or
      More
                  
                  TotalMarch 31, 2009Number
                  
                  
                  --
                  
                  
                  5
                  
                  
                  5Fair
      value
                  
                  $
                  --
                  
                  $
                  1,276
                  
                  $
                  1,276Gross
      unrealized losses
                  
                  $
                  --
                  
                  $
                  8,745
                  
                  $
                  8,745
 
  The
unrealized losses on CMBS are due to liquidity discount as a result of market
conditions, and we believe do not reflect the credit quality of the underlying
assets.  We have the ability and intent to hold these investments
until recovery; as such, we have concluded that the decreases in fair value are
temporary.  As of December 31, 2008, all of the CMBS investments with
unrealized losses had been in an unrealized loss position for less than 12
months.
  During
the first quarter of 2009, we recognized a $6.6 million other-than-temporary
impairment related to CMBS investments we hold in this group for our own account
(see Note 20).
  The CMBS
investments are pledged as collateral under a term loan agreement (see Note
12).
  NOTE
7 – Equity Method Investments
  The table
below provides the components of equity method investments as of the dates
presented:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Equity
      interests in tax credit partnerships
                
                $
                9,050
                
                $
                31,367
 
  We
acquire interests in entities that own tax credit properties.  We hold
these investments on a short-term basis for inclusion in future Affordable
Housing group investment fund offerings.  We expect to recapture our
costs in such investments from the proceeds when the investment fund has
closed.
  During
the three months ended March 31, 2009, we recorded charges of $6.9 million to
write down the value of our equity interest in two tax credit partnerships as we
expect to sell or dispose of these two equity interests in the second quarter of
2009 for less than our basis.  We recognized the other-than-temporary
declines in value as equity losses.  The balance of the decline during
the period relates to equity interests sold to Tax Credit Fund
Partnerships.
  The
balances shown above do not include our investments in American Mortgage
Acceptance Company (“AMAC”) and Centerline Urban Capital I, LLC (“CUC”), which
we also account for under the equity method, as the entities are related
parties.  We also co-invest in CMBS and High-Yield Fund Partnerships
(part of our Consolidated Partnerships group) which we account for on the equity
basis, but those investments are eliminated in consolidation.  For
discussion regarding these investments, see Note 24.
    - 23
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE
8 – Other Investments
  The table
below provides the components of other investments as of the dates
presented:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Mortgage
      loans held for sale(1)
                
                $
                79,790
                
                $
                46,912Mortgage
      loans held for investment(2)
                
                
                9,098
                
                
                10,792Stabilization
      escrow
                
                
                62,073
                
                
                72,397Miscellaneous
      investments
                
                
                2,850
                
                
                4,126Total
                
                $
                153,811
                
                $
                134,227(1)Net of deferred origination fees
                  (2)Net of valuation allowance of $1.2 million in 2009 and $1.7 million
      in 2008.
 
  A.  Mortgage
Loans Held for Sale
  Mortgage
loans held for sale include originated loans pre-sold to government sponsored
entities, such as Federal National Mortgage Association (“Fannie Mae”), Freddie
Mac and Government National Mortgage Association (“GNMA”) under contractual sale
obligations that normally settle within 30 days of
origination.  Mortgage loans held for sale can differ widely from
period to period depending on the timing and size of originated mortgages as
compared to reporting dates.
  B.  Stabilization
Escrow
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Cash
      balance
                
                $
                72,537
                
                $
                84,503Present
      value discount net of eliminations and accumulated
      amortization
                
                
                (10,464
                )
                
                (12,106
                )Total
                
                $
                62,073
                
                $
                72,397
 
  During
the three months ended March 31, 2009, we received $12.1 million in cash as a
result of escrow releases (due to construction completion and/or stabilization
of the underlying properties) and interest income on the balance.
  NOTE
9 – Goodwill and Intangible Assets, Net
  The table
below provides the components of goodwill and intangible assets, net as of the
dates presented:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Goodwill
                
                $
                248,978
                
                $
                248,978Other
      intangible assets, net
                
                
                33,606
                
                
                37,189Mortgage
      servicing rights, net
                
                
                63,506
                
                
                65,599Total
                
                $
                346,090
                
                $
                351,766
    
 - 24
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 A.
Other Intangible Assets, Net
  The
components of other intangible assets, net as of the dates presented are
provided below:
  (dollars
      in thousands)
                        
                        Estimated
      Useful
                          Life
                          (in
      Years)
                        
                        Gross
      Carrying Amount
                        
                        Accumulated
      Amortization
                        
                        NetMarch
      31,
                          2009
                        
                        December
      31,
                          2008
                        
                        March
      31,
                          2009
                        
                        December
      31,
                          2008
                        
                        March
      31,
                          2009
                        
                        December
      31,
                          2008Amortized
      intangible assets:Transactional
      relationships
                        
                        5.3
                        
                        $
                        103,000
                        
                        $
                        103,000
                        
                        $
                        98,466
                        
                        $
                        97,028
                        
                        $
                        4,534
                        
                        $
                        5,972Partnership
      service contracts
                        
                        5.6
                        
                        
                        26,521
                        
                        
                        44,421
                        
                        
                        15,430
                        
                        
                        31,744
                        
                        
                        11,091
                        
                        
                        12,677General
      partner interests
                        
                        7.0
                        
                        
                        13,521
                        
                        
                        13,521
                        
                        
                        4,536
                        
                        
                        4,030
                        
                        
                        8,985
                        
                        
                        9,491Joint
      venture developer relationships
                        
                        --
                        
                        
                        --
                        
                        
                        4,800
                        
                        
                        --
                        
                        
                        4,800
                        
                        
                        --
                        
                        
                        --Mortgage
      banking broker relationships
                        
                        5.0
                        
                        
                        1,080
                        
                        
                        1,080
                        
                        
                        882
                        
                        
                        829
                        
                        
                        198
                        
                        
                        251Weighted
      average life/subtotal
                        
                        5.4
                        
                        
                        144,122
                        
                        
                        166,822
                        
                        
                        119,314
                        
                        
                        138,431
                        
                        
                        24,808
                        
                        
                        28,391Unamortized
      intangible assets:Mortgage
      banking licenses and approvals with no expiration
                        
                        
                        
                        
                        8,798
                        
                        
                        8,798
                        
                        
                        --
                        
                        
                        --
                        
                        
                        8,798
                        
                        
                        8,798Total
                        
                        
                        
                        $
                        152,920
                        
                        $
                        175,620
                        
                        $
                        119,314
                        
                        $
                        138,431
                        
                        $
                        33,606
                        
                        $
                        37,189
 
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Amortization
      expense
                
                $
                3,583
                
                $
                3,540
 
  B.
Mortgage Servicing Rights
  The
components of the change in MSRs were as follows:
  (in
      thousands)Balance
      at January 1, 2009
                  
                  $
                  65,599MSRs
      capitalized
                  
                  
                  1,442Amortization
                  
                  
                  (3,535
                  )Balance
      at March 31, 2009
                  
                  $
                  63,506
 
  While the
balances above reflect our policy to record MSRs initially at fair value and
amortize those amounts, presented below is information regarding the fair value
of the MSRs.  The significant assumptions used in estimating the fair
values were as follows:
  March
      31, 2009Weighted
      average discount rate
                
                
                18.12
                %Weighted
      average pre-pay speed
                
                
                9.50
                %Weighted
      average lockout period
                
                
                4.5
      yearsWeighted
      average default rate
                
                
                0.93
                %Cost
      to service loans
                
                $
                2,191Acquisition
      cost (per loan)
                
                $
                1,478
   
 - 25
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The table
below illustrates hypothetical fair values of MSRs, caused by assumed immediate
changes to key assumptions which are used to determine fair value.
  (in
      thousands)
                
                March
      31, 2009Fair
      value of MSRs
                
                $
                77,634Prepayment
      speed:Fair
      value after impact of 10% adverse change
                
                
                77,007Fair
      value after impact of 20% adverse change
                
                
                76,417Discount
      rate:Fair
      value after impact of 10% adverse change
                
                
                73,358Fair
      value after impact of 20% adverse change
                
                
                69,643Default
      rate:Fair
      value after impact of 10% adverse change
                
                
                77,530Fair
      value after impact of 20% adverse change
                
                
                77,428
 
  These
sensitivities are hypothetical changes in fair value and cannot be extrapolated
because the relationship of the changes in assumption to the changes in fair
value may not be linear.  Also, the effect of a variation in a
particular assumption is calculated without changing any other assumption,
whereas change in one factor may result in changes to
another.  Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
  Servicing
fees we earned as well as those received with respect to the December 2007
re-securitization transaction (all of which are included in “Fee Income” in our
Condensed Consolidated Statements of Operations) were as follows for the periods
presented:
  (in
      thousands)
                
                Total
                  Servicing
                  Fees
                
                ServicingFees
      from
                  SecuritizedAssets
                  (included
      inTotalServicingFees)Three
      months ended March 31:2009
                
                $
                5,449
                
                $
                2102008
                
                $
                5,813
                
                $
                175
   
 - 26
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE
10 – Deferred Costs and Other Assets, Net
  The table
below provides the components of deferred costs and other assets, net as of the
dates presented:
  (in
      thousands)
                    
                    March
      31,
                      2009
                    
                    December
      31,
                      2008Deferred
      financing and other costs
                    
                    $
                    33,980
                    
                    $
                    34,673Less:  Accumulated
      amortization
                    
                    
                    (16,261
                    )
                    
                    (11,879
                    )Net
      deferred costs
                    
                    
                    17,719
                    
                    
                    22,794Cash
      collateral
                    
                    
                    75,955
                    
                    
                    75,955Interest
      receivable, net
                    
                    
                    4,772
                    
                    
                    4,885Fees
      receivable, net
                    
                    
                    4,612
                    
                    
                    4,585Furniture,
      fixtures and leasehold improvements, net
                    
                    
                    3,437
                    
                    
                    3,588Other
                    
                    
                    23,030
                    
                    
                    23,872Total
                    
                    $
                    129,525
                    
                    $
                    135,679
 
  NOTE
11 – Assets of Consolidated Partnerships
  Financial
information presented for March 31, 2009 for the Tax Credit Fund and Property
Partnerships is as of December 31, 2008, the most recent date for which
information is available.  Similarly, the financial information
presented for December 31, 2008 for those partnerships is as of September 30,
2008. Information with respect to the CMBS Fund Partnerships and High-Yield Debt
Fund Partnership is as of the dates shown.
    - 27
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The table
below provides the components of assets of consolidated partnerships as of the
dates presented:
  March
      31, 2009
                      
                      December
      31, 2008(in
      thousands)
                      
                      Tax
      Credit Fund and Property Partnerships
                      
                      CMBS
      and High-Yield Debt Fund Partnerships
                      
                      Total
                      
                      Tax
      Credit Fund and Property Partnerships
                      
                      CMBS
      and High-Yield Debt Fund Partnerships
                      
                      TotalAvailable-for-saleCMBS
                      
                      $
                      --
                      
                      $
                      157,975
                      
                      $
                      157,975
                      
                      $
                      --
                      
                      $
                      182,828
                      
                      $
                      182,828Retained
      CMBS certificates
                      
                      
                      --
                      
                      
                      10,034
                      
                      
                      10,034
                      
                      
                      --
                      
                      
                      9,867
                      
                      
                      9,867CDO
      debt andequity
                      
                      
                      --
                      
                      
                      13,493
                      
                      
                      13,493
                      
                      
                      --
                      
                      
                      33,189
                      
                      
                      33,189--
                      
                      
                      181,502
                      
                      
                      181,502
                      
                      
                      --
                      
                      
                      225,884
                      
                      
                      225,884Held to maturityRetained
      CMBS certificates
                      
                      
                      --
                      
                      
                      295,197
                      
                      
                      295,197
                      
                      
                      --
                      
                      
                      288,960
                      
                      
                      288,960Equity methodEquity
      interests in tax credit properties
                      
                      
                      4,066,323
                      
                      
                      --
                      
                      
                      4,066,323
                      
                      
                      4,234,251
                      
                      
                      --
                      
                      
                      4,234,251OtherMortgage
      loans held for investment, net
                      
                      
                      --
                      
                      
                      198,048
                      
                      
                      198,048
                      
                      
                      --
                      
                      
                      200,611
                      
                      
                      200,611Other
      investments
                      
                      
                      41,332
                      
                      
                      --
                      
                      
                      41,332
                      
                      
                      47,858
                      
                      
                      --
                      
                      
                      47,85841,332
                      
                      
                      198,048
                      
                      
                      239,380
                      
                      
                      47,858
                      
                      
                      200,611
                      
                      
                      248,469Total
      investments held by consolidated partnerships
                      
                      
                      4,107,655
                      
                      
                      674,747
                      
                      
                      4,782,402
                      
                      
                      4,282,109
                      
                      
                      715,455
                      
                      
                      4,997,564Land,
      buildings and improvements, net
                      
                      
                      691,661
                      
                      
                      --
                      
                      
                      691,661
                      
                      
                      697,422
                      
                      
                      --
                      
                      
                      697,422Other
      assets
                      
                      
                      297,006
                      
                      
                      78,018
                      
                      
                      375,024
                      
                      
                      309,962
                      
                      
                      63,970
                      
                      
                      373,932Total
      other assets of consolidated partnerships
                      
                      
                      988,667
                      
                      
                      78,018
                      
                      
                      1,066,685
                      
                      
                      1,007,384
                      
                      
                      63,970
                      
                      
                      1,071,354Total
      assets
                      
                      $
                      5,096,322
                      
                      $
                      752,765
                      
                      $
                      5,849,087
                      
                      $
                      5,289,493
                      
                      $
                      779,425
                      
                      $
                      6,068,918
    
 - 28
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 A.  CMBS,
Available-for-Sale
  The CMBS
Fund and High-Yield Debt Fund Partnerships invest in and hold CMBS
investments.  Available-for-Sale CMBS investments held by these
partnerships comprised the amounts noted below:
  (dollars
      in thousands)
                      
                      Face
                        Amount
                      
                      Purchase
                        Cost
                      
                      Accreted
                        Cost(1)
                      
                      Unrealized
                        Gain
                      
                      Unrealized
                        Loss(1)
                      
                      Fair
      Value
                      
                      Percentage
                        of
      Fair
                        ValueMarch 31, 2009Security
      Rating:BBB+
                      
                      $
                      17,000
                      
                      $
                      17,000
                      
                      $
                      17,000
                      
                      $
                      --
                      
                      $
                      (16,150
                      )
                      $
                      850
                      
                      0.5
                      %BBB
                      
                      
                      54,840
                      
                      
                      54,840
                      
                      
                      55,694
                      
                      
                      --
                      
                      
                      (50,380
                      )
                      
                      5,314
                      
                      3.4BBB-
                      
                      
                      197,075
                      
                      
                      190,679
                      
                      
                      193,654
                      
                      
                      --
                      
                      
                      (175,459
                      )
                      
                      18,195
                      
                      11.5BB+
                      
                      
                      164,633
                      
                      
                      149,843
                      
                      
                      154,106
                      
                      
                      --
                      
                      
                      (139,403
                      )
                      
                      14,703
                      
                      9.3BB
                      
                      
                      201,739
                      
                      
                      181,811
                      
                      
                      184,558
                      
                      
                      --
                      
                      
                      (167,879
                      )
                      
                      16,680
                      
                      10.6BB-
                      
                      
                      183,467
                      
                      
                      143,563
                      
                      
                      149,426
                      
                      
                      --
                      
                      
                      (134,445
                      )
                      
                      14,981
                      
                      9.5B+
                      
                      
                      158,019
                      
                      
                      129,131
                      
                      
                      129,632
                      
                      
                      --
                      
                      
                      (118,497
                      )
                      
                      11,135
                      
                      7.0B
                      
                      
                      108,311
                      
                      
                      78,808
                      
                      
                      69,243
                      
                      
                      --
                      
                      
                      (62,577
                      )
                      
                      6,666
                      
                      4.2B-
                      
                      
                      178,555
                      
                      
                      135,085
                      
                      
                      123,007
                      
                      
                      4
                      
                      
                      (105,800
                      )
                      
                      17,211
                      
                      10.9CCC+
                      
                      
                      131,879
                      
                      
                      114,143
                      
                      
                      106,657
                      
                      
                      --
                      
                      
                      (97,102
                      )
                      
                      9,555
                      
                      6.0CCC
                      
                      
                      106,814
                      
                      
                      87,626
                      
                      
                      89,558
                      
                      
                      --
                      
                      
                      (81,940
                      )
                      
                      7,618
                      
                      4.8CCC-
                      
                      
                      99,959
                      
                      
                      67,400
                      
                      
                      55,562
                      
                      
                      12
                      
                      
                      (50,009
                      )
                      
                      5,565
                      
                      3.5CC
                      
                      
                      108,208
                      
                      
                      91,012
                      
                      
                      76,530
                      
                      
                      8
                      
                      
                      (71,797
                      )
                      
                      4,741
                      
                      3.0C
                      
                      
                      23,890
                      
                      
                      16,412
                      
                      
                      873
                      
                      
                      15
                      
                      
                      --
                      
                      
                      888
                      
                      0.6D
                      
                      
                      10,239
                      
                      
                      3,811
                      
                      
                      301
                      
                      
                      6
                      
                      
                      --
                      
                      
                      307
                      
                      0.2Non-rated
                      
                      
                      641,219
                      
                      
                      323,228
                      
                      
                      179,829
                      
                      
                      107
                      
                      
                      (156,369
                      )
                      
                      23,567
                      
                      15.0Total
                      
                      $
                      2,385,847
                      
                      $
                      1,784,392
                      
                      $
                      1,585,630
                      
                      $
                      152
                      
                      $
                      (1,427,807
                      )
                      $
                      157,975
                      
                      100.0
                      %December 31, 2008Security
      Rating:BBB+
                      
                      $
                      17,000
                      
                      $
                      17,000
                      
                      $
                      17,000
                      
                      $
                      --
                      
                      $
                      (16,150
                      )
                      $
                      850
                      
                      0.4
                      %BBB
                      
                      
                      86,139
                      
                      
                      74,530
                      
                      
                      75,469
                      
                      
                      --
                      
                      
                      (67,376
                      )
                      
                      8,093
                      
                      4.4BBB-
                      
                      
                      300,620
                      
                      
                      267,367
                      
                      
                      271,091
                      
                      
                      --
                      
                      
                      (241,856
                      )
                      
                      29,235
                      
                      16.0BB+
                      
                      
                      309,286
                      
                      
                      252,025
                      
                      
                      258,069
                      
                      
                      --
                      
                      
                      (221,171
                      )
                      
                      36,898
                      
                      20.2BB
                      
                      
                      288,641
                      
                      
                      230,680
                      
                      
                      237,147
                      
                      
                      --
                      
                      
                      (214,784
                      )
                      
                      22,363
                      
                      12.2BB-
                      
                      
                      302,145
                      
                      
                      211,989
                      
                      
                      221,542
                      
                      
                      --
                      
                      
                      (199,743
                      )
                      
                      21,799
                      
                      11.9B+
                      
                      
                      286,434
                      
                      
                      184,166
                      
                      
                      186,724
                      
                      
                      --
                      
                      
                      (169,866
                      )
                      
                      16,859
                      
                      9.2B
                      
                      
                      177,623
                      
                      
                      100,012
                      
                      
                      92,832
                      
                      
                      --
                      
                      
                      (83,504
                      )
                      
                      9,328
                      
                      5.1B-
                      
                      
                      209,746
                      
                      
                      93,553
                      
                      
                      84,471
                      
                      
                      --
                      
                      
                      (75,000
                      )
                      
                      9,470
                      
                      5.2CCC+
                      
                      
                      31,705
                      
                      
                      17,790
                      
                      
                      1,122
                      
                      
                      --
                      
                      
                      --
                      
                      
                      1,122
                      
                      0.6CCC
                      
                      
                      6,826
                      
                      
                      4,197
                      
                      
                      273
                      
                      
                      --
                      
                      
                      --
                      
                      
                      273
                      
                      0.1CCC-
                      
                      
                      16,239
                      
                      
                      7,855
                      
                      
                      4,869
                      
                      
                      --
                      
                      
                      (4,382
                      )
                      
                      487
                      
                      0.3Non-rated
                      
                      
                      967,247
                      
                      
                      323,228
                      
                      
                      232,729
                      
                      
                      --
                      
                      
                      (206,678
                      )
                      
                      26,051
                      
                      14.4Total
                      
                      $
                      2,999,651
                      
                      $
                      1,784,392
                      
                      $
                      1,683,338
                      
                      $
                      --
                      
                      $
                      (1,500,510
                      )
                      $
                      182,828
                      
                      100.0
                      %
 
 (1)
              Unrealized
      losses presented above do not include cumulative impairment write-downs of
      $195.0 million at March 31, 2009 and $96.0 million at December 31,
      2008.  These impairments were primarily due to increased rates
      of anticipated default.  Accreted cost is shown net of these
      amounts.
     - 29
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For CMBS
investments in an unrealized loss position, the fair value and gross unrealized
losses, aggregated by length of time that individual investments have been in a
continuous unrealized loss position, is summarized in the table
below:
  (dollars
      in thousands)
                    
                    Less
      than 12 Months
                    
                    12
      Months or More
                    
                    TotalMarch 31, 2009Number
                    
                    
                    7
                    
                    
                    288
                    
                    
                    295Fair
      value
                    
                    $
                    2,029
                    
                    $
                    137,794
                    
                    $
                    139,823Gross
      unrealized losses
                    
                    $
                    3,801
                    
                    $
                    1,424,006
                    
                    $
                    1,427,807December 31, 2008Number
                    
                    
                    26
                    
                    
                    297
                    
                    
                    323Fair
      value
                    
                    $
                    19,165
                    
                    $
                    158,655
                    
                    $
                    177,820Gross
      unrealized losses
                    
                    $
                    71,714
                    
                    $
                    1,428,796
                    
                    $
                    1,500,510
 
  The
unrealized losses are due to liquidity discount as a result of market conditions
and we believe do not reflect the credit quality of the underlying
assets.  The CMBS Fund Partnerships have the ability and intent to
hold these investments until recovery (the Fund Partnerships generally have
fixed-rate financing in place which is not dependent upon changes in market
values of the underlying assets collateralizing such financing); as such, we
have concluded that the decreases in fair value are temporary.
  B.  Retained
CMBS Certificates, Available-for-Sale
  The CMBS
Fund Partnerships retain interests in certain securitized assets that they have
sold, as well as others purchased in market transactions.  Investments
in available-for-sale retained certificates held by these partnerships comprised
the amounts noted below:
  (dollars
      in thousands)
                                  
                                  Face
                                    Amount
                                  
                                  Purchase
                                    Cost
                                  
                                  Accreted
                                    Cost(1)
                                  
                                  Unrealized
                                    Gain
                                  
                                  Unrealized
                                    Loss(1)
                                  
                                  Fair
      Value
                                  
                                  Percentage
                                    of
      Fair
                                    ValueMarch 31, 2009Security
      Rating:CC
                                  
                                  $
                                  220,326
                                  
                                  $
                                  124,183
                                  
                                  $
                                  90,878
                                  
                                  $
                                  92
                                  
                                  $
                                  (82,926
                                  )
                                  $
                                  8,044
                                  
                                  80.1
                                  %Non-rated
                                  
                                  
                                  156,033
                                  
                                  
                                  11,674
                                  
                                  
                                  1,554
                                  
                                  
                                  7
                                  
                                  
                                  --
                                  
                                  
                                  1,561
                                  
                                  15.6Non-rated
      interest only
                                  
                                  
                                  --
                                  
                                  
                                  5,863
                                  
                                  
                                  3,771
                                  
                                  
                                  193
                                  
                                  
                                  (3,535
                                  )
                                  
                                  429
                                  
                                  4.3Total
                                  
                                  $
                                  376,359
                                  
                                  $
                                  141,720
                                  
                                  $
                                  96,203
                                  
                                  $
                                  292
                                  
                                  $
                                  (86,461
                                  )
                                  $
                                  10,034
                                  
                                  100.0
                                  %December 31, 2008Security
      rating:CCC-
                                  
                                  $
                                  220,326
                                  
                                  $
                                  124,183
                                  
                                  $
                                  90,534
                                  
                                  $
                                  --
                                  
                                  $
                                  (82,490
                                  )
                                  $
                                  8,044
                                  
                                  81.5
                                  %Non-rated
                                  
                                  
                                  158,680
                                  
                                  
                                  11,674
                                  
                                  
                                  1,587
                                  
                                  
                                  --
                                  
                                  
                                  --
                                  
                                  
                                  1,587
                                  
                                  16.1Non-rated
      interest only
                                  
                                  
                                  --
                                  
                                  
                                  5,863
                                  
                                  
                                  3,869
                                  
                                  
                                  --
                                  
                                  
                                  (3,633
                                  )
                                  
                                  236
                                  
                                  2.4Total
                                  
                                  $
                                  379,006
                                  
                                  $
                                  141,720
                                  
                                  $
                                  95,990
                                  
                                  $
                                  --
                                  
                                  $
                                  (86,123
                                  )
                                  $
                                  9,867
                                  
                                  100.0
                                  %
 (1)
              Unrealized
      losses presented above do not include cumulative impairment write-downs of
      $48.0 million at March 31, 2009 and December 31, 2008.  One of
      the CMBS Fund Partnerships (which we refer to as “CMBS Fund I”) is
      scheduled to liquidate within the next two years and may not be able to
      hold the assets until recovery.  Accreted cost is shown net of
      these amounts.
  At March
31, 2009 and December 31, 2008, the non-rated interest-only certificates had
combined notional amounts of $1.4 billion and $1.3 billion,
respectively.
    - 30
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 For
retained CMBS Certificates in an unrealized loss position, the fair value and
gross unrealized losses, aggregated by length of time that individual
investments have been in a continuous unrealized loss position, is summarized in
the table below:
  (dollars
      in thousands)
                    
                    Less
      than
                      12
      Months
                    
                    12
      Months
                      or
      More
                    
                    TotalMarch 31, 2009Number
                    
                    
                    2
                    
                    
                    3
                    
                    
                    5Fair
      value
                    
                    $
                    236
                    
                    $
                    4,778
                    
                    $
                    5,014Gross
      unrealized losses
                    
                    $
                    3,535
                    
                    $
                    82,926
                    
                    $
                    86,461December 31, 2008Number
                    
                    
                    2
                    
                    
                    3
                    
                    
                    5Fair
      value
                    
                    $
                    236
                    
                    $
                    4,778
                    
                    $
                    5,014Gross
      unrealized losses
                    
                    $
                    3,633
                    
                    $
                    82,490
                    
                    $
                    86,123
 
  The
unrealized losses are due to liquidity discount as a result of market conditions
and we believe do not reflect the credit quality of the underlying
assets.  The CMBS Fund Partnerships have the ability and intent to
hold these investments until recovery; as such, we have concluded that the
decreases in fair value are temporary.
  Fair
value of the retained CMBS certificates was previously determined by market
yields applied to paid as agreed cash flows.  Currently, the retained
CMBS certificates are generally treated as Credit Interest Only Strips marked on
a dollar price basis and the value depends on the number of months of estimated
cash flows. At March 31, 2009, the remaining key assumptions used in measuring
fair value and the sensitivity of the current fair value of the retained
certificates to potential adverse changes, were as follows:
  Expected
                Credit
      Loss
              
              Discount
      Rate
                Applied
      to Cash Flows(dollars
      in thousands)
              
              Weighted
                Average
                Life
      (yrs)
              
              Discount
      Rate
                applied
      to
                Cash
      Flows
              
              1.0%
                CDR(1)
              
              2.0%
                CDR(1)
              
              1.0%
                Adverse
                Change
              
              2.0%
                Adverse
                ChangeSecurity
      rating:CC
              
              7.38
              
              149.82
              %
              $
              7,938
              
              $
              7,891
              
              $
              7,991
              
              $
              7,939Non-rated
              
              --
              
              430.08
              
              
              1,544
              
              
              1,528
              
              
              1,558
              
              
              1,555Non-rated
      interest only
              
              4.43
              
              18.42
              
              
              236
              
              
              236
              
              
              416
              
              
              403
 
 (1)
              Constant
      Default Rate
  These
sensitivities are hypothetical changes in fair value and cannot be extrapolated
because the relationship of the changes in assumption to the changes in fair
value may not be linear.  Also, the effect of a variation in a
particular assumption is calculated without changing any other assumption,
whereas change in one factor may result in changes to
another.  Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
  The
interest rates on the principal classes range from 1.93% to 4.28% and from zero
to 0.86% on the interest only classes.  During the three months ended
March 31, 2009 and 2008, the CMBS Fund Partnerships received interest of $4.0
million and $4.7 million, respectively, from the retained CMBS
certificates.
  Delinquencies
on the collateral loans underlying the retained CMBS certificates totaled 1.0%
at March 31, 2009.  At March 31, 2009, actual losses to date were 4.0%
of the underlying CMBS bonds, and projected remaining losses are estimated at
21.8% of the underlying CMBS bonds.
   - 31
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  C.  CDO
Debt and Equity, Available-for-Sale
  The
High-Yield Debt Fund Partnership invests in trusts that hold commercial real
estate loans and issue CDOs.  CDO debt and equity investments held by
this partnership comprised the amounts noted below:
  (dollars
      in thousands)
                    
                    Face
                      Amount
                    
                    Purchase
                      Cost
                    
                    Accreted
                      Cost(1)
                    
                    Unrealized
                      Gain
                    
                    Unrealized
                      Loss(1)
                    
                    Fair
      Value
                    
                    Percentage
                      of
      Fair
                      ValueMarch 31, 2009Security
      rating:BBB
                    
                    $
                    9,750
                    
                    $
                    9,442
                    
                    $
                    9,418
                    
                    $
                    --
                    
                    $
                    (8,638
                    )
                    $
                    780
                    
                    5.8
                    %BBB-
                    
                    
                    28,550
                    
                    
                    26,986
                    
                    
                    14,317
                    
                    
                    --
                    
                    
                    (12,480
                    )
                    
                    1,837
                    
                    13.6BB+
                    
                    
                    42,300
                    
                    
                    40,041
                    
                    
                    20,743
                    
                    
                    --
                    
                    
                    (18,628
                    )
                    
                    2,115
                    
                    15.7BB
                    
                    
                    17,413
                    
                    
                    16,342
                    
                    
                    8,703
                    
                    
                    --
                    
                    
                    (7,833
                    )
                    
                    870
                    
                    6.4BB-
                    
                    
                    11,325
                    
                    
                    10,495
                    
                    
                    5,277
                    
                    
                    --
                    
                    
                    (4,710
                    )
                    
                    567
                    
                    4.2B+
                    
                    
                    18,575
                    
                    
                    17,068
                    
                    
                    2,921
                    
                    
                    --
                    
                    
                    (1,808
                    )
                    
                    1,113
                    
                    8.3B
                    
                    
                    7,124
                    
                    
                    6,286
                    
                    
                    427
                    
                    
                    --
                    
                    
                    --
                    
                    
                    427
                    
                    3.2B-
                    
                    
                    17,325
                    
                    
                    16,472
                    
                    
                    1,762
                    
                    
                    --
                    
                    
                    (722
                    )
                    
                    1,040
                    
                    7.7Non-rated
                    
                    
                    118,576
                    
                    
                    101,890
                    
                    
                    9,649
                    
                    
                    --
                    
                    
                    (4,905
                    )
                    
                    4,744
                    
                    35.1Total
                    
                    $
                    270,938
                    
                    $
                    245,022
                    
                    $
                    73,217
                    
                    $
                    --
                    
                    $
                    (59,724
                    )
                    $
                    13,493
                    
                    100.0
                    %December 31, 2008Security
      rating:BBB
                    
                    $
                    9,750
                    
                    $
                    9,442
                    
                    $
                    9,468
                    
                    $
                    --
                    
                    $
                    (8,006
                    )
                    $
                    1,462
                    
                    4.4
                    %BBB-
                    
                    
                    28,550
                    
                    
                    26,986
                    
                    
                    14,063
                    
                    
                    --
                    
                    
                    (10,228
                    )
                    
                    3,835
                    
                    11.6BB+
                    
                    
                    42,300
                    
                    
                    40,041
                    
                    
                    20,765
                    
                    
                    --
                    
                    
                    (15,689
                    )
                    
                    5,076
                    
                    15.3BB
                    
                    
                    17,413
                    
                    
                    16,342
                    
                    
                    8,938
                    
                    
                    --
                    
                    
                    (6,848
                    )
                    
                    2,090
                    
                    6.3BB-
                    
                    
                    11,325
                    
                    
                    10,495
                    
                    
                    5,708
                    
                    
                    --
                    
                    
                    (4,349
                    )
                    
                    1,359
                    
                    4.1B+
                    
                    
                    18,575
                    
                    
                    17,068
                    
                    
                    10,144
                    
                    
                    --
                    
                    
                    (8,286
                    )
                    
                    1,858
                    
                    5.6B
                    
                    
                    7,124
                    
                    
                    6,286
                    
                    
                    6,343
                    
                    
                    --
                    
                    
                    (5,631
                    )
                    
                    712
                    
                    2.1B-
                    
                    
                    17,325
                    
                    
                    16,472
                    
                    
                    5,341
                    
                    
                    --
                    
                    
                    (3,608
                    )
                    
                    1,733
                    
                    5.2Non-rated
                    
                    
                    118,576
                    
                    
                    101,890
                    
                    
                    64,927
                    
                    
                    --
                    
                    
                    (49,863
                    )
                    
                    15,064
                    
                    45.4Total
                    
                    $
                    270,938
                    
                    $
                    245,022
                    
                    $
                    145,697
                    
                    $
                    --
                    
                    $
                    (112,508
                    )
                    $
                    33,189
                    
                    100.0
                    %
 
 (1)
              Unrealized
      losses do not include cumulative impairment write-downs of $175.8 million
      at March 31, 2009 and $101.0 million at December 31, 2008, recorded in the
      High-Yield Debt Fund Partnership.  The impairments were
      primarily due to increased rates of expected default within one of the
      CDOs.  Accreted cost is shown net of this
  amount.
  For CDO
debt and equity investments in an unrealized loss position, the fair value and
gross unrealized losses, aggregated by length of time that individual
investments have been in a continuous unrealized loss position, is summarized in
the table below:
  (dollars
      in thousands)
                    
                    Less
      than
                      12
      Months
                    
                    12
      Months
                      or
      More
                    
                    TotalMarch 31, 2009Number
                    
                    
                    16
                    
                    
                    6
                    
                    
                    22Fair
      value
                    
                    $
                    6,027
                    
                    $
                    3,964
                    
                    $
                    9,991Gross
      unrealized losses
                    
                    $
                    10,937
                    
                    $
                    48,787
                    
                    $
                    59,724December 31, 2008Number
                    
                    
                    9
                    
                    
                    --
                    
                    
                    9Fair
      value
                    
                    $
                    18,223
                    
                    $
                    --
                    
                    $
                    18,223Gross
      unrealized losses
                    
                    $
                    112,508
                    
                    $
                    --
                    
                    $
                    112,508
 
    - 32
-
  CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The
unrealized losses are due to liquidity discount as a result of market conditions
and we believe are not reflective of the credit quality of the underlying
assets.  The High-Yield Debt Fund Partnership has the ability and
intent to hold these investments until recovery; as such, we have concluded that
the decreases in fair value are temporary.
  D.  Retained
CMBS Certificates, Held-to-Maturity
  Investments
in held-to-maturity retained certificates held by these partnerships comprised
the amounts noted below:
  (dollars
      in thousands)
                                              
                                              Face
                                                Amount
                                              
                                              Purchase
                                                Cost
                                              
                                              Carrying
                                                Value
                                              
                                              Unrealized
                                                Gain
                                              
                                              Unrealized
                                                Loss
                                              
                                              Fair
      Value
                                              
                                              Percentage
                                                of
      Fair
                                                ValueMarch 31, 2009Security
      rating:AA
                                              
                                              $
                                              54,800
                                              
                                              $
                                              55,639
                                              
                                              $
                                              47,186
                                              
                                              $
                                              --
                                              
                                              $
                                              (34,582
                                              )
                                              $
                                              12,604
                                              
                                              28.0
                                              %AA-
                                              
                                              
                                              57,100
                                              
                                              
                                              49,885
                                              
                                              
                                              48,003
                                              
                                              
                                              --
                                              
                                              
                                              (34,870
                                              )
                                              
                                              13,133
                                              
                                              29.2BBB+
                                              
                                              
                                              66,600
                                              
                                              
                                              63,897
                                              
                                              
                                              52,132
                                              
                                              
                                              --
                                              
                                              
                                              (45,472
                                              )
                                              
                                              6,660
                                              
                                              14.8BBB
                                              
                                              
                                              20,500
                                              
                                              
                                              21,522
                                              
                                              
                                              14,962
                                              
                                              
                                              --
                                              
                                              
                                              (13,527
                                              )
                                              
                                              1,435
                                              
                                              3.2BBB-
                                              
                                              
                                              41,900
                                              
                                              
                                              39,923
                                              
                                              
                                              29,417
                                              
                                              
                                              --
                                              
                                              
                                              (27,322
                                              )
                                              
                                              2,095
                                              
                                              4.6BB+
                                              
                                              
                                              44,600
                                              
                                              
                                              46,886
                                              
                                              
                                              29,200
                                              
                                              
                                              --
                                              
                                              
                                              (26,970
                                              )
                                              
                                              2,230
                                              
                                              4.9BB
                                              
                                              
                                              43,700
                                              
                                              
                                              42,381
                                              
                                              
                                              26,072
                                              
                                              
                                              --
                                              
                                              
                                              (23,887
                                              )
                                              
                                              2,185
                                              
                                              4.8BB-
                                              
                                              
                                              58,600
                                              
                                              
                                              63,556
                                              
                                              
                                              33,466
                                              
                                              
                                              --
                                              
                                              
                                              (30,536
                                              )
                                              
                                              2,930
                                              
                                              6.5B+
                                              
                                              
                                              36,000
                                              
                                              
                                              32,315
                                              
                                              
                                              14,759
                                              
                                              
                                              --
                                              
                                              
                                              (12,960
                                              )
                                              
                                              1,799
                                              
                                              4.0Total
                                              
                                              $
                                              423,800
                                              
                                              $
                                              416,004
                                              
                                              $
                                              295,197
                                              
                                              $
                                              --
                                              
                                              $
                                              (250,126
                                              )
                                              $
                                              45,071
                                              
                                              100.0
                                              %December 31, 2008Security
      rating:AAA
                                              
                                              $
                                              147,900
                                              
                                              $
                                              142,631
                                              
                                              $
                                              121,724
                                              
                                              $
                                              --
                                              
                                              $
                                              (90,149
                                              )
                                              $
                                              31,575
                                              
                                              66.8
                                              %AA+
                                              
                                              
                                              51,100
                                              
                                              
                                              48,312
                                              
                                              
                                              37,403
                                              
                                              
                                              --
                                              
                                              
                                              (32,908
                                              )
                                              
                                              4,495
                                              
                                              9.6AA
                                              
                                              
                                              15,400
                                              
                                              
                                              16,514
                                              
                                              
                                              10,728
                                              
                                              
                                              --
                                              
                                              
                                              (9,958
                                              )
                                              
                                              770
                                              
                                              1.6A+
                                              
                                              
                                              62,600
                                              
                                              
                                              62,723
                                              
                                              
                                              41,275
                                              
                                              
                                              --
                                              
                                              
                                              (38,145
                                              )
                                              
                                              3,130
                                              
                                              6.6A
                                              
                                              
                                              66,500
                                              
                                              
                                              73,006
                                              
                                              
                                              39,518
                                              
                                              
                                              --
                                              
                                              
                                              (36,193
                                              )
                                              
                                              3,325
                                              
                                              7.0A-
                                              
                                              
                                              30,700
                                              
                                              
                                              28,054
                                              
                                              
                                              17,505
                                              
                                              
                                              --
                                              
                                              
                                              (15,970
                                              )
                                              
                                              1,535
                                              
                                              3.2BBB+
                                              
                                              
                                              49,600
                                              
                                              
                                              44,764
                                              
                                              
                                              20,807
                                              
                                              
                                              --
                                              
                                              
                                              (18,327
                                              )
                                              
                                              2,480
                                              
                                              5.2Total
                                              
                                              $
                                              423,800
                                              
                                              $
                                              416,004
                                              
                                              $
                                              288,960
                                              
                                              $
                                              --
                                              
                                              $
                                              (241,650
                                              )
                                              $
                                              47,310
                                              
                                              100.0
                                              %
 
  For CMBS
investments in an unrealized loss position, the fair value and gross unrealized
losses, aggregated by length of time that individual investments have been in a
continuous unrealized loss position, is summarized in the table
below:
  (dollars
      in thousands)
                    
                    Less
      than
                      12
      Months
                    
                    12
      Months or More
                    
                    TotalMarch 31, 2009Number
                    
                    
                    2
                    
                    
                    12
                    
                    
                    14Fair
      value
                    
                    $
                    16,193
                    
                    $
                    28,878
                    
                    $
                    45,071Gross
      unrealized losses
                    
                    $
                    55,143
                    
                    $
                    194,983
                    
                    $
                    250,126December 31, 2008Number
                    
                    
                    5
                    
                    
                    9
                    
                    
                    14Fair
      value
                    
                    $
                    8,145
                    
                    $
                    39,165
                    
                    $
                    47,310Gross
      unrealized losses
                    
                    $
                    69,824
                    
                    $
                    171,826
                    
                    $
                    241,650
     - 33
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The
unrealized losses are due to liquidity discount as a result of market conditions
and we believe do not reflect the credit quality of the underlying
assets.  The CMBS Fund Partnerships have the ability and intent to
hold these investments until recovery; as such, we have concluded that the
decreases in fair value are temporary.
  At March
31, 2009, key assumptions used in measuring the fair value in the table above
and the sensitivity of the fair value of the retained CMBS certificates to
potential adverse changes, were as follows:
  Expected
                Credit
      Loss
              
              Discount
      Rate
                Applied
      to Cash Flows(dollars
      in thousands)
              
              Weighted
                Average
                Life
      (yrs)
              
              Discount
                Rate
                applied
      to
                Cash
      Flows
              
              1.0%
                CDR(1)
              
              2.0%
                CDR(1)
              
              1.0%
                Adverse
                Change
              
              2.0%
                Adverse
                ChangeSecurity
      rating:AA
              
              2.13
              
              108.58
              
              $
              12,436
              
              $
              12,271
              
              $
              12,483
              
              $
              12,363AA-
              
              1.94
              
              118.60
              
              
              12,925
              
              
              12,486
              
              
              13,017
              
              
              12,903BBB+
              
              2.67
              
              142.01
              
              
              6,355
              
              
              5,874
              
              
              6,587
              
              
              6,515BBB
              
              3.05
              
              162.71
              
              
              1,414
              
              
              1,342
              
              
              1,422
              
              
              1,409BBB-
              
              3.37
              
              189.96
              
              
              1,994
              
              
              1,941
              
              
              2,080
              
              
              2,065BB+
              
              3.49
              
              203.34
              
              
              2,216
              
              
              2,176
              
              
              2,216
              
              
              2,204BB
              
              4.16
              
              185.48
              
              
              2,142
              
              
              2,106
              
              
              2,172
              
              
              2,159BB-
              
              4.25
              
              223.53
              
              
              2,919
              
              
              2,905
              
              
              2,918
              
              
              2,905B+
              
              6.11
              
              191.47
              
              
              1,793
              
              
              1,790
              
              
              1,792
              
              
              1,784s(1)Constant Default Rate
 
  These
sensitivities are hypothetical changes in fair value and cannot be extrapolated
because the relationship of the changes in assumption to the changes in fair
value may not be linear.  Also, the effect of a variation in a
particular assumption is calculated without changing any other assumption,
whereas change in one factor may result in changes to
another.  Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
  The
interest rate on the principal classes ranges from 3.94% to
8.74%.  During the three months ended March 31, 2009, consolidated
partnerships received interest of $6.5 million from the retained CMBS
Certificates.
  At March
31, 2009, there were no delinquencies on the collateral loans underlying the
retained certificates, no actual losses to date in the underlying CMBS bonds and
no projected remaining losses in the underlying CMBS bonds.
  E.  Equity
Interests in Tax Credit Properties and Due to Property Partnerships
  The Tax
Credit Fund Partnerships invest in low income housing property-level
partnerships that generate tax credits.  Neither we nor the Tax Credit
Fund Partnerships control the property-level partnerships and, therefore, we do
not consolidate them in our financial statements.  “Equity interests
in tax credit properties” represents the limited partner investments in those
property level partnerships, which the Tax Credit Fund Partnerships carry on the
equity method of accounting.  The partnership agreements of the
property level partnerships stipulate the amount of capital to be funded and the
timing of payments of that capital.  “Due to property partnerships”
represents the unfunded portion of those capital commitments (see Note
15).
  See Note
21 regarding the foreclosure of two tax credit properties and the resulting
loss.
   - 34
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 F.  Mortgage Loans Held
for Investment
  The
High-Yield Debt Fund Partnership invests in various types of
loans.  Information regarding these loans is presented in the table
below:
  (dollars
      in thousands)
                      
                      Carrying
                        Value(1)
                      
                      Allocation
      by
                        Product
      Type
                      
                      Yield(2)March 31, 2009
                        Product
      Type:Bridge
      loans, variable rate
                      
                      $
                      2,333
                      
                      1.2
                      %
                      4.26
                      %Bridge
      loans, fixed rate
                      
                      
                      8,596
                      
                      4.3
                      
                      7.70Subordinated
      notes, variable rate
                      
                      
                      66,087
                      
                      33.4
                      
                      5.56Subordinated
      notes, fixed rate
                      
                      
                      14,279
                      
                      7.3
                      
                      7.74Mezzanine
      loans, variable rate
                      
                      
                      43,631
                      
                      22.0
                      
                      3.79Mezzanine
      loans, fixed rate
                      
                      
                      61,856
                      
                      31.2
                      
                      7.09First
      mortgage, variable rate
                      
                      
                      1,266
                      
                      0.6
                      
                      4.75Total/Average
                      
                      $
                      198,048
                      
                      100.0
                      %
                      5.88
                      %December 31, 2008
                        Product
      Type:Bridge
      loans, variable rate
                      
                      $
                      3,308
                      
                      1.6
                      %
                      4.43
                      %Bridge
      loans, fixed rate
                      
                      
                      8,525
                      
                      4.2
                      
                      7.71Subordinated
      notes, variable rate
                      
                      
                      65,364
                      
                      32.6
                      
                      5.59Subordinated
      notes, fixed rate
                      
                      
                      14,191
                      
                      7.1
                      
                      7.74Mezzanine
      loans, variable rate
                      
                      
                      46,116
                      
                      23.0
                      
                      3.47Mezzanine
      loans, fixed rate
                      
                      
                      61,822
                      
                      30.8
                      
                      7.10First
      mortgage, variable rate
                      
                      
                      1,285
                      
                      0.7
                      
                      5.50Total/Average
                      
                      $
                      200,611
                      
                      100.0
                      %
                      5.75
                      %(1)Net of valuation allowance.
                        (2)Represents the effective yield for loans as of the dates
      presented.
 
  The
carrying value of the portfolio reflects a valuation allowance for the
impairment of certain loans due to deterioration of the operating performance of
the underlying properties.
  (in
      thousands)
                    
                    Accreted
                      Cost
                    
                    Valuation
                      Allowance
                    
                    Carrying
                      ValueMarch 31, 2009Impaired
      loans
                    
                    $
                    112,475
                    
                    $
                    (101,494
                    )
                    $
                    10,981Loans
      not impaired
                    
                    
                    187,067
                    
                    
                    --
                    
                    
                    187,067Total
                    
                    $
                    299,542
                    
                    $
                    (101,494
                    )
                    $
                    198,048December 31, 2008Impaired
      loans
                    
                    $
                    112,381
                    
                    $
                    (98,244
                    )
                    $
                    14,137Loans
      not impaired
                    
                    
                    186,474
                    
                    
                    --
                    
                    
                    186,474Total
                    
                    $
                    298,855
                    
                    $
                    (98,244
                    )
                    $
                    200,611
    - 35
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The
components of the change in the valuation allowance were as
follows:
  (in
      thousands)Balance
      at January 1, 2009
                
                $
                98,244Additions
      charged to statement of operations(1)
                
                
                3,250Direct
      charge offs net of recoveries
                
                
                --Balance
      at December 31, 2008
                
                $
                101,494(1)Included in “loss on impairment of assets of consolidated
      partnerships” (see Note 21).
 
  NOTE
12 – Notes Payable
  The table
below provides the components of notes payable as of the dates
presented:
  (in
      thousands)
                
                Interest
      Rate at March 31, 2009
                
                March
      31,
                  2009
                
                December
      31,
                  2008Term
      loan(1)
                
                9.75
                %
                $
                47,857
                
                $
                68,884Revolving
      credit facility(1)
                
                11.25
                
                
                216,941
                
                
                228,000Mortgage
      Banking warehouse line
                
                1.52
                
                
                68,860
                
                
                32,229Multifamily
      ASAP plus facility
                
                1.07
                
                
                11,276
                
                
                14,869CMBS
      term loan
                
                20.00
                
                
                10,060
                
                
                13,846Other
                
                --
                
                
                233
                
                
                233Total
                
                
                
                $
                355,227
                
                $
                358,061(1)Interest rate at period-end includes the impact of outstanding
      interest rate swap agreement (see Note 23).
 
  As of
March 31, 2009, we believe we were in compliance with the financial covenants
required by our facilities.
  NOTE
13 – Financing Arrangements and Secured Financing
  The table
below provides the components of financing arrangements and secured financing as
of the dates presented:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Freddie
      Mac secured financing
                
                $
                398,177
                
                $
                348,989Bond
      securitizations
                
                
                62,273
                
                
                62,424Total
                
                $
                460,450
                
                $
                411,413
 
  Freddie
Mac Secured Financing
  The
Freddie Mac secured financing liability relates to mortgage revenue bonds that
we re-securitized with Freddie Mac but for which the transaction was not
recognized as a sale.  The liability relates to bonds which are within
our “effective control” and, therefore, we may remove the bond from the
securitization even if we do not intend to do so.  Such “effective
control” may result when a subsidiary controls the general partner of the
underlying property partnership or may exercise the right to assume such
control, or our role as servicer of the bonds would allow us to foreclose on a
defaulted bond.
    - 36
-
  CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  During
the first quarter of 2009, nine of these mortgage revenue bonds defaulted,
providing us such “effective control”.  Although we do not intend to
reacquire the bonds, we re-recognized them as assets (see Note 6) and recognized
a corresponding liability.
  NOTE
14 – Accounts Payable, Accrued Expenses and Other Liabilities
  The table
below provides the components of accounts payable, accrued expenses and other
liabilities as of the dates presented:
  (in
      thousands)
                      
                      March
      31,
                        2009
                      
                      December
      31,
                        2008Deferred
      revenues
                      
                      $
                      63,657
                      
                      $
                      69,516Transactions
      costs payable
                      
                      
                      30,414
                      
                      
                      30,414Accounts
      payable
                      
                      
                      16,729
                      
                      
                      16,804Interest
      rate swaps at fair value (Note 23)
                      
                      
                      34,145
                      
                      
                      40,525Salaries
      and benefits payable
                      
                      
                      12,598
                      
                      
                      11,781Distributions
      payable
                      
                      
                      2,094
                      
                      
                      2,094Accrued
      fund organization and offering expenses
                      
                      
                      6,066
                      
                      
                      6,306Accrued
      interest payable
                      
                      
                      4,542
                      
                      
                      4,712Income
      tax reserves
                      
                      
                      2,514
                      
                      
                      2,484Mortgage
      loan loss sharing reserve (Note 26)
                      
                      
                      13,116
                      
                      
                      13,116Other
                      
                      
                      26,558
                      
                      
                      20,828Total
                      
                      $
                      212,433
                      
                      $
                      218,580
 
  Transaction
Costs Payable
  In
connection with the December 2007 re-securitization transaction and the
establishment of the Term Loan and Revolving Credit Facility, we incurred
transaction costs that were not paid at the time of closing.  Under
the terms of our Term Loan and Revolving Credit Facility amended in December
2008, we are limited to making $0.5 million payments to reduce this amount on
each of June 30, 2009, December 31, 2009 and June 30, 2010.  Amounts
outstanding for transaction costs payable bear interest at 11.00% as of March
31, 2009.  Beginning in June 2009, the creditor can convert the
balance into our common shares.
  NOTE
15 – Liabilities of Consolidated Partnerships
  Financial
information presented for March 31, 2009 for the Tax Credit Fund and Property
Partnerships is as of December 31, 2008, the most recent date for which
information is available.  Similarly, the financial information
presented for December 31, 2008 for those partnerships is as of September 30,
2008. Information with respect to the CMBS Fund Partnerships and High-Yield Debt
Fund Partnership is as of the dates shown.
  The table
below provides the components of liabilities of consolidated partnerships as of
the dates presented:
  March
      31, 2009
              
              December
      31, 2008(in
      thousands)
              
              Tax
      Credit Fund and Property Partnerships
              
              CMBS
      and High-Yield Debt Fund Partnerships
              
              Total
              
              Tax
      Credit Fund and Property Partnerships
              
              CMBS
      and High-Yield Debt Fund Partnerships
              
              TotalFinancing
      arrangements
              
              $
              --
              
              $
              1,121,475
              
              $
              1,121,475
              
              $
              --
              
              $
              1,121,475
              
              $
              1,121,475Notes
      payable
              
              
              280,276
              
              
              295,000
              
              
              575,276
              
              
              377,730
              
              
              295,000
              
              
              672,730Repurchase
      agreements
              
              
              --
              
              
              26,525
              
              
              26,525
              
              
              --
              
              
              39,125
              
              
              39,125Due
      to property partnerships
              
              
              407,375
              
              
              --
              
              
              407,375
              
              
              577,160
              
              
              --
              
              
              577,160Other
      liabilities
              
              
              188,029
              
              
              14,271
              
              
              202,300
              
              
              192,508
              
              
              16,156
              
              
              208,664Total
      liabilities
              
              $
              875,680
              
              $
              1,457,271
              
              $
              2,332,951
              
              $
              1,147,398
              
              $
              1,471,756
              
              $
              2,619,154
 
  - 37
-
  CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Changes
in the balances since December 31, 2008, are due to transactions undertaken in
the ordinary course of business.
  Due
to Property Partnerships
  The
liability reflects the unfunded portion of capital commitments made by Tax
Credit Fund Partnerships to acquire equity investments in property partnerships
(see Note 11).
   NOTE
16 – Redeemable Securities
  The table
below provides the components of redeemable securities as of the dates
presented:
  (in
      thousands)
              
              March
      31, 2009
              
              December
      31, 2008Series
              
              Carrying
      Value
              
              Number
      of Shares
              
              Number
      of common shares if converted
              
              Carrying
      Value
              
              Number
      of Shares
              
              Number
      of common shares if convertedConvertible
      Redeemable CRA Shares
              
              $
              90,247
              
              5,682
              
              5,617
              
              $
              89,273
              
              5,682
              
              5,617Redeemable
      CRA Shares
              
              
              4,709
              
              271
              
              --
              
              
              4,668
              
              271
              
              --Convertible
      Redeemable CRA Preferred Shares
              
              
              50,517
              
              1,060
              
              1,916
              
              
              50,291
              
              1,060
              
              1,916Redeemable
      CRA Preferred Shares
              
              
              53,094
              
              1,100
              
              --
              
              
              52,774
              
              1,100
              
              --11.0%
      Cumulative Convertible Preferred Shares
              
              
              129,373
              
              11,214
              
              12,205
              
              
              129,373
              
              11,214
              
              12,205Total
              
              $
              327,940
              
              19,327
              
              19,738
              
              $
              326,379
              
              19,327
              
              19,738
   A.  Redeemable
CRA Shares
  In 2007
and 2008, we entered into option agreements with most of our Convertible
Community Reinvestment Act Preferred Shares (“Convertible CRA Shares”)
shareholders and all 4.4% Cumulative Perpetual Convertible CRA Preferred
shareholders.  The option agreements allow us to redeem the shares at
their initial issuance prices, or otherwise for the shareholders to redeem the
shares after specified dates at the same price.  The option agreements
are not exercisable as long as there are dividends in arrears for preferred
shares (see below).
  Upon
execution of these agreements, we reclassified the shares outside of permanent
equity at fair value and subsequently, we amortize the difference between the
fair value as of the execution date and the future redemption
price.  The reclassification and amortization are recorded as charges
to equity.  The charge to equity was $1.6 million for the three months
ended March 31, 2009, compared to $11.9 million for the three months ended March
31, 2008.
  B.  Dividends
in Arrears
  With the
exception of dividends related to our Equity Issuer and REIT subsidiaries, under
the Term Loan and Revolving Credit Facility (see Note 12), we are restricted
from paying dividends on our shares.  As of March 31, 2009, dividends
in arrears were $7.2 million for the 11.0% Cumulative Convertible Preferred
Shares and $2.8 million for the Redeemable CRA Preferred Shares and Convertible
Redeemable CRA Preferred Shares.
    - 38
-
  CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE
17 – Non-controlling Interests
  The table
below provides the components of non-controlling interests as of the dates
presented:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Limited
      partners interests in consolidated partnerships
                
                $
                3,963,722
                
                $
                3,876,467Preferred
      shares of a subsidiary (not subject to mandatory repurchase)(1)
                
                
                104,000
                
                
                104,000Convertible
      Special Common Units (“SCUs”) of a subsidiary; 13,131 outstanding in 2009
      and 2008
                
                
                54,536
                
                
                64,318Convertible
      Special Common Interests (“SCIs”) of a subsidiary; 268 outstanding in 2009
      and 2008
                
                
                2,479
                
                
                2,611Other(2)
                
                
                7,873
                
                
                8,151Total
                
                $
                4,132,610
                
                $
                4,055,547(1)For detail of the terms of these securities (as well as Preferred
      shares of a subsidiary (subject to mandatory repurchase) refer to the 2008
      Form 10-K.
                  (2)“Other” non-controlling interests primarily represent the 10%
      interest in Centerline Financial Holdings, LLC, (“CFH”) owned by Natixis
      Capital Markets North America, Inc. (“Natixis”).
 
  (Income)
loss allocated to non-controlling interests, net of tax, was as
follows:
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Limited
      partners interests in consolidated partnerships
                
                $
                293,740
                
                $
                100,937Preferred
      shares of a subsidiary (not subject to mandatory
    repurchase)
                
                
                (1,556
                )
                
                (1,556
                )SCUs
                
                
                9,074
                
                
                9,933SCIs
                
                
                133
                
                
                134Other
                
                
                133
                
                
                90Total
                
                $
                301,524
                
                $
                109,538
 
  Redemptions
  Holders
of SCUs redeemed units as follows:
  Three
      Months Ended
                  March
      31,
                
                Number
      redeemed
                
                Common
      shares issued
                
                Cash
      paid(in
      thousands)2008
                
                166,120
                
                166,120
                
                $
                --
 
  For any
SCU redemptions, we also redeemed the special preferred voting shares related to
the SCUs at their $0.01 per share redemption price.  There were no
redemptions for the three months ended March 31, 2009.
    - 39
-
  CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  NOTE
18 – Comprehensive Loss
  The table
below provides the components of comprehensive loss as of the dates presented
(net of tax):
  Three
      Months Ended March 31,2009
                            
                            2008(in
      thousands)
                            
                            Total
                            
                            Non-Controlling
      Interests
                            
                            Centerline
      Holding Company
                            
                            Total
                            
                            Non-Controlling
      Interests
                            
                            Centerline
      Holding CompanyNet
      (loss) income
                            
                            $
                            (328,472
                            )
                            $
                            (301,524
                            )
                            $
                            (26,948
                            )
                            $
                            (131,177
                            )
                            $
                            (109,538
                            )
                            $
                            (21,639
                            )Net
      unrealized gain (loss) on interest rate derivatives:Unrealized
      gain (loss) during the period
                            
                            
                            (6
                            )
                            
                            (5
                            )
                            
                            (1
                            )
                            
                            (27,585
                            )
                            
                            (18,128
                            )
                            
                            (9,457
                            )Reclassification
      adjustment to net loss
                            
                            
                            541
                            
                            
                            --
                            
                            
                            541
                            
                            
                            5,547
                            
                            
                            5,299
                            
                            
                            248Net
      unrealized gain (loss) on available-for-sale securities:Unrealized
      gain (loss) during the period
                            
                            
                            (56,145
                            )
                            
                            (41,207
                            )
                            
                            (14,938
                            )
                            
                            (457,427
                            )
                            
                            (443,039
                            )
                            
                            (14,388
                            )Reclassification
      adjustment to net loss
                            
                            
                            172,798
                            
                            
                            164,684
                            
                            
                            8,114
                            
                            
                            8,712
                            
                            
                            559
                            
                            
                            8,153Net
      unrealized gain (loss) on equity investees, net of amounts allocated to
      minority interests
                            
                            
                            (3,419
                            )
                            
                            2,061
                            
                            
                            (5,480
                            )
                            
                            (24,700
                            )
                            
                            (249
                            )
                            
                            (24,451
                            )Net
      unrealized gain (loss) of non-controlling interests in excess of minority
      interest balances
                            
                            
                            --
                            
                            
                            --
                            
                            
                            --
                            
                            
                            --
                            
                            
                            123,704
                            
                            
                            (123,704
                            )$
                            (214,703
                            )
                            $
                            (175,991
                            )
                            $
                            (38,712
                            )
                            $
                            (626,630
                            )
                            $
                            (441,392
                            )
                            $
                            185,238
   Accumulated
other comprehensive loss was comprised of the following as of the dates
presented (net of tax):
  (in
      thousands)
                  
                  March
      31,
                    2009
                  
                  December
      31,
                    2008Derivatives
                  
                  $
                  (9,923
                  )
                  $
                  (10,464
                  )Available-for-sale
      securities
                  
                  
                  (104,427
                  )
                  
                  (97,602
                  )Equity
      investments
                  
                  
                  (146,825
                  )
                  
                  (141,345
                  )Net
      unrealized loss allocated to non-controlling interests
                  
                  
                  (894,711
                  )
                  
                  (894,711
                  )Total
                  
                  $
                  (1,155,886
                  )
                  $
                  (1,144,122
                  )
 
   NOTE
19 – General and Administrative Expenses
  The table
below provides the components of general and administrative expenses for the
periods presented:
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Salaries
      and benefits
                
                $
                19,028
                
                $
                26,731Other:Professional
      fees
                
                
                1,757
                
                
                4,251Tax
      Credit Fund origination and property acquisition
                
                
                547
                
                
                2,200Rent
      expense
                
                
                4,983
                
                
                2,036Bad
      debt reserves
                
                
                2,420
                
                
                500Miscellaneous
                
                
                5,903
                
                
                8,184Total
                
                $
                34,638
                
                $
                43,902
 
    - 40
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE
20 – Loss on Impairment of Assets
  The table
below provides the components of loss on impairment of assets for the periods
presented:
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Available-for-sale
      investments (see Note 6):Series
      B Freddie Mac certificates
                
                $
                8,549
                
                $
                --CMBS
                
                
                6,592
                
                
                --Mortgage
      revenue bonds
                
                
                --
                
                
                6,832Syndicated
      corporate debt
                
                
                14
                
                
                1,191$
                15,155
                
                $
                8,023
 
  A.  Series
B Freddie Mac Certificates
  Due to
our expectation of increased severity of credit losses in the mortgage revenue
bonds underlying the Series B Freddie Mac certificates, we reduced the projected
cash flows we will receive over the life of the investment and, accordingly,
recognized the resulting decrease in value as an impairment.
  B.  CMBS
  During
the first quarter of 2009, we recognized a $6.6 million other-than-temporary
impairment related to CMBS investments we hold in this group for our own
account.  The impairment was due to expected increases in credit
defaults in the associated CMBS trust.
  C.  Mortgage
Revenue Bonds
  In March
2008, we reached an agreement to sell two mortgage revenue bonds in the second
quarter of 2008, resulting in impairment charges of $6.3 million, representing
the difference between the sales price and the carrying value for the two bonds.
As the terms of the sale agreement indicated a permanent decline in the value of
the investments, we recorded the loss as an impairment in the first
quarter.  The remaining $0.5 million relates to one bond which
resulted from substandard performance at the underlying property.
  D.  Syndicated
Corporate Debt
  In 2008
and 2009, we recognized impairment charges for syndicated corporate debt
investments due to market fluctuations for the securities for which we concluded
that the declines in fair value were other-than-temporary because of our intent
to sell the investments.  Most were sold in 2008.
  NOTE
21 – Revenues and Expenses of Consolidated Partnerships
  Financial
information presented for the three months ended March 31, 2009 and 2008, for
the Tax Credit Fund and Property Partnerships represents actual results for the
three months ended December 31, 2008 and 2007, respectively, the most recent
date for which information was available.  Information with respect to
the CMBS Fund Partnerships and High-Yield Debt Fund Partnership is for the
periods shown.
    - 41
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  The table
below provides the components of revenue and expenses of consolidated
partnerships for the periods presented:
  Three
      Months Ended March 31,2009
              
              2008(in
      thousands)
              
              Tax
      Credit Fund and Property Partnerships
              
              CMBS
      and High-Yield Debt Fund Partnerships
              
              Total
              
              Tax
      Credit Fund and Property Partnerships
              
              CMBS
      and High-Yield Debt Fund Partnerships
              
              TotalInterest
      income
              
              $
              1,599
              
              $
              58,882
              
              $
              60,481
              
              $
              2,984
              
              $
              67,152
              
              $
              70,136Rental
      income
              
              
              16,922
              
              
              --
              
              
              16,922
              
              
              16,989
              
              
              --
              
              
              16,989Other
              
              
              1,746
              
              
              111
              
              
              1,857
              
              
              1,550
              
              
              92
              
              
              1,642Total
      revenues
              
              $
              20,267
              
              $
              58,993
              
              $
              79,260
              
              $
              21,523
              
              $
              67,244
              
              $
              88,767Interest
      expense
              
              $
              1,954
              
              $
              27,816
              
              $
              29,770
              
              $
              3,024
              
              $
              31,868
              
              $
              34,892Loss
      on impairment of assets
              
              
              --
              
              
              176,604
              
              
              176,604
              
              
              --
              
              
              688
              
              
              688Asset
      management fees
              
              
              8,230
              
              
              --
              
              
              8,230
              
              
              8,092
              
              
              --
              
              
              8,092Property
      operating expenses
              
              
              7,002
              
              
              --
              
              
              7,002
              
              
              6,857
              
              
              --
              
              
              6,857General
      and administrative expenses
              
              
              8,042
              
              
              768
              
              
              8,810
              
              
              5,594
              
              
              415
              
              
              6,009Depreciation
      and amortization
              
              
              10,224
              
              
              1,763
              
              
              11,987
              
              
              7,282
              
              
              2,244
              
              
              9,526Other
      (recoveries) expenses
              
              
              (1,199
              )
              
              --
              
              
              (1,199
              )
              
              1,374
              
              
              --
              
              
              1,374Subtotal
              
              
              32,299
              
              
              2,531
              
              
              34,830
              
              
              29,199
              
              
              2,659
              
              
              31,858Total
      expenses
              
              $
              34,253
              
              $
              206,951
              
              $
              241,204
              
              $
              32,223
              
              $
              35,215
              
              $
              67,438Other
      losses from consolidated partnerships, net
              
              $
              115,839
              
              $
              --
              
              $
              115,839
              
              $
              94,113
              
              $
              --
              
              $
              94,113
 
  During
the first quarter of 2009, one of the Tax Credit Fund Partnerships recognized a
loss when two properties in which it had limited partner equity investments were
foreclosed upon.  The loss, totaling $30.0 million, is included in
“Other losses from consolidated partnerships” and was allocated entirely to the
third-party investor in the Tax Credit Fund Partnership.
  The table
below provides the components of loss on impairment of assets of the
consolidated partnerships for the periods presented:
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Available-for-sale
      investments:Retained
      CMBS certificates
                
                $
                13
                
                $
                688CMBS
                
                
                98,567
                
                
                --CDO
      debt and equity
                
                
                74,774
                
                
                --Mortgage
      loans held for investment
                
                
                3,250
                
                
                --Total
                
                $
                176,604
                
                $
                688
 
  NOTE
22 – Earnings per Share
  In
accordance with FSP EITF 03-6-1, all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends are considered to
participate in undistributed earnings with common
shareholders.  Because the awards are considered participating
securities, they are included as a separate class in our calculation of
EPS.
   - 42
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 The
calculation of basic and diluted net loss per share is as follows:
  Three
      Months Ended
                  March
      31,(in
      thousands, except per share amounts)
                
                2009
                
                2008Numerator:Net
      loss attributable to Centerline Holding Company
    shareholders
                
                $
                (26,948
                )
                $
                (21,639
                )Preferred
      dividends(1)
                
                
                (5,013
                )
                
                (4,036
                )Dividends
      for participating securities
                
                
                --
                
                
                (1,240
                )Undistributed
      loss attributable to Centerline Holding Company
    shareholders
                
                
                (31,961
                )
                
                (26,915
                )Effect
      of redeemable share conversions
                
                
                (1,562
                )
                
                (11,920
                )Net
      loss attributable to Centerline Holding Company shareholders used for EPS
      calculations
                
                $
                (33,523
                )
                $
                (38,835
                )Denominator:Weighted
      average shares outstandingBasic
                
                
                53,654
                
                
                51,864Effect
      of dilutive shares(2)
                
                
                --
                
                
                --Diluted
                
                
                53,654
                
                
                51,864Calculation
      of EPS:Net
      loss attributable to Centerline Holding Company shareholders as computed
      above
                
                $
                (33,523
                )
                $
                (38,835
                )Weighted
      average shares outstanding – basic and diluted
                
                
                53,654
                
                
                51,864Net
      loss per share attributable to Centerline Holding Company shareholders –
      basic
                
                $
                (0.62
                )
                $
                (0.75
                )(1)2009 includes dividends in arrears.
                  (2)There were no common share equivalents in either
      period.
 
  NOTE
23 – Financial Risk Management and Derivatives
  A.
General
 
 We are
exposed to financial risks arising from both our business operations and
economic conditions.  We seek to manage economic risks, including
interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of our debt and by using derivatives to manage exposures
caused by interest rate fluctuations.  We evaluate our interest rate
risk on an ongoing basis to determine whether it would be advantageous to engage
in any further derivative transactions.
  As
required by SFAS No. 133,Accounting for Derivative
Instruments and Hedging Activities, as amended (“SFAS 133”), we record
all derivatives on the balance sheet at fair value.  The accounting
for changes in the fair value of derivatives depends on the intended use of the
derivative, whether we have elected to designate a derivative in a hedging
relationship and apply hedge accounting and whether the hedging relationship has
satisfied the criteria necessary to apply hedge accounting. Derivatives
designated and qualifying as a hedge of the exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered
cash flow hedges. Hedge accounting generally provides for the matching of the
timing of gain or loss recognition on the hedging instrument with the
recognition of the changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk in a fair value hedge or the earnings
effect of the hedged forecasted transactions in a cash flow hedge.  We
may enter into derivative contracts that are intended to economically hedge
certain of its risk, even though hedge accounting does not apply or we elect not
to apply hedge accounting under SFAS 133.
    - 43
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 B.  Derivative
Positions
  As of
March 31, 2009, we held the following derivative positions:
  ·
              Term Loan and Revolving Credit
      Facility Interest Rate Swap:Our Term Loan and the
      Revolving Credit Facility (see Note 12) incur interest expense at variable
      rates, exposing us to interest rate risk.  We currently manage a
      portion of our interest rate risk resulting from the exposure to variable
      rates (benchmark rate) on our credit facility through the use of an
      interest rate swap indexed to LIBOR.  Under the swap agreement,
      for a specified period of time we are required to pay a fixed rate of
      interest on a specified notional amount to the transaction counterparty
      and we receive a floating rate of interest equivalent to the LIBOR
      index.  The swap outstanding at March 31, 2009, had a notional
      amount of $275.0 million, expires in August 2009 and has a fixed rate of
      5.25%.  The average LIBOR rate was 0.46% in 2009 and 3.28% in
      2008.  Until the fourth quarter of 2008, we accounted for this
      swap as a hedge; beginning in October 2008, we ceased applying hedge
      accounting to this interest rate swap and are amortizing into expense the
      unrealized loss in accumulated other comprehensive loss at that date until
      the swap’s end date in August 2009.
  ·
              Developers of
      Properties:As of March 31, 2009, we were party to 25
      interest rate swap agreements with the developers of properties relating
      to certain mortgage revenue bonds we previously owned.  We
      entered into these swap agreements to effectively convert the fixed rate
      of interest (per the terms of the mortgage revenue bond) to a variable
      rate.  Under the terms of these agreements, we pay fixed
      interest rates equal to those of the related bonds and receive interest at
      a variable rate.  Since the December 2007 re-securitization
      transaction, these swaps (with the exception of one) are now deemed to be
      free-standing derivatives.  At March 31, 2009, these swaps had
      an aggregate notional amount of $256.8 million, a weighted average
      interest rate of 6.01% and a weighted average remaining term of 13.7
      years.
  ·
              Our
      Credit Risk Products group is party to an interest rate swap whereby we
      pay a variable rate of interest and receive interest at a fixed rate. We
      entered into this swap agreement as part of our business plan to expand
      our Credit Risk Products group.  At March 31, 2009, the swap had
      a notional amount of $9.5 million, with an interest rate of 3.83% and
      remaining term of 14.2 years.  Similar swap agreements were
      terminated in 2008.
  We and
certain of our consolidated partnerships also had interest rate swaps (some of
which we had accounted for as hedges) and which we terminated in
2008.  The partnerships typically utilize short-term financing to
acquire investments and ultimately replace that financing with longer term
debt.  We and the partnerships had entered into those swap agreements
to manage the interest rate risk associated with the planned debt
issuances.
  Quantitative
information regarding the swaps to which we are or were a party (including those
agreements on behalf of consolidated partnerships) is detailed in section C
below. Quantitative information regarding the swaps to which consolidated
partnerships were a party is detailed in section D below.
  C.  Financial
Statement Impact
  Interest
rate swaps in a net liability position (“out of the money”) are recorded in
accounts payable, accrued expenses and other liabilities and those in a net
asset position (“in the money”) are recorded in deferred costs and other
assets.  None of the swaps were designated as hedges as of the dates
presented.  The amounts recorded were as follows:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Net
      liability position
                
                $
                34,145
                
                $
                40,525Net
      asset position
                
                
                764
                
                
                1,307
   
 - 44
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Presented
below are amounts included in Interest expense in the Condensed Consolidated
Statements of Operations related to the swaps described above:
  Three
      Months Ended
                            March
      31,(in
      thousands)
                          
                          2009
                          
                          2008Designated as
      hedges:Interest
      payments
                          
                          $
                          --
                          
                          $
                          3,089Interest
      receipts
                          
                          
                          --
                          
                          
                          (2,827
                          )Ineffectiveness
                          
                          
                          --
                          
                          
                          200Subtotal
                          
                          
                          --
                          
                          
                          462Not
      designated as hedges:Interest
      payments
                          
                          
                          8,269
                          
                          
                          2,134Interest
      receipts
                          
                          
                          (3,538
                          )
                          
                          (378
                          )Change
      in fair value of free-standing derivatives
                          
                          
                          (4,860
                          )
                          
                          8,948Subtotal
                          
                          
                          (129
                          )
                          
                          10,704Terminated swap
      contracts:Loss
      reclassified from accumulated other comprehensive income
                          
                          
                          --
                          
                          
                          --Included
      in interest expense
                          
                          $
                          (129
                          )
                          $
                          11,166
 
  The
amounts representing the effective portion of gains (losses), net for swaps
designated as hedges were as follows:
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Included
      in other comprehensive income
                
                $
                --
                
                $
                (4,493
                )
 
  Accumulated
other comprehensive loss includes the following amounts (exclusive of the tax
impact) related to the swaps described above:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Terminated
      cash flow hedges
                
                $
                (9,019
                )
                $
                (9,019
                )Term
      Loan and Revolving Credit Facility Interest Rate Swap
                
                $
                (1,627
                )
                $
                (2,603
                )
 
  We
estimate that the entire $1.6 million of the net unrealized loss related to the
Term Loan and Revolving Credit Facility Interest Rate Swap will be reclassified
into interest expense within the next twelve months (as the swap is due to
expire in August 2009).  The other comprehensive loss related to the
terminated cash flow hedges is expected to be amortized into income beginning in
2012 at the time long term financing is expected to be secured.
   - 45
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  C.  Consolidated
Partnerships
  During
2008, all swaps to which consolidated partnership were a party were
terminated.  The table below presents information regarding these
swaps:
  Three
      Months Ended
                    March
      31,(in
      thousands)
                  
                  2009
                  
                  2008Terminated swap
      contracts:(Gain)
      loss reclassified from accumulated other comprehensive
    income
                  
                  $
                  (10
                  )
                  $
                  5,610Included
      in interest expense
                  
                  $
                  (10
                  )
                  $
                  5,610
 
  Accumulated
other comprehensive loss includes the following amounts related to the swaps
described above:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Terminated
      cash flow hedges
                
                $
                (11,988
                )
                $
                (11,978
                )
 
  We
estimate that $0.4 million of the net unrealized loss will be reclassified into
interest expense within the next twelve months, while the remaining amount is
expected to be amortized into income beginning in 2012 at the time long-term
financing is expected to be secured.
   - 46
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
   NOTE
24 – Related Party Transactions
  Investments
in and Loans to Affiliates
  The table
below provides the components of investments in and advances to affiliates as of
the dates presented:
  (in
      thousands)
                  
                  March
      31,
                    2009
                  
                  December
      31,
                    2008Loan
      to AMAC
                  
                  $
                  79,877
                  
                  $
                  79,877Investment
      in AMAC common and preferred shares
                  
                  
                  12,195
                  
                  
                  12,195Interest
      receivable on loan to AMAC
                  
                  
                  3,872
                  
                  
                  3,872Fees
      receivable from AMAC
                  
                  
                  1,290
                  
                  
                  1,290Subtotal
                  
                  
                  97,234
                  
                  
                  97,234Cumulative
      equity losses and accumulated other comprehensive loss on investment in
      AMAC
                  
                  
                  (12,195
                  )
                  
                  (12,195
                  )Reserves
      on loan to AMAC, interest and fees receivable
                  
                  
                  (75,439
                  )
                  
                  (75,439
                  )Subtotal
                  
                  
                  9,600
                  
                  
                  9,600Co-investment
      in consolidated CMBS and High-Yield Debt Fund Partnerships(1)
                  
                  
                  (55,187
                  )
                  
                  (55,953
                  )Co-investment
      in CUC
                  
                  
                  3,320
                  
                  
                  3,406Due
      from partnerships, net
                  
                  
                  102,286
                  
                  
                  106,961Fees
      receivable, net
                  
                  
                  628
                  
                  
                  3,060Subtotal
                  
                  
                  60,647
                  
                  
                  67,074Less:
      Eliminations(2)
                  
                  
                  (44,084
                  )
                  
                  (47,852
                  )Total
                  
                  $
                  16,563
                  
                  $
                  19,222(1)Represents
      the carrying amount of these co-investments, net of our share of
      accumulated other comprehensive loss.
                    (2)For
      management purposes, we treat consolidated partnerships as equity
      investments in evaluating our results.  As we consolidate the
      funds, we eliminate the earnings for presentation in the condensed
      consolidated financial statements.
 
  Impact
to Statements of Operations
  Our
Condensed Consolidated Statements of Operations included the following amounts
pertaining to related party transactions:
  (in
      thousands)
              
              Included
      in following line item on Condensed Consolidated Statements of
      Operations
              
              Three
      Months Ended
                March
      31,2009
              
              2008AMAC
      asset management fees, incentive management fees and expense
      reimbursements
              
              Fee
      Income, Other Revenues
              
              $
              --
              
              $
              548AMAC
      credit facility interest income
              
              Interest
      Income
              
              
              --
              
              
              1,240AMAC
      servicing fee income
              
              Fee
      Income
              
              
              75
              
              
              89Equity
      in loss of AMAC
              
              Equity
      and Other (Loss) Income
              
              
              --
              
              
              (1,994
              )Equity
      in loss of CUC
              
              Equity
      and Other (Loss) Income
              
              
              (11
              )
              
              (52
              )Expense
      for property management services provided by The Related Companies LP
      (“TRCLP”)
              
              Other
      Expenses of Consolidated Partnerships
              
              
              (1,430
              )
              
              (1,137
              )
    
 - 47
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE
25 – Business Segments
  Segment
results include all direct and contractual revenues and expenses of each segment
and allocations of certain indirect expenses based on specific
methodologies.  These reportable segments are strategic business units
that primarily generate revenue streams that are distinctly different and are
generally managed separately.  Transactions between segments are
accounted for as third-party arrangements for the purposes of presenting segment
results of operations.  Typical intersegment eliminations include fees
earned from Consolidated Partnerships, asset management fees earned by Portfolio
Management with respect to assets held by our other segments and intercompany
interest.
  As a
measure of segment profitability, we are reporting net income in accordance with
GAAP.  In prior periods, we reported “Adjusted Net Income” which
excluded amortization of acquired intangible assets and amortization of
acquisition-related share-based compensation.  In light of recent
market events as described in Note 2, management concluded that net income is a
more indicative measure of performance at this time.
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008RevenueAffordable
      Housing
                
                $
                30,806
                
                $
                43,949Commercial
      Real Estate
                
                
                14,460
                
                
                14,104Portfolio
      Management
                
                
                7,384
                
                
                11,384Credit
      Risk Products
                
                
                1,131
                
                
                2,249Corporate
                
                
                1,599
                
                
                3,210Consolidated
      Partnerships
                
                
                79,260
                
                
                88,767Eliminations
                
                
                (21,903
                )
                
                (29,476
                )Consolidated
      Revenues
                
                $
                112,737
                
                $
                134,187Depreciation
      and AmortizationAffordable
      Housing
                
                $
                2,817
                
                $
                470Commercial
      Real Estate
                
                
                3,082
                
                
                3,118Portfolio
      Management
                
                
                948
                
                
                1,273Credit
      Risk Products
                
                
                7
                
                
                36Corporate
                
                
                5,085
                
                
                7,004Consolidated
      Depreciation and Amortization
                
                $
                11,939
                
                $
                11,901Depreciation
      and Amortization of Consolidated Partnerships
                
                $
                11,987
                
                $
                9,526Net
      Income (Loss)Affordable
      Housing
                
                $
                (7,690
                )
                $
                (195
                )Commercial
      Real Estate
                
                
                (5,124
                )
                
                (3,881
                )Portfolio
      Management
                
                
                1,955
                
                
                3,020Credit
      Risk Products
                
                
                (1,107
                )
                
                (3,203
                )Corporate
                
                
                (14,608
                )
                
                (17,250
                )Consolidated
      Partnerships
                
                
                (1,700
                )
                
                7,364Eliminations
                
                
                1,325
                
                
                (7,494
                )Total
      Net Loss Attributable to Centerline Holding Company
      Shareholders
                
                $
                (26,948
                )
                $
                (21,639
                )
 
  NOTE
26 – Commitments and Contingencies
  A.  Property
Partnerships
  We have
assumed the general partner interests in certain tax credit property
partnerships from non-performing general partners as part of various settlement
agreements.  We assumed these general partnership interests to
preserve our investments in mortgage revenue bonds or the equity investments in
lower tier partnerships on behalf of Tax Credit Funds that we
manage.
  We have
hired qualified property managers for each of these partnerships and seek to
sell the general partner interests when economically feasible.  During
our holding period, however, we may need to support the property partnerships if
they have not yet reached stabilization or we may choose to fund deficits as
needed, to protect our interests.  The assets continue to be actively
managed to minimize the necessary cash flow outlays and maximize the performance
of each asset.  While the properties are performing as expected thus
far in 2009, due to the uncertain nature of cash needs at these property
partnerships, we cannot estimate how much may ultimately be advanced while we
own the general partner and co-general partner interests.
    - 48
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 In
addition, we may advance funds to Tax Credit Fund Partnerships to allow them to
make supplemental loans for property partnerships in which they
invest.  These advances are then repaid to us from cash flows at the
Tax Credit Fund Partnership level.  Under the terms of our Term Loan
and Revolving Credit Facility, we are limited to a maximum of $72.8 million of
advances (net of repayments) throughout 2009 and $85.6 million throughout
2010.
  As of
March 31, 2009, we had a $61.3 million receivable for advances as described
above (see Note 24). Of this balance, $12.8 million has been reserved for as an
allowance for bad debt.
  B.  Forward
Transactions
  At March
31, 2009, our subsidiaries had forward commitments under Fannie Mae and Freddie
Mac programs of $235.2 million for mortgages to be funded through October 2010
(of which $189.4 million will be funded in the remainder of 2009), and each
lending commitment has an associated sale commitment to either Fannie Mae or
Freddie Mac.  In addition, those subsidiaries had commitments to sell
mortgages that have already been funded.  As of March 31, 2009, the
funded loans totaled $80.3 million and are included in “Investments – Other” as
“Mortgage loans held for sale” on our Condensed Consolidated Balance
Sheet.
  C.  Mortgage
Loan Loss Sharing Agreements
  Pursuant
to a master loss sharing agreement under the Fannie Mae Delegated Underwriting
and Servicing (“DUS”) program, we assume responsibility for a portion of any
loss that may result from borrower defaults, based on Fannie Mae loss sharing
formulas.  At March 31, 2009, a significant proportion of our loans
sold to Fannie Mae consisted of Level I loans, meaning, in most cases, that we
are responsible for the first 5% of the unpaid principal balance and a portion
of any additional losses to a maximum of 20% of the original principal balance;
Fannie Mae bears any remaining loss.  Pursuant to this agreement, we
are responsible for funding 100% of mortgagor delinquency (principal and
interest) and servicing (taxes, insurance and foreclosure costs) advances until
the amounts advanced exceed 5% of the unpaid principal balance at the date of
default.  Thereafter, we may request interim loss sharing adjustments
which allow us to fund 25% of such advances until final settlement under the
agreement or until we reach the 20% maximum.
  We also
participate in loss sharing transactions under Freddie Mac’s Delegated
Underwriting Initiative (“DUI”) program whereby we originate loans that are
purchased by Freddie Mac.  Under the terms of our master agreement
with Freddie Mac, we are obligated to reimburse Freddie Mac, for a portion of
any loss that may result from borrower defaults in DUI
transactions.  For such loans, if a default occurs, our share of the
standard loss will be the first 5% of the unpaid principal balance and 25% of
the next 20% of the remaining unpaid principal balance to a maximum of 10% of
the unpaid principal balance.  The loss on a defaulted loan is
calculated as the unpaid principal amount due, unpaid interest due and default
resolutions costs (taxes, insurance, operation and foreclosure costs) less
recoveries.
  Our
maximum exposure at March 31, 2009, pursuant to these agreements, was $954.5
million (representing what we would owe in accordance with the loss sharing
percentages with Fannie Mae and Freddie Mac described above if every loan
defaulted and losses were incurred in amounts equal to or greater than these
levels for which we are responsible), although this amount is not indicative of
our actual potential losses.  We maintain an allowance for loan losses
for loans originated under these product lines at a level that, in management’s
judgment, is adequate to provide for estimated losses.  At March 31,
2009, and December 31, 2008, that reserve was $13.1 million which represents our
estimate of potential losses as of those dates.  The reserve is
recorded in “Accounts payable, accrued expenses and other liabilities” on our
Condensed Consolidated Balance Sheet.
  As of
March 31, 2009, we maintained collateral consisting of money market and
short-term investments of $10.4 million and a money market account of $40,000,
which is included in “restricted cash” on our Condensed Consolidated Balance
Sheet, to satisfy the Fannie Mae collateral requirements of $10.4
million.
  We are
also required by the master agreement with Freddie Mac to provide collateral in
the amount of 8% of the original principal balance as security for payment of
the reimbursement obligation.  The collateral can include a
combination of the net worth of one of our Mortgage Banking subsidiaries, a
letter of credit and/or cash.  To help cover this collateral
requirement, we have a letter of credit arrangement with Bank of America as a
part of our Revolving Credit Facility (see Note 12).  At March 31,
2009, commitments under this agreement totaled $12.0 million.
   - 49
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  D.  Yield
Transactions
  We have
entered several credit intermediation agreements with either Natixis or Merrill
Lynch & Co., Inc. (“Merrill Lynch”) (each a “Primary Intermediator”) to
provide agreed-upon rates of return to third-party investors for pools of
multifamily properties to tax credit funds sponsored by a
subsidiary.  In return, we have or will receive fees, generally at the
start of each credit intermediation period.  There are a total of 19
outstanding agreements to provide the specified returns:
  ·
              through
      the construction and lease-up phases of the
  properties;
  ·
              for
      the period from the completion of the construction and lease-up phases
      through the operating phase of the properties;
  or
  ·
              covering
      both periods.
  Total
potential exposure pursuant to these transactions is $1.4 billion, assuming the
funds achieve no return whatsoever.  Of these totals, seven of the
agreements (with $711.6 million of the potential exposure) are transacted by our
bankruptcy remote subsidiary, Centerline Financial LLC (“Centerline Financial”)
while the rest are transacted by another subsidiary, Centerline Capital Group
Inc. (“CCG”).  Subsequent to March 31, 2009, we terminated one of
these agreements, lowering our potential exposure by $134.1
million.
  We have
analyzed the expected operations of the underlying properties and believe there
is no risk of loss at this time.  Should our analysis of risk of loss
change in the future, a provision for possible losses might be required pursuant
to FASB Statement No. 5, Accounting for
Contingencies.  The fair value of these obligations,
representing the deferral of the fee income over the obligation periods, was
$31.1 million as of March 31, 2009.  This amount is included in
“Deferred revenues” within “Accounts payable, accrued expense and other
liabilities” on our Condensed Consolidated Balance Sheets.
  As of
March 31, 2009, we maintained collateral consisting of cash deposits of $67.2
million which is included in “Deferred costs and other assets, net” on our
Condensed Consolidated Balance Sheets, to satisfy Merrill Lynch’s collateral
requirements.
  E.  Legal
Contingencies
  We are
subject to routine litigation and administrative proceedings arising in the
ordinary course of business.  In addition, we are party to the
following actions:
  Putative Class and
Derivative Actions
  In 2008,
we and our trustees were named as defendants in 14 shareholder putative class
and/or derivative actions arising out of our announcements in late 2007 that (i)
we had taken steps to transition our business to more of a fund manager and in
connection with such action intended to reduce the dividend payable on our
common shares from that which had been paid in prior years and (ii) we had
committed to sell and then sold the 11.0% Cumulative Convertible Preferred
Shares (see Note 16) to an affiliate of TRCLP.  Six of these cases are
putative class actions pending in federal court in New York that assert claims
under the federal securities laws.  The other eight cases are
primarily derivative actions, although some purport also to assert class claims,
arising under state law.  Each of the actions is summarized
below.
  Federal
Securities Cases
  On
January 18, 2008, the first of the federal securities putative class actions was
filed against us and certain of our officers and trustees in the United States
District Court for the Southern District of New York.  Thereafter,
five other, essentially duplicative putative class actions were also filed in
the same court.  The complaint in each case asserted that we and other
defendants allegedly violated federal securities law by failing to disclose in a
timely fashion our December 2007 transaction with Freddie Mac.  On May
5, 2008, the Court designated Centerline Investor Group, which is made up of
several shareholders, as lead plaintiff for these cases.  Pursuant to
the Court’s stipulation and order dated March 3, 2008, the lead plaintiff filed
a consolidated complaint on July 7, 2008 in this action, In re Centerline
Holding Company Securities Litigation, No. 08 CV 00505.  The
consolidated complaint also alleges violations of the federal securities laws in
connection with our announcement of the Freddie Mac transaction, changes to the
Company’s business model, and the reduction in dividend guidance policy, and
seeks an unspecified amount of compensatory damages and other relief on behalf
of all persons or entities that purchased the common stock of Centerline Holding
Company during the period March 12, 2007 through December 28,
2007.  The defendants in this action filed a motion to dismiss the
consolidated complaint on October 27, 2008 and the motion was granted by U.S
District Court Judge Shira Scheindlin on January 12, 2009.  Judge
Scheindlin granted the plaintiff leave to replead, and the plaintiff filed an
Amended Consolidated Complaint on March 13, 2009.  On April 30, 2009,
the Defendants in this case filed a motion to dismiss the Amended Consolidated
Complaint. The lead Plaintiff has until June 12, 2009 to file his opposition to
Defendants' motion to dismiss. The Defendants have been given until June 30,
2009 to file their reply to any opposition motion filed by the
Plaintiffs.
    - 50
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Derivative
Lawsuits
  On
January 15, 2008, the first of the state law cases, a putative class and
derivative action, entitled Off v. Ross, CA No. 3468-VCP,
was filed against us, our Board of Trustees and TRCLP in the Delaware Court of
Chancery.  The lawsuit concerns our sale of a new issue of convertible
preferred stock to an affiliate of TRCLP.  The lawsuit alleges claims
for breach of fiduciary duty against the Trustees and seeks an unspecified
amount of compensatory damages from them as well as injunctive relief against
all defendants.  Thereafter, seven other derivative lawsuits asserting
the same or similar claims were filed in state and federal courts in New York
and in the Delaware Chancery Court.  Four of these later-filed actions
also allege that the trustees breached their fiduciary duties to us by allegedly
violating the federal securities laws (as alleged in the federal securities
lawsuits described above).  We are named solely as a nominal defendant
in all eight derivative actions and no monetary relief is sought against us in
any of those cases.  The seven derivative actions filed subsequent to
the Off case
are:
  ·
              On
      January 18, 2008, Kramer v. Ross, et al., Index. No. 100861-08, was filed
      against us and our board of trustees, in New York County Supreme
      Court;
  ·
              On
      January 25, 2008, Carfagno v. Schnitzer, et al., No. 08 CV 00912, was
      filed against us and our board of trustees in the United States District
      Court for the Southern District of New
York;
  ·
              On
      January 30, 2008, Ciszerk v. Ross, et al., CA No. 3511, was filed against
      us, our board of trustees and The Related Companies, L.P. in the Delaware
      Court of Chancery;
  ·
              On
      February 22, 2008, Kanter v. Ross, et al., 08 Civ. 01827, was filed
      against us, our board of trustees and The Related Companies, L.P. in the
      United States District Court for the Southern District of New
      York;
  ·
              On
      February 27, 2008, Broy v. Centerline Holding Company et al., No. 08 CV
      01971, was filed against us and certain of our officers and trustees in
      the United States District Court for the Southern District of New
      York;
  ·
              On
      April 10, 2008, Kastner v. Schnitzer et al, Index No. 601043-08, was filed
      against us and our board of trustees, in New York Supreme Court;
      and
  ·
              On
      April 10, 2008, Kostecka v. Schnitzer et al, Index No. 601044-08, was
      filed against us and our board of trustees, in New York Supreme
      Court.
  On April
28, 2008, a consolidated amended verified complaint alleging breaches of
fiduciary duties of loyalty, candor, due care, fair dealing, waste of corporate
assets and unjust enrichment, was filed against us and our board of trustees in
Carfagno v. Schnitzer et al., 08 CV 912 (SAS) and Broy v. Blau, 08 CV 1971
(SAS), pending in the U.S. District Court for the Southern District of New
York.  The action is styled both as a derivative suit and as a class
action on behalf of all holders of Centerline securities who qualified to
purchase our 11.0% Preferred Shares pursuant to the rights offering but who did
not do so.  Under the scheduling order adopted by the Court, fact
discovery has been completed and defendants have filed a motion for summary
judgment and the plaintiff has filed a reply brief.  However, in late
March 2009, the plaintiffs and defendants reached a basis of settlement which
would require a reduction in the rate payable on the 11.0% Convertible Preferred
Shares held by TRCLP and its affiliates to 9.5% and an increase in the
conversion price from $10.75 to $12.35.  A Stipulation of Settlement
was filed with the U.S. District Court (SDNY) on April 8, 2009 and a fairness
hearing for approval of the settlement has been scheduled for May 18,
2009.
  A
settlement with the plaintiff in the Offcase based on the rights
offering was negotiated, but on November 26, 2008, the Delaware Court of
Chancery rejected the settlement and stayed any further proceedings in the
action, pending resolution of the Carfagnocase.  As
a  result,  several  of  the  other  derivative  lawsuits
that had  been
voluntarily  stayed  by  the  plaintiffs,
including the Kramer,
Ciszerk and Kanter actions
are  now  subject  to  various
stipulations  deferring  further  activity  in  those  actions  until  a
decision  on  the Stipulation of Settlement in Carfagno (described
above)  or,  in  the case of Kastnerand Kostecka,, pending further
activity in the consolidated securities class action. The CarfagnoStipulation of
Settlement is contingent upon the dismissal with prejudice of the overlapping
Off and Ciszerk actions pending
before the Delaware Court of Chancery.  Should the District Court find
the Carfagnosettlement
to be fair, it will enter the Final Judgment approving the Settlement, which
will become effective once the Delaware Court of Chancery dismisses the Off and Ciszerk matters with
prejudice.  Upon entry of the Final Judgment by the District Court,
defendants intend to move for dismissal in the Court of Chancery of the Off and Ciszerk matters with
prejudice. A fairness hearing has been scheduled by the District Court for May
18, 2009.
   - 51
-
 CENTERLINE
HOLDING COMPANY
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 In
addition, the outside members of the Board of Trustees have received a letter
from one of our purported shareholders demanding that they investigate potential
claims against our officers and others arising out of the allegations asserted
in the federal securities litigation.  The independent Trustees
determined, at their meeting on March 11, 2009, to defer further consideration
of the letter until after the District Court had decided the motion to dismiss
the Amended Consolidated Complaint described above.
  Other
  On or
about October 30, 2008, a complaint was filed in the District Court of Dallas
County, Texas that names the Company, its subsidiaries and an affiliated fund as
defendants.  The lawsuit is entitled Dallas/Glen Hills 2003 L.P., et al.
v. Centerline Corporate Partners V, L.P., et al., Case No.
08-13801.  The complaint alleged claims for breach of contract and
breach of fiduciary duty and sought unspecified amounts of actual damages,
prejudgment interest, exemplary damages and attorneys’ fees.  The
citation and complaint, however, were never served on any of the
defendants.  On April 1, 2009, the plaintiffs voluntarily dismissed
the action with prejudice in connection with the sale of the real property owned
by Dallas/Glen Hills, L.P.
  On or
about March 11, 2009, a complaint was filed in the Supreme Court of Nassau
County, New York that names CCG and other unrelated parties as
defendants.  The lawsuit is entitled MASS OP LLC and MASS ONE LLC v.
Principal Life Insurance Company, et al, Index No.
004457/2009.  The complaint alleges, among other claims, that
Principal Life and its affiliates lent the plaintiffs an excessive amount of
money and misrepresented the requirements of a securitized loan.  CCG
was purportedly sued in its capacity as servicer of the loan, although it does
not act in that capacity and one of its affiliates does.  Plaintiffs
seek reformation of the loan reducing its principal amount and damages.
Management believes that the suit is without merit as to the servicer and has
sought dismissal with respect to all Centerline entities.  If the
motion to dismiss is not approved, we will diligently defend this
lawsuit.
  F.  Other
Contingent Liabilities
  We have
entered into several transactions pursuant to the terms of which we will provide
credit support to construction lenders for project completion and Fannie Mae
conversion.  In some instances, we have also agreed to acquire
subordinated bonds to the extent the construction period bonds do not fully
convert.  In some instances, we also provide payment, operating
deficit, recapture and replacement reserve guarantees as business requirements
for developers to obtain construction financing.  Our maximum
aggregate exposure relating to these transactions was $171.8 million as of March
31, 2009 (although, to date, we have had minimal exposure to losses under these
transactions and anticipate no material liquidity requirements in satisfaction
of any guarantee issued).  The fair value of these obligations,
representing the deferral of the fee income over the obligation periods, was
$0.2 million as of March 31, 2009.  This amount is included in
“Deferred revenues” within “Accounts payable, accrued expenses and other
liabilities” on our Condensed Consolidated Balance Sheets.
  Centerline
Financial has entered into three credit intermediation agreements to provide for
monthly principal and interest debt service payments for debt owed by property
partnerships owned by third parties, only to the extent there is a shortfall in
payment from the underlying property.  In return, we receive fees
monthly based on a fixed rate until the expiration of the agreements which occur
in 2009 and 2023.  Total potential exposure pursuant to these
transactions is $44.0 million as well as monthly interest obligations, assuming
the bonds default and cannot be sold.  The recourse upon default would
be to acquire the bond and foreclose on the underlying property at which point
the property would either be rehabilitated or sold.  The fair value of
the obligations, representing the deferral of the fee income over the obligation
period, was $1.1 million as of March 31, 2009.  This amount is
included in “Deferred revenues” within “Accounts payable, accrued expenses and
other liabilities” on our Condensed Consolidated Balance Sheets.
  
  - 52
-
  Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
  Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is intended to help the reader understand the results of operations
and financial condition of Centerline Holding Company.  MD&A is
provided as a supplement to, and should be read in conjunction with, our
unaudited condensed consolidated financial statements and the accompanying
notes.
  This
MD&A contains forward-looking statements; please see page 87 for more
information.
  Significant
      components of the MD&A section include:
              
              PageSECTION 1– Overview
                The
      overview section provides a summary of Centerline and our reportable
      business groups (as more fully discussed in Note 1 to the condensed
      consolidated financial statements).  We also include a
      discussion of factors affecting our consolidated results of operations as
      well as items specific to each business group.
              
              54SECTION 2– Consolidated Results of
      Operations
                The
      consolidated results of operations section provides an analysis of our
      results on a consolidated basis for the three months ended March 31, 2009,
      against the comparable prior year period.  Significant
      subsections within this section are as follows:
              
              54Comparability
      of Results
              
              54Summary
      Consolidated Results
              
              55Revenues
              
              56Expenses
              
              57Other
      Items
              
              60Income
      Taxes
              
              62Accounting
      Changes
              
              63Inflation
              
              63SECTION 3– Results by
      Group
                The
      results by segment section provides an analysis of our results on a
      reportable group basis for the three months ended March 31, 2009, against
      the comparable prior year period.  We provide certain
      statistical information by segment and discuss known trends and
      uncertainties.  Significant subsections within this section are
      as follows:
              
              63Affordable
      Housing
              
              65Commercial
      Real Estate
              
              70Portfolio
      Management
              
              73Credit
      Risk Products
              
              75Corporate
              
              77Consolidated
      Partnerships
              
              78SECTION 4– Liquidity and Capital
      Resources
                The
      liquidity and capital resources section provides discussion of our ability
      to generate adequate amounts of cash to meet our current and future
      needs.  Significant subsections within this section are as
      follows:
              
              80Liquidity
              
              80Cash
      Flows
              
              81Liquidity
      Requirements after March 31, 2009
              
              82Fair
      Value Disclosures
              
              82Capital
      Resources
              
              85Commitments
      and Contingencies
              
              87SECTION
      5 – Forward Looking Statements
              
              87
 
   - 53
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  SECTION 1 –
OVERVIEW
  We
provide real estate financial and asset management services, including
institutional debt and equity fund management, mortgage banking, and primary and
special loan servicing. We have more than $14.3 billion of assets under
management.
  Since
2007 the disruption in world-wide credit markets that began with the sub-prime
crisis has been contagious, more recently impacting commercial real estate as
well.  These disruptions have resulted in an unfavorable market
characterized by lack of liquidity (particularly with respect to real estate
finance), spread deterioration and drastically declining asset
values.  In addition, we continue to be hampered by general economic
conditions.  The market environment has depressed our asset values and
limited our ability to grow our assets under management.  These
factors have not only impacted our operating results, but also constrained our
liquidity in the form of lower origination volumes and less frequent fund
closings (which historically generated a large portion of our operating cash
flows).
  Further,
our business is constrained by the terms of our Term Loan and Revolving Credit
Facility and other debt agreements we put in place late last
year.  Those terms include higher rates of interest, rapid
amortization of the debt balances and limits on our ability to engage in certain
types of transactions (such as certain types of fund originations) without
lender approval.  The terms of these agreements, however, have
eliminated the mark-to-market risk of some of our prior
financing.  Since the amendment of these facilities in December 2008,
we have improved our cash position and are actively focusing on stabilizing our
balance sheet and more strictly managing our cash flows.  For a more
detailed discussion, see Note 2 to the condensed consolidated financial
statements and SECTION 4– LIQUIDITY AND CAPITAL
RESOURCES.
  While our
fund origination businesses are largely dormant due to these factors, we are
actively pursuing business opportunities such as expansion of our Portfolio
Management special servicing, the market for which we expect to grow during the
current economic environment and the expansion of which does not require
substantial capital.  We are also pursuing other opportunities, such
as asset management for third-parties, while we simultaneously focus on reducing
expenses to improve profitability, managing our current portfolio and managing
our credit risk.
  We refer
to our segments as groups.  For a discussion of our four operating
groups and two groups not involved in direct operations, see Note 1 to the
condensed consolidated financial statements.  Significant operating
and financial results for our operating groups are discussed under SECTION 3 – RESULTS BY
GROUP.
  SECTION 2 – CONSOLIDATED
RESULTS OF OPERATIONS
  Comparability
of Results
  In
accordance with SFAS 160, net income or loss is now defined as the net result of
total company operations, prior to allocation of income or loss to
non-controlling interests.  As the Tax Credit Fund Partnerships (by
design) always generate operating losses, we expect to record net losses for the
foreseeable future as they represent a significant portion of our consolidated
operations.
  After
allocation of income or loss to non-controlling interests, we recorded net
losses allocable to Centerline shareholders for the 2009 and 2008
periods.  For the periods presented, we highlight in the table below
those items, principally non-cash in nature, which impact the comparability of
results from period to period. Such items are shown prior to any adjustment for
tax and allocations to non-controlling interests:
   - 54
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  Three
      Months Ended
                  March
      31,(dollars
      in thousands)
                
                2009
                
                2008(Reduction)/increase
      to net income:Asset
      impairments:Series
      B Freddie Mac Certificates
                
                $
                (8,549
                )
                $
                --CMBS
                
                
                (6,592
                )
                
                --Mortgage
      revenue bonds
                
                
                --
                
                
                (6,832
                )Syndicated
      corporate debt
                
                
                (14
                )
                
                (1,191
                )AMAC:Equity
      loss
                
                
                --
                
                
                (1,994
                )Other
      items:Impairment
      of tax credit partnership investments
                
                
                (6,866
                )
                
                --Equity
      income reduction due to fund-level asset impairments
                
                
                (8,363
                )
                
                (93
                )Change
      in fair value adjustments of free-standing derivatives
                
                
                4,860
                
                
                (9,148
                )Severance
      costs
                
                
                (708
                )
                
                --Losses
      associated with the December 2007 re-securitization
      transaction
                
                
                --
                
                
                (7,272
                )
 
  Summary
      Consolidated Results
  Our
summary consolidated results of operations are presented below for the three
months ended March 31, 2009 and 2008:
  (dollars
      in thousands)
              
              2009
              
              %
      of Revenues
              
              2008
              
              %
      of Revenues
              
              %
      ChangeRevenues
              
              $
              112,737
              
              100.0
              %
              $
              134,187
              
              100.0
              %
              (16.0
              )%Expenses
              
              
              321,075
              
              284.8
              
              
              163,137
              
              121.6
              
              96.8Other
      items
              
              
              (120,019
              )
              (106.5
              )
              
              (101,178
              )
              (75.4
              )
              (18.6
              )Income
      tax provision
              
              
              (115
              )
              (0.1
              )
              
              (1,049
              )
              (0.8
              )
              89.0Net
      loss
              
              
              (328,472
              )
              
              
              
              (131,177
              )Net
      loss attributable to non-controlling interests
              
              
              301,524
              
              267.5
              
              
              109,538
              
              81.6
              
              175.3Net
      loss attributable to Centerline Holding Company
    shareholders
              
              $
              (26,948
              )
              (23.9
              )%
              $
              (21,639
              )
              (16.1
              )%
              (24.5
              )%
 
    - 55
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Revenues
  The
following table presents our revenues for the three months ended March 31, 2009
and 2008:
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeOperating
      Groups
                  Interest
      income
                
                $
                18,013
                
                $
                26,116
                
                (31.0
                )%Fee
      income
                
                
                14,432
                
                
                17,406
                
                (17.1
                )Other
                
                
                1,032
                
                
                1,898
                
                (45.6
                )Subtotal
                
                
                33,477
                
                
                45,420
                
                (26.3
                )Consolidated
      Partnerships
                  Revenues
      of Tax Credit Fund and Property Partnerships
                
                
                20,267
                
                
                21,523
                
                (5.8
                )Revenues
      of CMBS and High-Yield Debt Fund Partnerships
                
                
                58,993
                
                
                67,244
                
                (12.3
                )Subtotal
                
                
                79,260
                
                
                88,767
                
                (10.7
                )Total
      revenues
                
                $
                112,737
                
                $
                134,187
                
                (16.0
                )%
 
  The
reduction in revenues of our Operating Groups of $11.9 million was primarily due
to the following:
  ·
              $4.3
      million reduction of interest income related to mortgage bonds
      re-securitized with Freddie Mac in December 2007 as we subsequently
      recognized the sale of certain bonds.  See further discussion in
      SECTION 3 – RESULTS BY
      GROUP - Affordable Housing;
  ·
              $3.8
      million reduction of interest income, primarily related to reduced
      servicing portfolio balances, a decline in the interest rates earned
      period over period and the absence in 2009 of interest from our loan to
      AMAC as it is developing a plan of liquidation;
  and
  ·
              $3.0
      million reduction of fee income. Lower Affordable Housing tax credit
      business fees, resulting from lower business volume, was partially offset
      by an increase in revenue earned in connection with the CDO collateral
      management agreement we entered into during 2008 and an increase in
      special servicing fees.
  The
decrease in revenues of Consolidated Partnerships is discussed in SECTION 3 – RESULTS BY GROUP -
Consolidated Partnerships
  Further
detailed discussion of revenues is included in SECTION 3 – RESULTS BY GROUP
of this MD&A.
    - 56
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Expenses
  The
following table presents our expenses for the three months ended March 31, 2009
and 2008:
  Three
      Months Ended March 31,(dollars
      in thousands)
                          
                          2009
                          
                          2008
                          
                          %
      ChangeOperating
      GroupsGeneral
      and administrative:Salaries
      and benefits
                          
                          $
                          19,028
                          
                          $
                          26,731
                          
                          (28.8
                          )%Other
                          
                          
                          15,610
                          
                          
                          17,171
                          
                          (9.1
                          )Total
      G&A
                          
                          
                          34,638
                          
                          
                          43,902
                          
                          (21.1
                          )Interest
      expense:Borrowings
      and financings
                          
                          
                          13,415
                          
                          
                          27,149
                          
                          (50.6
                          )Preferred
      shares of subsidiary
                          
                          
                          4,724
                          
                          
                          4,724
                          
                          --Depreciation
      and amortization
                          
                          
                          11,939
                          
                          
                          11,901
                          
                          0.3Loss
      on impairment of assets
                          
                          
                          15,155
                          
                          
                          8,023
                          
                          88.9Expenses
      – operating groups
                          
                          
                          79,871
                          
                          
                          95,699
                          
                          (16.5
                          )Consolidated
      PartnershipsInterest
      expense:Tax
      Credit Fund and Property Partnerships
                          
                          
                          1,954
                          
                          
                          3,024
                          
                          (35.4
                          )CMBS
      and High-Yield Debt Fund Partnerships
                          
                          
                          27,816
                          
                          
                          31,868
                          
                          (12.7
                          )29,770
                          
                          
                          34,892
                          
                          (14.7
                          )Loss
      on impairment of assets:CMBS
      and High-Yield Debt Fund Partnerships
                          
                          
                          176,604
                          
                          
                          688
                          
                          N/MOther
      expenses:Tax
      Credit Fund and Property Partnerships
                          
                          
                          32,299
                          
                          
                          29,199
                          
                          10.6CMBS
      and High-Yield Debt Fund Partnerships
                          
                          
                          2,531
                          
                          
                          2,659
                          
                          (4.8
                          )34,830
                          
                          
                          31,858
                          
                          9.3Expenses
      – consolidated partnerships
                          
                          
                          241,204
                          
                          
                          67,438
                          
                          257.7Total
      expenses
                          
                          $
                          321,075
                          
                          $
                          163,137
                          
                          96.8
                          %N/M
      – Not meaningful.
 
  General
and Administrative – Salaries and Benefits
  The
decrease in salaries and benefits expense of $7.7 million is primarily
attributable to the following items:
  ·
              reduced
      salaries and benefits expense from reductions of personnel in April and
      November 2008;
  ·
              $2.0
      million  of reduced bonus expense associated with lower profit
      expectations and lower headcount period over period;
  and
  ·
              $2.3
      million lower share-based compensation expense (including $1.4 million
      related to shares issued in connection with our acquisition of Centerline
      Investors I LLC in August 2006) as many of the shares have vested or were
      forfeited.
  Partially
offsetting these decreases was an increase in severance costs of $0.7 million in
the 2009 period, primarily due to the departure of an executive
officer.
  We
anticipate that our salary and benefit costs will stay steady for the
foreseeable future as we have taken steps to align our cost structure with
current market conditions.
   - 57
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other
General and Administrative
  The
decrease in other general and administrative expenses of $1.6 million is
primarily attributable to the following items:
  ·
              $2.5
      million related to professional fees, particularly audit and consulting
      costs which were lower in 2009 due to a lower volume of business and
      associated transactions;
  ·
              $1.7
      million in fund origination expenses associated with our tax credit
      business (see corresponding decrease in revenue in the Affordable Housing
      segment discussion below);
  ·
              a
      decrease in general legal costs associated with litigation commencing in
      the first quarter of 2008 (see Note 26 to the condensed consolidated
      financial statements);
  ·
              $0.3
      million decrease in broker commissions related to lower mortgage
      originations period over period;
and
  ·
              a
      reduction in overall expenses resulting from the reduction in staffing
      levels in April and November 2008.
  Partially
offsetting the decreases was an increase of $2.9 million in rent expense related
to office space that we had planned as a new headquarters.  Although
we do not expect to occupy the space, we are required to recognize the expense
while we negotiate a termination of the lease.  The current period
also reflects an increase of $1.9 million in reserves against advances made to
our sponsored funds.
  We
continue to seek ways to reduce our general and administrative costs and do not
expect to incur further legal costs associated with the litigation as we have
reached tentative settlements and believe we are adequately covered by
insurance.
  Interest
Expense
  Borrowings and
Financings
  Three
      Months Ended March 31.(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeBorrowings
      and financings:Revolver
      and term loan interest
                
                $
                5,384
                
                $
                5,459
                
                
                (1.4
                )%Asset
      backed (warehouse) lines
                
                
                670
                
                
                2,088
                
                
                (67.9
                )Secured
      financing
                
                
                5,832
                
                
                8,208
                
                
                (28.9
                )Cash
      interest payments for derivatives, net
                
                
                4,731
                
                
                2,018
                
                
                134.4Non-cash
      impact of derivatives(1)
                
                
                (4,860
                )
                
                9,148
                
                
                (153.1
                )Other
      interest expense
                
                
                1,658
                
                
                228
                
                
                627.2Total
                
                $
                13,415
                
                $
                27,149
                
                
                (50.6
                )Average
      borrowing rate
                
                
                7.08
                %
                
                6.08
                %Average
      borrowings
                
                $
                757,290
                
                $
                1,040,795
                
                
                (27.2
                )%Average
      LIBOR rate
                
                
                0.46
                %
                
                3.28
                %Average
      SIFMA rate
                
                
                0.58
                %
                
                2.53
                %Swap
      agreements – notional amount at March 31
                
                $
                275,000
                
                $
                275,000(1)Represents the change in fair value of free-standing
      derivatives.
 
  The
decrease in interest expense was primarily due to the change in fair value of
derivatives, and to a lesser extent, due to the lower amount of average debt
outstanding.  A portion of the decrease resulted from the decline of
Freddie Mac secured financing liabilities.  As this debt relates to
re-securitized bonds that are not recognized as sold, the debt balance declined
during 2008 when we recognized the sale of certain bonds and the debt was also
reduced.  The change in expense therefore corresponds with the decline
in mortgage revenue bond interest income described in Revenues
above.  See further discussion in SECTION 3 – RESULTS BY GROUP-
Affordable Housing.
  Partially
offsetting these factors, our average borrowing rate increased as compared to
the 2008 period. Currently, our borrowings are typically based on LIBOR and,
while the average LIBOR rate decreased compared to the 2008 period, we are
subject to the fixed 5.25% LIBOR rate pursuant to the terms of the interest rate
swap for our Term Loan and Revolving Credit Facility.  Additionally,
due to the amended terms we entered into in December 2008 for those facilities,
the weighted average spread above LIBOR was 2.72% higher in the 2009 period than
in 2008. Lastly, we incur a higher rate of interest on the new Commercial Real
Estate line entered into during the fourth quarter of 2008 as compared to the
prior repurchase financing, although the new term loan does not subject us to
the risk of margin calls.
   - 58
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Preferred Shares of
Subsidiary
  Interest
expense associated with preferred shares of subsidiary represents dividends of
Equity Issuer preferred shares that are subject to mandatory
repurchase.  The preferred shares of Equity Issuer, including those
not subject to mandatory repurchase (see Other Items - (Income)/Loss
Allocations to Non-Controlling Interestsbelow) entitle their holders to
a claim on the cash flows of the Series A-1 Freddie Mac Certificates, and for
economic purposes are defeased.  The expense recorded is offset by
interest income of the Series A-1 Freddie Mac Certificates with terms that match
the preferred shares.
  Loss
on Impairment of Assets
  Loss on
impairment of assets in 2009 primarily relates to losses on our Series B Freddie
Mac Certificates and CMBS investments while the 2008 period includes impairment
of mortgage revenue bonds.  See SECTION 3 - RESULTS BY GROUP –
Affordable Housing and Commercial Real Estatefor
additional discussion.
  Both
periods also include impairment charges for syndicated corporate debt
investments. See SECTION 3 -
RESULTS BY GROUP – Credit Risk Products for additional
discussion.
  See also
Note 20 of the condensed consolidated financial statements.
  Consolidated
Partnerships
  Interest
expense for Tax Credit Fund and Property Partnerships declined due to lower
levels of debt in those partnerships resulting from collections of subscription
receivables that allowed the funds to repay borrowings.
 
 The
decrease in the interest expense of the CMBS and High-Yield Debt Fund
Partnerships is due to:
  ·
              lower
      average outstanding balance on the repurchase agreements at the High-Yield
      Debt Fund Partnership, coupled with falling interest rates incurred on
      this debt; and
  ·
              lower
      interest expense at the CMBS Fund Partnerships resulting from the
      termination of all interest rate swaps in late
  2008.
  Partially
offsetting these decreases was a net increase in interest expense at one of the
CMBS Fund Partnerships incurred on loans received from certain members of the
fund, proceeds of which were used to repay all outstanding repurchase agreements
and subscription line financing of the CMBS Fund Partnership and to repay other
loans we had made to the Fund Partnership.  The debt incurs interest
at a fixed rate of 14.0% which, while higher than the previous credit lines,
does not subject the fund to mark-to-market risk.
    - 59
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other
Items
  Equity
and other income (loss)
  Three
      Months Ended March 31,(dollars
      in thousands)
                    
                    2009
                    
                    2008
                    
                    %
      ChangeEquity
      and other income (loss):Consolidated
      partnerships (1)
                    
                    $
                    (1,700
                    )
                    $
                    7,364
                    
                    (123.1
                    )%AMAC
                    
                    
                    --
                    
                    
                    (1,994
                    )
                    100.0Other
                    
                    
                    (6,926
                    )
                    
                    99
                    
                    N/MTotal
      equity and other income (loss)
                    
                    
                    (8,626
                    )
                    
                    5,469
                    
                    (257.7
                    )Eliminations(1)
                    
                    
                    1,700
                    
                    
                    (7,364
                    )
                    123.1Equity
      and other income (loss) – as reported
                    
                    $
                    (6,926
                    )
                    $
                    (1,895
                    )
                    (265.5
                    )%(1)For management purposes, we treat consolidated partnerships as
      equity investments in evaluating our results.  As we consolidate
      the funds, we eliminate the earnings for presentation in the condensed
      consolidated financial statements.
                      N/M
      – Not meaningful.
 
  Consolidated
      Partnerships
  We invest
in entities we manage, including co-investments in CMBS and High-Yield Debt Fund
Partnerships that we consolidate.  We record equity income equal to
our proportionate share of the net income of the investee, which does not
necessarily correspond to any cash we receive.  The amount we record
in any period will depend on the GAAP income recorded by those investees, and
the amounts we record may be losses in some periods if there are write offs or
impairments at those entities or if the entities are designed to generate losses
(such as tax credit properties).
  The
majority of the decline in 2009 was due  to asset impairments at the
fund level ($176.6 million, of which our share was $8.4 million), as compared to
a much lower level in 2008 ($0.7 million, our share of  which was
insignificant). See further discussion in Commercial Real Estate and
Consolidated Partnershipdiscussions in SECTION
3 – RESULTS BY GROUP of this MD&A.
  AMAC
  As AMAC
is developing a plan of liquidation, we stopped recording equity losses related
to its operations in the fourth quarter of 2008, but may have further losses if
we do not recover the current estimate of $9.6 million on the loan we had
provided to AMAC.
  Other
  Other
equity and other income (loss) include income related to entities in which we
invest but do not consolidate, such as our investments in tax advantaged
investment vehicles similar to those we sponsor (which typically generate equity
losses).
  During
the three months ended March 31, 2009, we recorded charges of $6.9 million to
write down the value of equity interests in two tax credit property
partnerships.  While we have historically sold these types of
investments to Tax Credit Fund Partnerships for the amount of our equity
investment, we expect to sell or dispose of these two equity interests for less
than our basis in the second quarter of 2009.  We therefore recognized
the other-than-temporary declines in value as equity losses.
   - 60
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Gain
from repayment or sale of investments
  (dollars
      in thousands)
                
                2009
                
                2008
                
                %
      Change
                  2009
      vs.
                  2008Repayment
      or sale of:Mortgage
      loans
                
                $
                2,175
                
                $
                2,358
                
                (7.8
                )%Mortgage
      revenue bonds and other
                
                
                571
                
                
                (7,528
                )
                107.6Gain
      from repayment or sale of investments, net
                
                $
                2,746
                
                $
                (5,170
                )
                153.1
                %
 
  Mortgage
Loans
  Gain on
sale of mortgage loans relates both to premiums earned from sale of mortgage
loans to Fannie Mae and Freddie Mac as well as gains we record in connection
with recognizing mortgage servicing rights.  The decline is due to
lower volume of mortgage originations in the current period.
  Mortgage Revenue Bonds and
Other
  In 2009,
we sold one mortgage revenue bond resulting in a gain of $0.4 million and
received $0.2 million in repayments in excess of the carrying value for another
against which we had previously recorded impairment charges.
  The 2008
period includes:
  ·
              incremental
      losses of $7.2 million associated with the re-securitization of our
      mortgage revenue bond portfolio in December 2007.  These losses
      primarily resulted from valuation adjustments for the stabilization escrow
      maintained for certain bonds (see Note 8 to the condensed consolidated
      financial statements).  Upon the final deposit of funds to the
      escrow, the difference between the cash deposit and its present value was
      recognized as a loss.  Similar to previous losses recognized
      with respect to the net present value adjustments to the escrow and the
      retained residual interests, offsets will be recognized over the lives of
      the instruments through accretion of the net present value
      adjustments;
  ·
              a
      gain of $0.3 million relating to the sale of one mortgage revenue bond;
      and
  ·
              losses
      of $0.5 million on the sale of syndicated corporate debt
      investments.  In periods prior to the sales, we had recognized
      declines in fair value as impairment of the investments (see Loss on Impairment of Assetsabove).  Most of our syndicated corporate debt
      investments were sold prior to December 31,
  2008.
  Other
Losses from Consolidated Partnerships
  (dollars
      in thousands)
                
                2009
                
                2008
                
                %
      Change
                  2009
      vs. 2008Other
      losses from consolidated partnerships
                
                $
                (115,839
                )
                $
                (94,113
                )
                
                (23.1
                )%
 
  These
other losses principally represent the equity losses that Tax Credit Fund
Partnerships recognize in connection with their investments in non-consolidated
tax credit property partnerships.  During the first quarter of 2009,
one of the Tax Credit Fund Partnerships recognized a loss when two properties in
which it had limited partner equity investments were foreclosed
upon.  The loss, totaling $30.0 million, was allocated entirely to the
third-party investor in the Tax Credit Fund Partnership (see Note 21 to the
condensed consolidated financial statements).
    - 61
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 (Income)/Loss
Allocations to Non-Controlling Interests, Net
  (Income)
loss allocated to non-controlling interests, net of tax, was as
follows:
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeLimited
      partners of consolidated partnerships
                
                $
                293,740
                
                $
                100,937
                
                191.0
                %Preferred
      shares of subsidiary
                
                
                (1,556
                )
                
                (1,556
                )
                --SCUs
                
                
                9,074
                
                
                9,933
                
                (8.6
                )SCIs
                
                
                133
                
                
                134
                
                (0.7
                )Other
      non-controlling interests
                
                
                133
                
                
                90
                
                47.8Net
      loss attributable to non-controlling interests, net
                
                $
                301,524
                
                $
                109,538
                
                175.3
                %
 
  The loss
allocation to partners of consolidated partnerships represents the allocation of
operating losses of Tax Credit Fund and Property Partnerships and the income or
losses of CMBS Fund Partnerships and High-Yield Debt Fund Partnerships to
outside investors which hold the majority ownership in these
partnerships.  With respect to the Tax Credit Fund Partnerships and
Tax Credit Property Partnerships, we have an insignificant equity interest or
none at all.  With respect to the CMBS Fund and High-Yield Debt Fund
Partnerships, we typically co-invest 5%, although some co-investments may be for
a lesser or greater share.
  The
income allocation to SCUs and SCIs of subsidiaries represents the proportionate
share of net income or loss attributable to holders of subsidiary equity as if
they were converted to common shares.  Other non-controlling interests
principally represent the portion of CFH owned by Natixis.
  Income
Taxes
  The
following tables detail the taxable and non-taxable components of our reported
income (loss), for the three months ended March 31, 2009 and 2008:
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                %
      of Revenues
                
                2008
                
                %
      of Revenues
                
                %
      ChangeLoss
      subject to tax
                
                $
                (15,617
                )
                
                (13.9
                )%
                $
                (14,671
                )
                
                (10.9
                )%
                
                6.4
                %Income
      (loss) not subject to tax
                
                $
                (312,740
                )
                
                (277.4
                )%
                $
                (115,457
                )
                
                (86.0
                )%
                
                170.9
                %(Loss)
      income before income taxes
                
                $
                (328,357
                )
                
                (291.3
                )%
                $
                (130,128
                )
                
                (97.0
                )%
                
                152.3
                %Income
      tax provision
                
                $
                115
                
                
                (0.1
                )%
                $
                1,049
                
                
                (0.8
                )%
                
                (89.0
                )%Effective
      tax rate – consolidated basis
                
                
                (0.04
                )%
                
                
                
                
                (5.10
                )%Effective
      tax rate for corporate subsidiaries subject to tax
                
                
                (0.74
                )%
                
                
                
                
                (7.15
                )%
 
  The CMBS
and High-Yield Debt Fund Partnerships, which are managed by our Commercial Real
Estate group, are held in vehicles which, if certain requirements are met, do
not incur taxes.  As such, the income we earn from those businesses
does not subject us to income taxes.  Likewise, some of our pre-tax
income is derived from our tax-exempt mortgage revenue bond related investments
included in our Affordable Housing group, which are held within flow-through
entities.
  Tax
credit fund management, the other Commercial Real Estate businesses and our
Portfolio Management and Credit Risk Products businesses, however, are conducted
in corporations and are subject to income taxes.  Our Corporate group
is also housed in a corporate entity subject to taxation.  Our
corporate entities generally have losses for book purposes principally because
the distributions paid on the minority interests in our corporate subsidiaries
effectively provide a tax deduction, as well as other factors within these
businesses.
    - 62
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 We
provide for income taxes for these corporate subsidiaries in accordance with
FASB Statement No. 109, Accounting for Income Taxes,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of assets and
liabilities.
  Management
has determined that, in light of projected taxable losses in the corporate
subsidiaries for the foreseeable future, any benefit from current losses and
deferred tax assets will likely not be realized; hence a full valuation
allowance has been recorded.
  Despite
the taxable loss, we recognized an income tax provision in the three months
ended March 31, 2009 and 2008, principally due to state and local income
taxes.
  Accounting
Changes
  The
adoption of SFAS 160 required us to reclassify balances related to
non-controlling interests on the condensed consolidated balance sheet and to
change the presentation of income and loss allocations to non-controlling
interests, but did not otherwise impact our condensed consolidated financial
statements.
  Inflation
  Inflation
did not have a material effect on our results of operations for the periods
presented.
  SECTION 3 - RESULTS BY
GROUP
  The
following table presents segment revenues, expenses and operating income for the
periods ended March 31, 2009 and 2008 in accordance with
GAAP.  Transactions between segments are accounted for as third-party
arrangements for the purposes of presenting segment results of
operations.  Typical intersegment eliminations include fees earned
from Consolidated Partnerships, asset management fees earned by Portfolio
Management with respect to assets held by our other segments and intercompany
interest.
    - 63
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Three
      Months Ended March 31,(dollars
      in thousands)
                  
                  2009
                  
                  2008
                  
                  %
      ChangeRevenues:Affordable
      Housing
                  
                  $
                  30,806
                  
                  $
                  43,949
                  
                  (29.9
                  )%Commercial
      Real Estate
                  
                  
                  14,460
                  
                  
                  14,104
                  
                  2.5Portfolio
      Management
                  
                  
                  7,384
                  
                  
                  11,384
                  
                  (35.1
                  )Credit
      Risk Products
                  
                  
                  1,131
                  
                  
                  2,249
                  
                  (49.7
                  )Corporate
                  
                  
                  1,599
                  
                  
                  3,210
                  
                  (50.2
                  )Consolidated
      Partnerships
                  
                  
                  79,260
                  
                  
                  88,767
                  
                  (10.7
                  )Eliminations
                  
                  
                  (21,903
                  )
                  
                  (29,476
                  )
                  25.7Total
      revenues
                  
                  $
                  112,737
                  
                  $
                  134,187
                  
                  (16.0
                  )%Expenses:Affordable
      Housing
                  
                  $
                  30,964
                  
                  $
                  36,403
                  
                  (14.9
                  )%Commercial
      Real Estate
                  
                  
                  19,667
                  
                  
                  24,557
                  
                  (19.9
                  )Portfolio
      Management
                  
                  
                  5,429
                  
                  
                  8,364
                  
                  (35.1
                  )Credit
      Risk Products
                  
                  
                  2,359
                  
                  
                  5,017
                  
                  (53.0
                  )Corporate
                  
                  
                  25,327
                  
                  
                  29,758
                  
                  (14.9
                  )Consolidated
      Partnerships
                  
                  
                  258,861
                  
                  
                  88,227
                  
                  193.4Eliminations
                  
                  
                  (21,532
                  )
                  
                  (29,189
                  )
                  26.2Total
      expenses
                  
                  $
                  321,075
                  
                  $
                  163,137
                  
                  96.8
                  %Other
      income (loss)(1):Affordable
      Housing
                  
                  $
                  (5,975
                  )
                  $
                  (5,900
                  )
                  (1.3
                  )Commercial
      Real Estate(2)
                  
                  
                  71
                  
                  
                  6,572
                  
                  (98.9
                  )Credit
      Risk Products
                  
                  
                  --
                  
                  
                  (525
                  )
                  100.0Corporate
                  
                  
                  28
                  
                  
                  (5
                  )
                  660.0Consolidated
      Partnerships(1)
                  
                  
                  177,901
                  
                  
                  6,824
                  
                  N/MEliminations
                  
                  
                  1,696
                  
                  
                  (7,207
                  )
                  123.5Total
      other income (loss)
                  
                  $
                  173,721
                  
                  $
                  (241
                  )
                  N/MIncome
      (loss) before other allocations(1):Affordable
      Housing
                  
                  $
                  (6,133
                  )
                  $
                  1,646
                  
                  (472.6
                  )Commercial
      Real Estate
                  
                  
                  (5,136
                  )
                  
                  (3,881
                  )
                  (32.3
                  )Portfolio
      Management
                  
                  
                  1,955
                  
                  
                  3,020
                  
                  (35.3
                  )Credit
      Risk Products
                  
                  
                  (1,228
                  )
                  
                  (3,293
                  )
                  62.7Corporate
                  
                  
                  (23,700
                  )
                  
                  (26,553
                  )
                  10.7Consolidated
      Partnerships
                  
                  
                  (1,700
                  )
                  
                  7,364
                  
                  (123.1
                  )Eliminations
                  
                  
                  1,325
                  
                  
                  (7,494
                  )
                  117.7Total
      (loss) income before other allocations
                  
                  $
                  (34,617
                  )
                  $
                  (29,191
                  )
                  (18.6
                  )Net
      Income (Loss) attributable to Centerline Holding Company
      shareholders:Affordable
      Housing
                  
                  $
                  (7,690
                  )
                  $
                  (195
                  )
                  N/MCommercial
      Real Estate
                  
                  
                  (5,124
                  )
                  
                  (3,881
                  )
                  (32.0
                  )%Portfolio
      Management
                  
                  
                  1,955
                  
                  
                  3,020
                  
                  (35.3
                  )Credit
      Risk Products
                  
                  
                  (1,107
                  )
                  
                  (3,203
                  )
                  65.4Corporate
                  
                  
                  (14,607
                  )
                  
                  (17,250
                  )
                  15.3Consolidated
      Partnerships
                  
                  
                  (1,700
                  )
                  
                  7,364
                  
                  (123.1
                  )Eliminations
                  
                  
                  1,325
                  
                  
                  (7,494
                  )
                  117.7Total
                  
                  $
                  (26,948
                  )
                  $
                  (21,639
                  )
                  (24.5
                  )%
 
 (1)
              Includes
      income and losses allocated to limited partners of Consolidated
      Partnerships.
 (2)
              Includes
      equity income of CMBS Fund and High-Yield Debt Fund Partnerships as more
      fully described below.
 
 N/M – Not
meaningful.
    - 64
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Affordable
Housing
  The
following factors impact comparability when evaluating the results of the
Affordable Housing group:
  ·
              The
      disruptions in the economy and credit markets have reduced the demand for
      tax credits, which has resulted in fewer tax credit fund originations
      during 2009, as compared to the prior year period.  During 2009
      we raised $38.4 million of gross equity in one Tax Credit Fund, as
      compared to $100.9 million of gross equity raised in two Tax Credit Funds
      in the comparable 2008 period.
  ·
              Beginning
      in the fourth quarter of 2008, the Affordable Housing group performs its
      own asset management services and thus fees, which averaged $2.7 million
      per quarter during 2008, are no longer paid to our Portfolio Management
      group for these services.
  Revenues
  A
description of the revenue streams for our Affordable Housing operations can be
found in our 2008 Form 10-K.
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeInterest
      income:Mortgage
      revenue bond interest income
                
                $
                8,020
                
                $
                12,262
                
                (34.6
                )%Other
      interest income
                
                
                11,861
                
                
                11,158
                
                6.3Fee
      income:Fund
      sponsorship
                
                
                9,400
                
                
                18,718
                
                (49.8
                )Mortgage
      origination fees
                
                
                195
                
                
                362
                
                (46.1
                )Mortgage
      servicing fees
                
                
                271
                
                
                111
                
                144.1Other:Expense
      reimbursements
                
                
                783
                
                
                980
                
                (20.1
                )Miscellaneous
                
                
                276
                
                
                358
                
                (22.9
                )Total
      revenues
                
                $
                30,806
                
                $
                43,949
                
                (29.9
                )%
 
  Interest
income
  Interest
income earned from mortgage revenue bonds has declined due to the smaller
average balance of bonds on the balance sheet period over period. At the time of
the December 2007 Freddie Mac re-securitization transaction, certain bonds did
not receive sale treatment for accounting purposes and thus we continued to
recognize interest income related to these bonds during the first quarter of
2008.  Subsequent to the first quarter of 2008, the guarantees
precluding sale treatment of 26 bonds (with an aggregate par value of $258.3
million) expired, and we recognized the bonds as sold, and thus have no
comparative interest income related to these bonds in the 2009
period.
  Of the
bonds remaining, $518.8 million were also included in the re-securitization
transaction, but as we control the general partner of the property partnership
borrower (which we include in our Consolidated Partnerships), we could not
reflect the transaction as a sale with respect to those bonds.
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeMortgage
      revenue bonds repaid or sold
                
                $
                488
                
                $
                15,173
                
                (96.7
                )%Average
      balance (fair value)
                
                
                492,175
                
                
                770,881
                
                (36.2
                )Weighted
      average yield
                
                
                6.27
                %
                
                6.27
                %
   
 - 65
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other
interest income includes the interest earned on retained interests from the 2007
re-securitization transaction (specifically the Series A-1 and Series B Freddie
Mac Certificates).  The increase in revenue in the 2009 quarter is
primarily a result of recognizing the income from the retained certificates
following the recognized sale of the associated bonds (as described
above).
  Fund
Sponsorship
  Economic
factors and the withdrawal of Fannie Mae and Freddie Mac from the investor base
have reduced the demand for tax credits, resulting in fewer tax credit fund
originations during 2009 as compared to the prior period.  Although
the raising of tax credit funds is traditionally weighted to the fourth quarter,
given the current demand in the market for tax credits, our current expectations
are that total gross equity raised with respect to tax credit funds will be
significantly less than historical levels until the economy
stabilizes.
  Management
segregates such fees into categories based upon activity as provided in the
table below.
  Three
      Months Ended March 31,(dollars
      in thousands)
                                  
                                  2009
                                  
                                  2008
                                  
                                  %
      ChangeFees based on equity
    investedProperty
      acquisition fees
                                  
                                  $
                                  --
                                  
                                  $
                                  6,454
                                  
                                  (100.0
                                  )%Organization,
      offering and acquisition allowance fees
                                  
                                  
                                  202
                                  
                                  
                                  3,101
                                  
                                  (93.5
                                  )Fees based on management of sponsored
      fundsPartnership
      management fees
                                  
                                  
                                  2,759
                                  
                                  
                                  2,759
                                  
                                  --Asset
      management fees
                                  
                                  
                                  4,684
                                  
                                  
                                  5,750
                                  
                                  (18.5
                                  )Other
      fee income
                                  
                                  
                                  1,755
                                  
                                  
                                  654
                                  
                                  168.3Total
      fee income
                                  
                                  $
                                  9,400
                                  
                                  $
                                  18,718
                                  
                                  (49.8
                                  )%Assets
      under management – Tax Credit Funds (balance at March 31)
                                  
                                  $
                                  9,895,260
                                  
                                  $
                                  9,795,332
                                  
                                  1.0
                                  %Equity
      raised by Tax Credit funds
                                  
                                  $
                                  38,360
                                  
                                  $
                                  100,902
                                  
                                  (62.0
                                  )%Equity
      invested by Tax Credit funds(1)
                                  
                                  $
                                  38,360
                                  
                                  $
                                  252,223
                                  
                                  (84.8
                                  )%(1)Excludes warehoused properties that have not yet closed into an
      investment fund.
 
  Fees Based on Equity
Invested
  While we
acquire properties on an ongoing basis throughout the year, we do not recognize
property acquisition fees until we place the property into a sponsored
fund.  Therefore, a change in timing of a fund closure may impact the
level of revenues we recognize in a given period.  Additionally, the
type of funds originated (whether for a single investor, multiple investors or
one with specified rates of return) can affect the level of revenues as the fee
rate for each varies.  In addressing the impact of the current
business environment on the operations of this group, we are currently only
acquiring properties for which we have a specific “take-out” by way of sale to a
fund and are determining fee structures for each fund on a specific
basis.  The fees recognized in the first quarter of 2009 reflect these
situational business changes while the first quarter of 2008 results reflect the
carryover of fund activity conducted in late 2007.
  Fees Based on Management of
Sponsored Funds
  We
collect partnership management fees at the time a fund closes and recognize them
over the first five years of the fund’s life.  Due to the expiration
of the five-year service period for certain funds (and the absence of new
funds), these fees began to stabilize during the fourth quarter of 2008 and will
decrease throughout 2009 and future years in the absence of new
funds.
  The
decrease in asset management fees in 2009 was primarily related to a reduction
in the cash reserve balances of certain funds, causing an uncertainty as to the
collectability of fees for these funds.
   - 66
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other Fee
Income
  Other fee
income includes construction service fees, administration fees, credit
intermediation fees and bond acquisition fees.  With the exception of
credit intermediation fees, these other fee items have generally decreased due
to lower mortgage revenue bond originations on which these fees are
based.  For the remainder of the calendar year, we do not anticipate
the acquisition of any additional mortgage revenue bonds.
  Since
mid-2006, the Affordable Housing Group no longer provides credit intermediation
for new funds (as credit intermediation of new funds is provided by and fees are
earned directly by our Credit Risk Products Group).  This group
continues to recognize fees for transactions prior to mid-2006; however this fee
stream continues to decline as amortization ends for fees related to older
transactions.  In the first quarter of 2009, however, there was a
true-up receipt related to a legacy fund which resulted in an increase in credit
intermediation fees for the period.
  Mortgage
Origination and Servicing Fees
  Affordable
multi-family mortgage originations for the three months ended March 31, 2009 and
2008 are broken down as follows:
  (dollars
      in thousands)
              
              2009
              
              
              
              2008
              
              %
      Change
                2009
      vs. 2008Total
      mortgage origination activity(1)
              
              $
              3,905
              
              
              
              $
              43,905Mortgages
      originated in prior periods and sold during the period
              
              
              12,718
              
              
              
              
              8,062Less:
      mortgages originated but not yet sold(2)
              
              
              --
              
              
              
              
              --Total
      mortgage origination activity recognized for GAAP and for which revenue is
      recognized
              
              $
              16,623
              
              
              
              $
              51,967
              
              (68.0
              )%%
      of Total
              
              
              
              
              %
      of TotalFannie
      Mae
              
              $
              16,623
              
              100.0
              %
              $
              --
              
              --
              %Freddie
      Mac
              
              
              --
              
              --
              
              
              51,967
              
              100.0Total
              
              $
              16,623
              
              100.0
              %
              $
              51,967
              
              100.0
              %(1)Includes all mortgages funded during the period.
                (2)Included in Other Investments – mortgage loans held for
      sale.
 
  (dollars
      in thousands)
              
              2009
              
              2008
              
              %
      Change
                2009
      vs. 2008Primary
      servicing portfolio at March 31
              
              $
              322,366
              
              $
              181,190
              
              
              77.9
              %Carrying
      value of MSRs
              
              $
              3,535
              
              $
              2,423
              
              
              45.9
              %
 
  Affordable
multi-family mortgage originations decreased period over period as a result of
stagnation in credit markets and origination fees decreased
accordingly.
  Mortgage
servicing fees increased in the current period due to an increase in the
servicing portfolio period over period.
  Other
Revenues
  Expense
reimbursements and miscellaneous revenues fluctuate with the growth of the
number of funds we manage and their cash flows.  The decrease in 2009
versus 2008 is primarily due to lower cash flows of these entities as compared
to the prior period.
    - 67
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Expenses
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeGeneral
      and administrative
                
                $
                8,989
                
                $
                12,653
                
                (29.0
                )%Interest
      expense:Borrowings
      and financings
                
                
                5,885
                
                
                11,724
                
                (49.8
                )Preferred
      shares of subsidiary
                
                
                4,724
                
                
                4,724
                
                --Depreciation
      and amortization
                
                
                2,817
                
                
                470
                
                499.4Impairment
      of assets
                
                
                8,549
                
                
                6,832
                
                25.1Total
      expenses
                
                $
                30,964
                
                $
                36,403
                
                (14.9
                )%Average
      borrowing rate
                
                
                5.50
                %
                
                6.03
                %Average
      SIFMA rate
                
                
                0.58
                %
                
                2.53
                %
 
  General
and Administrative
  The
decrease in general and administrative expenses in both periods is attributable
to:
  ·
              $2.7
      million decrease in asset management and loan servicing fees year over
      year. Beginning in the fourth quarter of 2008, the Affordable Housing
      group performs its own asset management services and thus no further fees
      will be paid to our Portfolio Management group for these
      services;
  ·
              $1.7
      million reduction of salaries and benefits expense resulting from a
      reduction in personnel; and
  ·
              $1.6
      million decrease in tax credit acquisition costs due to the lower volume
      of fund closings.
  Partially
offsetting these decreases was a $2.0 million increase in reserves against
advances made to our sponsored funds as the amounts may not be
collectible.
  Interest
Expense
  The
decrease in interest expense is primarily attributable to:
  ·
              $4.2
      million decrease in derivative expense related to favorable changes in the
      fair value of free-standing derivatives.  These derivatives are
      interest rate swap agreements with the developers of properties underlying
      certain mortgage revenue bonds we previously owned (see Note 23 to the
      condensed consolidated financial statements);
  and
  ·
              $2.7
      million decrease in interest expense on the Freddie Mac secured financing
      liability relating to mortgage revenue bonds re-securitized but for which
      the transaction was not recognized as a sale for accounting purposes (see
      Note 13 to the condensed consolidated financial
      statements).  The decrease was the result of additional bonds
      qualifying for sale treatment subsequent to the first quarter of 2008 and
      the resulting de-recognition of the secured financing
      liability.  The change corresponds with the decrease in mortgage
      revenue bond interest income described under Revenues
      above.
  Partially
offsetting these decreases was a net increase in cash payments related to the
free-standing derivatives mentioned above.  Under these agreements, we
pay fixed interest rates and receive interest at a variable rate (see Note 23 to
the condensed consolidated financial statements) and therefore we have paid
additional interest payments in the 2009 period as variable interest rates have
decreased period over period.
  Depreciation
and Amortization
  The
increase in 2009 was due to the change in the amortization life (effective
January 1, 2009) of deferred financing costs related to a change in the
estimated retirement date of certain mandatorily redeemable instruments in this
segment.
   - 68
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Impairment
of Assets
  Loss on
impairment of assets in 2009 relates to losses on our Series B Freddie Mac
Certificates. Due to our expectation of increased severity of credit losses in
the mortgage revenue bonds underlying the Series B Freddie Mac certificates, we
reduced the projected cash flows we will receive over the life of the investment
and, accordingly, recognized the resulting decrease in value as an
impairment.
  In the
first quarter of 2008, we reached an agreement to sell two mortgage revenue
bonds in the second quarter of 2008, resulting in impairment charges of $6.3
million, representing the difference between the estimated sales price and the
carrying value for the two bonds. As the terms of the sale agreement indicated a
permanent decline in the value of the investments, we recorded the loss as an
impairment in the first quarter.  The remaining $0.5 million relates
to one bond which resulted from substandard performance at the underlying
property.
  Other
(loss) income
  Three
      Months Ended March 31,(dollars
      in thousands)
                    
                    2009
                    
                    2008
                    
                    %
      ChangeEquity
      and other (loss) income
                    
                    $
                    (6,915
                    )
                    $
                    152
                    
                    N/MGain
      (loss) from repayment or sales of investments, net
                    
                    
                    940
                    
                    
                    (6,052
                    )
                    115.5
                    %Total
      other loss
                    
                    $
                    (5,975
                    )
                    $
                    (5,900
                    )
                    (1.3
                    )%N/M
      – Not meaningful.
 
  Equity
and Other (Loss) Income
  During
the three months ended March 31, 2009, we recorded charges of $6.9 million to
write down the value of equity interest in two tax credit property
partnerships.  While we normally sell the equity interests into
sponsored funds at our cost basis, we do not expect to recover the costs of
these investments.
  Gain
(Loss) from Repayment or Sales of Investments, Net
  The 2008
period includes $7.2 million of incremental losses associated with the 2007
re-securitization transaction.
  The above
items are discussed under “Other Income (Loss)” in SECTION 1 – CONSOLIDATED
RESULTS.
  These
amounts also include premiums earned from sale of affordable housing mortgage
loans to Fannie Mae and Freddie Mac as well as gains we record in connection
with recognizing mortgage servicing rights.  The 2009 amount related
to these items is $0.4 million as compared to $1.0 million in the 2008 period,
and the related principal balance of the loans originated was $16.6 million in
the 2009 period as compared to $52.0 million in the 2008 period.
  Profitability
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeIncome
      (loss) before other allocations
                
                $
                (6,133
                )
                $
                1,646
                
                (472.6
                )Net
      loss
                
                
                (7,690
                )
                
                (195
                )
                N/MN/M
      – Not meaningful.
 
  The
change in income (loss) before other allocations reflects the revenues and
expense changes discussed above.  Incremental costs incorporated in
net loss include the impact of taxes and allocations to the preferred shares of
subsidiaries.
   - 69
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Commercial Real
Estate
  The
following factors impact comparability when evaluating the results of the
Commercial Real Estate group:
  ·
              Our
      CMBS investments, whether held by our funds or for our own account, have
      experienced a significant decline in fair value.  We continue to
      believe that a majority of such declines are due to market dislocation and
      are not necessarily reflective of the credit quality of the underlying
      assets (see Fair Value
      Disclosures discussion in SECTION 4 – LIQUIDITY AND CAPITAL
      RESOURCESbeginning on page 82).  In addition, our
      strategy with CMBS investments is long-term in nature and we have the
      intent and ability to hold these assets until market conditions improve
      allowing time for the asset values to
recover.
  ·
              For
      the three months ended March 31, 2009, our proportionate share of
      impairment charges recognized by the CMBS Fund Partnerships and the
      High-Yield Debt Fund Partnership was $8.4 million (as compared to $0.1
      million in the first quarter of
2008).
  ·
              As
      part of an agreement with Nomura, in 2008 we began to act as collateral
      manager for two commercial real estate CDOs previously managed by Nomura
      and are managing a portfolio of assets that Nomura holds for its own
      account.
  Revenues
  A
description of the revenue streams for our Commercial Real Estate operations can
be found in our 2008 Form 10-K.  The following table does not include
the earnings from managing CMBS and High-Yield Debt funds, which we receive in
the form of equity allocations (see Other (loss) income - Equity and other (loss)
income below).
  Three
      Months Ended March 31,(dollars
      in thousands)
                  
                  2009
                  
                  2008
                  
                  %
      ChangeInterest
      income
                  
                  $
                  5,385
                  
                  $
                  5,742
                  
                  (6.2
                  )%Fee
      income:Mortgage
      origination fees
                  
                  
                  415
                  
                  
                  1,077
                  
                  (61.5
                  )Mortgage
      servicing fees
                  
                  
                  4,785
                  
                  
                  4,908
                  
                  (2.5
                  )Other
      fees:CDO
      collateral management
                  
                  
                  1,919
                  
                  
                  246
                  
                  680.1Other
      fees
                  
                  
                  1,545
                  
                  
                  1,026
                  
                  50.6Other
      income:Prepayment
      penalties
                  
                  
                  306
                  
                  
                  419
                  
                  (27.0
                  )Other
      revenues
                  
                  
                  105
                  
                  
                  686
                  
                  (84.7
                  )Total
      revenues
                  
                  $
                  14,460
                  
                  $
                  14,104
                  
                  2.5
                  %
 
  Interest
Income
  The
decrease in interest income was primarily attributable to:
  ·
              $1.2
      million of income in 2008 from our loan to AMAC with none recognized in
      2009.  Due to the pending liquidation of AMAC, we stopped
      receiving interest payments in the third quarter of 2008 and do not
      anticipate future interest income from this loan;
  and
  ·
              $1.0
      million decrease in interest income earned on cash held at our mortgage
      banking subsidiaries due to falling interest rates (average rate of 0.2%
      in the current period as compared to 3.2% in the comparable prior year
      period).
  Partially
offsetting this decrease was a $1.7 million increase due to interest earned on
CMBS and retained CMBS investments from periodic accretion differences in
accordance with GAAP.
    - 70
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Mortgage
Origination Fees
  Origination
fees decreased due to a lower level of originations period over period. The
decrease in fees was less than the decrease in originations because we did not
earn fees for a portion of the 2008 originations. Conventional multi-family
mortgage originations for the three months ended March 31, are broken down as
follows:
  (dollars
      in thousands)
                    
                    2009
                    
                    
                    
                    2008
                    
                    %
      Change
                      2009
      vs. 2008Total
      mortgage origination activity(1)
                    
                    $
                    117,332
                    
                    
                    
                    $
                    335,222Mortgages
      originated in prior periods and sold during the period
                    
                    
                    34,507
                    
                    
                    
                    
                    83,642Less:
      mortgages originated but not yet sold(2)
                    
                    
                    (80,065
                    )
                    
                    
                    
                    (227,232
                    )Total
      mortgage origination activity recognized for GAAP and for which revenue is
      recognized
                    
                    $
                    71,774
                    
                    
                    
                    $
                    191,632
                    
                    (62.5
                    )%%
      of Total
                    
                    
                    
                    
                    %
      of TotalFannie
      Mae
                    
                    $
                    71,774
                    
                    100.0
                    %
                    $
                    117,342
                    
                    61.2
                    %Freddie
      Mac
                    
                    
                    --
                    
                    --
                    
                    
                    63,290
                    
                    33.0Conduit
      and other
                    
                    
                    --
                    
                    --
                    
                    
                    11,000
                    
                    5.7Total
                    
                    $
                    71,774
                    
                    100.0
                    %
                    $
                    191,632
                    
                    100.0
                    %(1)Includes all mortgages funded during the period.
                      (2)Included in Other Investments – mortgage loans held for
      sale.
 
  Conventional
mortgage originations decreased period over period as a result of deterioration
in market conditions occurring in the multifamily real estate sector toward the
latter half of 2008 and into 2009.  This deterioration resulted in a
significant decline in the volume of property acquisitions requiring financing,
and changes to the underwriting and lending standards utilized by Fannie Mae and
Freddie Mac, causing an overall reduction in activity.  Furthermore,
the lack of Freddie Mac origination activity in the first quarter is due to
changes that they made to their lending programs at the beginning of the year
that resulted in Freddie Mac quotes not being competitive in the
market.
  We have
not originated loans for a conduit lender or any other type of securitization
program since the first quarter of 2008.
  During
the month of April 2009, we originated loans that have settled with Fannie Mae
and Freddie Mac for approximately $61.8 million and have closed an additional
$110.3 million of loans awaiting settlement.  During April 2008, we
had $232.8 million of settled loans and $40.6 million of closed
loans.
  Mortgage
Servicing Fees
  As
      of March 31,(dollars
      in thousands)
                    
                    2009
                    
                    2008
                    
                    %
      ChangePrimary
      servicing mortgage portfolio
                    
                    $
                    8,478,739
                    
                    $
                    8,617,591
                    
                    (1.6
                    )%Carrying
      value of MSRs
                    
                    $
                    57,879
                    
                    $
                    61,342
                    
                    (5.6
                    )%
 
  The
decrease in servicing fees is primarily due to the decline in the servicing
portfolio.
  Other
Fees
  CDO
collateral management represents new revenue streams earned in connection with
the CDO collateral management agreement we entered into during the first quarter
of 2008.
    - 71
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 The
increase in other fee income represents incentive fees we received in 2009 from
the disposition of certain investments in a third-party commercial loan
portfolio we began managing in 2008.
  Other
Revenues
  The
decrease in prepayment penalties over the three year period relates to a lower
level of refinancing activity over the same period, primarily due to the
difficulty in refinancing mortgages in the current credit
environment.
  Miscellaneous
other revenue decreased primarily due to a reduction in expense reimbursement
related to AMAC as a result of  its pending liquidation (no
reimbursements in the current period as compared to $0.5 million in the
comparable period).
  Provided
below is the detail of Commercial Real Estate assets under management (for which
we earn fees) which grew significantly from the prior period principally as a
result of the Nomura agreements described above.
  March
      31,(dollars
      in thousands)
                  
                  2009
                  
                  2008
                  
                  %
      ChangeCMBS
      funds(1)
                  
                  $
                  1,475.4
                  
                  $
                  1,475.4
                  
                  --
                  %High-yield
      debt fund(1)
                  
                  
                  535.7
                  
                  
                  535.7
                  
                  --Joint
      venture equity funds(1)
                  
                  
                  179.4
                  
                  
                  221.6
                  
                  (19.0
                  )CDO
      collateral management(2)
                  
                  
                  1,838.8
                  
                  
                  --
                  
                  100.0Third-Party
      commercial loan portfolio
                  
                  
                  444.9
                  
                  
                  --
                  
                  100.0Total
                  
                  $
                  4,474.2
                  
                  $
                  2,232.7
                  
                  100.4
                  %(1)Figures represent committed and invested equity of the managed
      entities.
                    (2)March 31, 2009 includes $392.0 million of assets we manage for AMAC
      for which we did not earn fees at March 31, 2008.
 
  Expenses
  Three
      Months Ended March 31,(dollars
      in thousands)
                      
                      2009
                      
                      2008
                      
                      %
      ChangeGeneral
      and administrative
                      
                      $
                      9,215
                      
                      $
                      10,774
                      
                      (14.5
                      )%Interest,
      net
                      
                      
                      778
                      
                      
                      10,665
                      
                      (92.7
                      )Depreciation
      and amortization
                      
                      
                      3,082
                      
                      
                      3,118
                      
                      (1.2
                      )Loss
      on impairment of assets
                      
                      
                      6,592
                      
                      
                      --
                      
                      100.0Total
      expenses
                      
                      $
                      19,667
                      
                      $
                      24,557
                      
                      (19.9
                      )%
 
  General
and Administrative
  General
and administrative expense decreased $0.5 million due to lower auditing fees
incurred in 2008 and $0.4 million representing costs incurred in 2008 for a
business initiative that was subsequently postponed.
  Interest
Expense
  The three
months ended March 31, 2008 include $8.7 million of non-cash loss representing
the change in the fair value of derivatives.  There was no
corresponding amount in 2009, as these swaps were terminated at the end of 2008.
The remaining decrease is due to lower rates of interest incurred to warehouse
mortgage loans prior to sale and lower origination volume.
  Loss
on Impairment of Assets
  During
the first quarter of 2009, we recognized a $6.6 million other-than-temporary
impairment related to CMBS investments we hold in this group for our own
account.  The impairment was due to expected increases in credit
defaults in the associated CMBS trust.  There was no comparable
impairment loss in the 2008 period.
    - 72
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other
(loss) income
  Three
      Months Ended March 31,(dollars
      in thousands)
                    
                    2009
                    
                    2008
                    
                    %
      ChangeEquity
      and other (loss) incomeAMAC
                    
                    $
                    --
                    
                    $
                    (1,994
                    )
                    100.0
                    %Consolidated
      Partnerships
                    
                    
                    (1,698
                    )
                    
                    7,236
                    
                    (123.5
                    )Other
                    
                    
                    (9
                    )
                    
                    (59
                    )
                    84.7Gain
      on sale or repayment of loans, net
                    
                    
                    1,778
                    
                    
                    1,389
                    
                    28.0Total
      other income
                    
                    $
                    71
                    
                    $
                    6,572
                    
                    (98.9
                    )%
 
  Equity
and other (loss) income
  As AMAC
is developing a plan of liquidation, we stopped recording equity losses related
to its operations in the fourth quarter of 2008, but may have further losses if
we do not recover the current estimate of $9.6 million on the loan we had
provided to AMAC.
  Also
included is equity income from the CMBS Fund Partnerships and the High-Yield
Debt Fund Partnership for which we act as general partner and own a portion of
the funds at varying ownership percentages, generally 5%.  While the
funds remain cash-flow-positive, their GAAP net income includes charges for
other-than-temporary impairment of investments they hold.  The lower
amount in 2009 includes our proportionate share ($8.4 million) of $176.6 million
of asset impairment charges recognized at three of the CMBS Fund Partnerships
and the High-Yield Debt Fund Partnership.  The comparable amount in
2008 was insignificant.  As the impairment charges reflect the
expectation of future credit losses, they do not impact the equity allocations
we receive to manage the funds although the amount of promote income in the
future may be reduced if the anticipated credit losses come to pass in future
periods.
  Gain
on sale or repayment of loans
  Gain on
sale or repayment of loans in this segment primarily relates both to premiums
earned from sale of mortgage loans or mortgage backed securities to Fannie Mae
and Freddie Mac as well as gains we record in connection with recognizing
mortgage servicing rights.  While more loans were sold in 2008, the
2009 loans were for a higher principal amount, resulting in consistent gains
period over period.
  Partially
offsetting the 2008 amount, is a $0.3 million loss on an investment held at
Centerline Investors.
  Profitability
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeLoss
      before other allocations
                
                $
                (5,136
                )
                $
                (3,881
                )
                (32.3
                )%Net
      loss
                
                
                (5,124
                )
                
                (3,881
                )
                (32.0
                )
 
  The
change in loss before other allocations and net loss reflects the revenues and
expense changes discussed above.
  Portfolio
Management
  The
following factors impact comparability when evaluating the results of the
Portfolio Management group:
  ·
              Our
      primary loan servicing portfolio decreased to $21.4 billion, as compared
      to $27.5 billion at March 31, 2008, due principally to declining
      pre-securitization servicing that has been affected by the disruption in
      credit markets.
  ·
              Our
      2009 special servicing portfolio increased to $3.1 billion, as compared to
      $1.2 billion at March 31, 2008.
     - 73
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  ·
              Beginning
      in the fourth quarter of 2008, the Affordable Housing group performs its
      own asset management services and thus no longer pays fees, which averaged
      $2.7 million per quarter in 2008, to the Portfolio Management group for
      such services.
  Revenues
  A
description of the revenue streams for our Portfolio Management operations can
be found in our 2008 Form 10-K.
  Three
      Months Ended March 31,(dollars
      in thousands)
                  
                  2009
                  
                  2008
                  
                  %
      ChangeInterest
      income
                  
                  $
                  340
                  
                  $
                  2,491
                  
                  (86.4
                  )%Fee
      income:Asset
      management/servicing
                  
                  
                  3,830
                  
                  
                  6,739
                  
                  (43.2
                  )Other
      fee income
                  
                  
                  3,166
                  
                  
                  1,937
                  
                  63.4Other
                  
                  
                  48
                  
                  
                  217
                  
                  (77.9
                  )Total
      revenues
                  
                  $
                  7,384
                  
                  $
                  11,384
                  
                  (35.1
                  )%At
      March 31,(dollars
      in thousands)
                  
                  2009
                  
                  2008Primary
      Servicing Portfolio(1)
                  
                  $
                  21,420,101
                  
                  $
                  27,494,083
                  
                  (22.1
                  )%Special
      Servicing Portfolio
                  
                  
                  3,072,803
                  
                  
                  1,181,814
                  
                  160.0Carrying
      value of MSRs
                  
                  
                  2,092
                  
                  
                  4,931
                  
                  (57.6
                  )(1)Includes
      sub-servicing of the Commercial Real Estate servicing
      portfolio
 
  Interest
Income
  Interest
income in this segment is a function of the size of the servicing portfolio (and
therefore the size of escrow accounts managed) and the rate that can be earned
on those funds.  As securitization volume has declined substantially
since the third quarter of 2007 throughout the credit markets, our servicing
portfolio has decreased period over period as a result of the lower
pre-securitization component of the portfolio. In addition, interest income
decreased due to lower rates earned on the servicing escrow cash balances
resulting from significant interest rate declines.
  Fee
income
  The
decrease in asset management/servicing fees is primarily due to the transfer of
affordable housing servicing into our Affordable Housing group. As discussed
above, beginning in October 2008, these services are being performed within
Affordable Housing, resulting in a decrease of $2.7 million per quarter
previously earned by this segment (see Affordable Housing discussion
above).  Also contributing to the decrease is the decline in our
servicing portfolio period over period, as discussed above.
  The
increase in other fee income is primarily attributable to a net increase in
special servicing fees.  An increase in base fees (due to an increase
in the special servicing portfolio period over period) and liquidation fees (due
to the liquidation of a large special servicing loan in the first quarter of
2009) was partially offset by a decrease in assumption fees related to the
special servicing portfolio (due to a drop of 38.6% in the number of assumptions
period over period).
    - 74
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  Expenses
  Three
      Months Ended March 31,(dollars
      in thousands)
                  
                  2009
                  
                  2008
                  
                  %
      ChangeGeneral
      and administrative expenses
                  
                  $
                  4,481
                  
                  $
                  7,089
                  
                  (36.8
                  )%Interest
      expense
                  
                  
                  --
                  
                  
                  2
                  
                  (100.0
                  )Depreciation
      and amortization
                  
                  
                  948
                  
                  
                  1,273
                  
                  (25.5
                  )Total
      expenses
                  
                  $
                  5,429
                  
                  $
                  8,364
                  
                  (35.1
                  )%
 
  General
and administrative
  General
and administrative expenses declined due to lower expenses associated with asset
management services related to our Affordable Housing group which is now
performed within that group as discussed above.
  Depreciation
and amortization
  Depreciation
and amortization expenses decreased as a result of lower amortization of
mortgage servicing rights.  The majority of the mortgage servicing
rights in this segment was recorded upon acquisition of this business in 2006
and certain of those assets were fully amortized during the first quarter of
2008.  Most of the remaining balance will be fully amortized prior to
the end of 2009.
  Profitability
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeIncome
      before other allocations
                
                $
                1,955
                
                $
                3,020
                
                (35.3
                )%Net
      income
                
                
                1,955
                
                
                3,020
                
                (35.3
                )
 
  The
change in income (loss) before other allocations and net income reflects the
revenues and expense changes discussed above.
  Credit Risk
Products
  The
following factors impact comparability when evaluating the results of the Credit
Risk Products group:
  ·
              Beginning
      in the fourth quarter of 2007, we began purchasing syndicated debt in
      anticipation of a future securitization
      transaction.  Principally as a result of market conditions, we
      did not purchase any additional syndicated corporate debt during 2008 and
      instead began liquidating our positions.  Most of the assets
      were sold at a loss by December 31, 2008 and the debt utilized to acquire
      the assets was repaid, reducing interest expense in this
      group.  We also eliminated the personnel associated with that
      portion of the business during the fourth quarter of 2008, lowering the
      group’s cost structure.
  Our
current outlook is that little, if any, new business will be carried out in our
Credit Risk Products group in the near future, given current market
conditions.
    - 75
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  Revenues
  A
description of the revenue streams for our Credit Risk Products operations can
be found in our 2008 Form 10-K.
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeInterest
      income
                
                $
                109
                
                $
                964
                
                (88.7
                )%Credit
      intermediation fees
                
                
                1,018
                
                
                1,193
                
                (14.7
                )Other
      revenues
                
                
                4
                
                
                92
                
                (95.7
                )Total
      revenues
                
                $
                1,131
                
                $
                2,249
                
                (49.7
                )%
 
  Interest
Income
  Interest
income on capital balances maintained at Centerline Financial decreased due to
declines in interest rates period over period.  In addition, the 2008
period includes interest income from investments in syndicated corporate debt,
the majority of which we sold prior to December 31, 2008.
  Credit
Intermediation Fees
  The
decrease in credit intermediation fees relates to fees earned on two agreements
terminated in October 2008.  Another credit intermediation agreement
was terminated subsequent to March 31, 2009.  As we are not currently
entering into any new such agreements, we expect that this fee stream will
continue to decline for the remainder of 2009.
  Expenses
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      ChangeGeneral
      and administrative expenses
                
                $
                1,823
                
                $
                3,544
                
                (48.6
                )%Interest
      expenseBorrowings
                
                
                45
                
                
                428
                
                (89.5
                )Derivatives
      – fair value change
                
                
                469
                
                
                (182
                )
                357.7Depreciation
      and amortization
                
                
                7
                
                
                36
                
                (80.6
                )Impairment
      of assets
                
                
                15
                
                
                1,191
                
                (98.7
                )Total
      expenses
                
                $
                2,359
                
                $
                5,017
                
                (53.0
                )%
 
  General
and administrative
  General
and administrative expenses decreased in the current quarter primarily due
to:
  ·
              $0.6
      million reduction in professional fees paid to Natixis for advisory
      services.  The agreement, which was in place during first
      quarter of 2008, was terminated in October
2008;
  ·
              $0.4
      million reduction in consulting and legal costs due to no new business
      activity in the first quarter of 2009 or planned business activity in the
      near future; and
  ·
              $0.4
      million net reduction in salaries and benefits expense (due to reduction
      in force in April and November 2008, partially offset by severance costs
      incurred in the first quarter of 2009 due to the departure of an executive
      officer in this group).
    - 76
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Interest
expense
  Interest
expense on borrowings decreased as the 2008 period included costs incurred in
connection with the syndicated corporate debt warehouse line which was
terminated in October 2008.  Change in fair value of derivatives in
both periods relates to one interest rate swap with a third-party.
  Impairment
of assets
  We
recognized impairment charges in 2008 due to the declining value of syndicated
corporate debt securities.  As we determined early in 2008 that we
might not hold the investments until recovery, we concluded that the declines in
fair value were other-than-temporary.  The majority of these
investments were sold prior to December 31, 2008 and the 2009 charge relates to
the remaining assets which we intend to sell.
  Other
(loss) income
  Three
      Months Ended March 31,(dollars
      in thousands)
                    
                    2009
                    
                    2008
                    
                    %
      ChangeLoss
      on sale of assets
                    
                    $
                    --
                    
                    $
                    (525
                    )
                    100.0
                    %
 
  In 2008,
we sold syndicated corporate debt investments at a loss, and for which we had
previously recorded impairment losses as described above. There is no comparable
loss in the 2009 period as the majority of the investments in this segment were
sold prior to December 31, 2008.
  Profitability
  Three
      Months Ended March 31,(dollars
      in thousands)
                
                2009
                
                2008
                
                %
      Change(Loss)
      income before other allocations
                
                $
                (1,228
                )
                $
                (3,293
                )
                62.7
                %Net
      loss
                
                
                (1,107
                )
                
                (3,203
                )
                65.4
 
  The
change in income (loss) before other allocations reflects the revenues and
expense changes discussed above.  Net loss includes the
non-controlling interest allocation to Natixis.
  Corporate
  Three
      Months Ended March 31,(dollars
      in thousands)
                        
                        2009
                        
                        2008
                        
                        %
      ChangeGeneral
      and administrative
                        
                        $
                        13,554
                        
                        $
                        16,284
                        
                        (16.8
                        )%Interest
      expense
                        
                        
                        6,688
                        
                        
                        6,470
                        
                        3.4Depreciation
      and amortization
                        
                        
                        5,085
                        
                        
                        7,004
                        
                        (27.4
                        )Total
      expenses
                        
                        $
                        25,327
                        
                        $
                        29,758
                        
                        (14.9
                        )%
 
  Expenses
in our Corporate Group include central business functions such as executive,
finance and legal as well as costs related to general corporate
debt.
  General
and Administrative
  Other
general and administrative expenses decreased by $2.7 million which primarily
relates to:
  ·
              $2.7
      million decrease in salaries and benefits expense due to the reduction in
      personnel in April and November
2008;
    - 77
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 ·
              $1.8
      million decrease in bonus expense due to the reduction in personnel and a
      reduction in profits; and
  ·
              $0.9
      million decrease in legal costs associated with litigation commencing in
      the first quarter of 2009 (see Note 26 to the condensed consolidated
      financial statements).
  Partially
offsetting these decreases was $3.0 million in rent expense in 2009 for office
space planned as our new headquarters for which there was no comparable 2008
amount.  We are currently in negotiations with the landlord to
terminate the lease.
  Interest
Expense
  The
increase in interest expense was primarily attributable to a $2.1 million net
increase to cash interest related to our Term Loan and Revolving Credit
Facility. A decrease in the average outstanding balance period over period was
more than offset by an increase in the borrowing rate (due both to an increase
in rates incurred pursuant to the December 2008 amended terms and the impact of
our swap agreement related to these borrowings). See further discussion under
“Interest Expense” in SECTION
1 – CONSOLIDATED
RESULTS.
  This
increase was substantially offset by the change in fair value of our Term Loan
and Revolving Credit Facility swap agreement.  Prior to the fourth
quarter of 2008, we applied hedge accounting to the swap and changes in fair
value were included in other comprehensive income.  After we ceased
hedge accounting, the swap is treated as a free-standing derivative and changes
in fair value are recorded in interest expense.
  Depreciation
and Amortization
  The
decrease in depreciation and amortization is principally due to the acceleration
of leasehold improvement amortization in 2008 in anticipation of the intended
relocation of our corporate headquarters and the write off of other offices that
we closed.  Offsetting that decline was an increase in amortization of
deferred financing costs related to the amendment of our credit facilities in
December 2008.
  Consolidated
Partnerships
  The
results of Consolidated Partnerships reflect entities in which we have a
substantive controlling general partner or managing member
interest.  With respect to the Tax Credit Fund Partnerships and Tax
Credit Property Partnerships, we have no equity interest or, in the case of 39
partnerships, an insignificant equity interest.  With respect to the
CMBS Fund Partnerships and the High-Yield Fund Partnerships, we have ownership
of between 5.0% and 25.0% and also receive additional equity income allocations
as manager.
  A summary
of the impact the Consolidated Partnerships have on our Condensed Consolidated
Statements of Operations is as follows:
  Three
      Months Ended March 31,2009
              
              2008(in
      thousands)
              
              Tax
      Credit Fund
                and
      Property Partnerships
              
              CMBS
      and
                High-Yield
                Debt
      Fund
                Partnerships
              
              Total
              
              Tax
      Credit Fund
                and
      Property
                Partnerships
              
              CMBS
      and
                High-Yield
                Debt
      Fund
                Partnerships
              
              TotalRevenues
              
              $
              20,267
              
              $
              58,993
              
              $
              79,260
              
              $
              21,523
              
              $
              67,244
              
              $
              88,767Interest
      expense
              
              
              (1,954
              )
              
              (27,816
              )
              
              (29,770
              )
              
              (3,024
              )
              
              (31,868
              )
              
              (34,892
              )Loss
      on impairment of assets
              
              
              --
              
              
              (176,604
              )
              
              (176,604
              )
              
              --
              
              
              (688
              )
              
              (688
              )Other
      expenses
              
              
              (32,299
              )
              
              (2,531
              )
              
              (34,830
              )
              
              (29,199
              )
              
              (2,659
              )
              
              (31,858
              )Partnership
      expenses eliminated in consolidation
              
              
              (16,768
              )
              
              (889
              )
              
              (17,657
              )
              
              (20,724
              )
              
              (65
              )
              
              (20,789
              )Loss
      on investments
              
              
              (115,839
              )
              
              --
              
              
              (115,839
              )
              
              (94,113
              )
              
              --
              
              
              (94,113
              )Allocations
      to limited partners
              
              
              146,591
              
              
              147,149
              
              
              293,740
              
              
              125,665
              
              
              (24,728
              )
              
              100,937Net
      impact
              
              $
              (2
              )
              $
              (1,698
              )
              $
              (1,700
              )
              $
              128
              
              $
              7,236
              
              $
              7,364
 
    - 78
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  The net
impact represents the equity income we earn on our co-investments which is
included in net income (loss) allocated to our shareholders.  See
SECTION 2 – CONSOLIDATED
RESULTS OF OPERATIONS – Other Items.
  The
following table summarizes the number of Consolidated Partnerships at March
31:
  2009
                
                2008Tax
      Credit Fund Partnerships
                
                
                134
                
                
                132Tax
      Credit Property Partnerships
                
                
                51
                
                
                55CMBS
      Fund Partnerships
                
                
                3
                
                
                3High-Yield
      Debt Fund Partnership
                
                
                1
                
                
                1
 
  Tax
Credit Fund Partnerships and Tax Credit Property Partnerships
  The
decrease in revenues is primarily due to a reduction in interest income of $1.4
million resulting from a decrease in interest rates.
  Interest
expense for Tax Credit Fund and Property Partnerships declined due to lower
levels of debt in those partnerships resulting from collections of subscription
receivables that allowed the funds to repay borrowings.
  As third
party investors hold virtually all of the equity interests in these entities, we
allocate results of operations of these partnerships to such third party
investors except for the amounts shown in the table above which represent our
nominal ownership.
  CMBS
Fund Partnerships and High-Yield Debt Fund Partnership
  The
decrease in the revenues of the CMBS and High-Yield Debt Fund Partnerships is
due to:
  ·
              lower
      interest earned on variable-rate investments at the High-Yield Debt Fund
      Partnership (decrease of $1.5
million);
  ·
              non-accrual
      of interest for certain mortgage loan investments of the High-Yield Debt
      Fund Partnership beginning in the third quarter of 2008  due to
      the uncertainty of collection (decrease of $1.9 million);non-accrual
      of interest income for certain CMBS structured investments held by the
      High-Yield Debt Fund Partnership due to uncertain collectability (decrease
      of $3.0 million); and
  ·
              lower
      interest earned on cash and restricted cash balances (due to a significant
      drop in interest rates period over
period).
  The
decrease in the interest expense of the consolidated partnerships is due
to:
  ·
              lower
      average outstanding balance on the repurchase agreements at the High-Yield
      Debt Fund Partnership, coupled with falling interest rates incurred on
      this debt; and
  ·
              lower
      interest expense at the CMBS Fund Partnerships due to the termination of
      all interest rate swaps in late
2008.
  Partially
offsetting these decreases was a net increase in interest expense at one of the
CMBS Fund Partnerships. In February 2008, one of the CMBS Fund Partnerships
received loans of $295.0 million from certain members of the fund (excluding
$22.3 million from us which is eliminated in consolidation).  The
loans are for a two year term, subject to two one-year extensions upon approval
of all lenders (excluding us) and bear interest at a fixed rate of 14.0% (and a
portion may be paid-in-kind although the fund has paid all interest in cash to
date).  Proceeds from the loan were used to repay all outstanding
repurchase agreement and subscription line financing of the CMBS Fund
Partnership and to repay other loans we had made to the Fund
Partnership.
  The 2009
results also reflect asset impairment charges with respect to investments in
CMBS, retained CMBS certificates and mortgage loans held for investment of
$176.6 million as compared to $0.7 million in the comparable 2008
period.  The impairments in the 2009 quarter were predominantly due to
increasing default levels within the CMBS trusts and CDOs in which the funds
invest.
    - 79
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  SECTION 4 - LIQUIDITY AND
CAPITAL RESOURCES
  Liquidity
  A
significant part of managing our liquidity includes the ongoing ability to
accommodate growth of assets under management, fund and maintain investments
including ongoing commitments, pay compensation and fund other general business
operations, including our contractual obligations.  Liquidity
management involves forecasting funding requirements and maintaining sufficient
capital to meet the fluctuating needs inherent in our business operations as
well as unanticipated events.
  While our
operating cash flows have improved (see discussion under Cash Flowsbelow), and we had
cash liquidity of $21.2 million as of March 31, 2009, we are subject to external
factors that constrain our business operations.  As our secured
lenders sweep most of our available cash to repay our debt, we may not be able
to fund new initiatives, co-investments in new funds or other growth strategies.
Additionally, we have liabilities owed to non-secured lenders that we will need
to satisfy when the terms of our senior debt are met.
  Typically,
we have funded our short-term business needs (including investments) primarily
with cash provided by operations, securitization of investments, repurchase
agreements and revolving or warehouse credit facilities.  Our primary
sources of capital to meet long-term liquidity needs (including acquisitions)
are debt and various types of equity offerings, including equity of our
subsidiaries.  Recent economic events have limited these sources of
liquidity in three key areas:
  ·
              a
      significant decline in transaction related revenues, primarily due to
      fewer investors for our Affordable Housing and Commercial Real Estate
      funds as many of our earnings streams involve establishing and managing
      such funds.  The lack of investors is compounded by the absence
      of quality investments for which capital could be
  deployed;
  ·
              a
      sharp decline in our common share price and the general environment for
      equity offerings have made obtaining equity capital extremely difficult;
      and
  ·
              the
      lower level of financing available in the
  marketplace.
  Turbulence
in the credit markets that began in 2007 has led to decreased availability of
many forms of financing.  Specifically, since mid-2007 we have
experienced more constrained credit in the following areas:
  ·
              for
      asset-backed financing (such as we use to fund Fannie Mae and Freddie Mac
      mortgage originations in our Commercial Real Estate and Affordable Housing
      groups), the capacity of our financing facilities has decreased while the
      cost of borrowing has increased.  In addition, we anticipate a
      further increase in the cost of funds and lower capacity upon renewal of
      the facility in the second quarter of 2009;
and
  ·
              for
      our Term Loan and Revolving Credit Facility, the terms include a higher
      rate of interest and more stringent covenants (including restrictions on
      funding new business opportunities and incurring any additional debt
      without lender approval) than had been the norm in prior periods. In
      addition, with the exception of dividends related to our Equity Issuer
      subsidiary and distributions from our REIT subsidiary, our Term Loan and
      Revolving Credit Facility prohibit us from paying common and preferred
      dividends.
  ·
              Under
      the terms of our Term Loan and Revolving Credit Facility, we are required
      to utilize any excess cash available (as defined in the
      agreement)  to pay down the debt each quarter end, which creates
      capacity on the revolver that may be drawn upon for working capital
      purposes.  We were also required to generate specified levels of
      cash from sale or collection of certain non-core assets, although we
      satisfied this requirement prior to March 31, 2009. In addition, we were
      required to reduce the balance of the Term Loan to $39.0 million by July
      15, 2009; as of April 30, 2009, we had already reduced it beyond that
      level.
  Due to
general market conditions and the resultant impact on our business, we were
unable to make the required principal payments under the existing Term Loan and
Revolving Credit Facility during the fourth quarter of 2008, and we amended the
agreement in December 2008, which subjects us to the limitations described
above.
  Our
ability to execute our business operations is dependent upon making required
amortization payments on or refinancing our debt and improving liquidity.
Management continues to actively pursue strategies to maintain and improve our
liquidity, particularly during periods of market
disruption.  Strategies we are pursuing include:
  - 80
-
  Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  ·
              increasing
      revenues by leveraging our operational expertise in the areas of mortgage
      originations, asset management and special
  servicing;
  ·
              exploring
      financing alternatives for investments that are not pledged as security
      for asset-based borrowings (which is subject to lender
      approval);
  ·
              instituting
      measures to reduce general and administrative
  expenses;
  ·
                    continuing
      to sell investments that do not meet our long-term investment criteria,
      and
  ·
                    exploring
      alternatives that would allow the release of cash in escrow associated
      with various historical
transactions.
 Our
access to capital markets can be affected by factors outside our control, as
discussed above.  In addition, with respect to both short- and
long-term business needs, access to capital markets is impacted by market
conditions and the short- and long-term debt ratings assigned by independent
rating agencies.  As previously disclosed, we do not expect to
continue obtaining ratings for Centerline Holding Company for the foreseeable
future.
  Through
April 30, 2009, we repaid $55.8 million of the Term Loan and Revolving Credit
Facility, of which $24.0 million created capacity on the Revolving Credit
Facility that may be drawn upon at any time for working capital purposes and/or
additional tax credit investments. Of the amount repaid, $5.7 million was
realized from the collection or sale of non-core assets, fulfilling the amount
we were required to repay in 2009 from such sources.  Also, as noted
above, we had already reduced the Term Loan balance below $39.0 million, the
level to which we were required to do so by July 15, 2009.
  Notwithstanding
current market conditions, management believes cash flows from operations, funds
to be released from our stabilization escrow and future monetization of certain
non-core assets are sufficient to sustain current operations and repay the
required amounts due under the Term Loan agreement.  As of April 30,
2009, we had $24.0 million available to borrow under the Revolving Credit
Facility.
  Cash
Flows
  Three
      Months Ended
                  March
      31,(in
      thousands)
                
                2009
                
                2008Cash
      flow from operating activities
                
                $
                (27,322
                )
                $
                (131,975
                )Cash
      flow from investing activities
                
                
                34,218
                
                
                (87,727
                )Cash
      flow from financing activities
                
                
                (5,100
                )
                
                192,153Net
      change in cash
                
                
                1,796
                
                
                (27,549
                )
 
  Operating
Activities
  Operating
cash flows include the warehousing of mortgage loans that we originate and sell
to Fannie Mae and Freddie Mac, each of which has an associated sale commitment
that allows us to recoup the full amount expended.  Excluding these
amounts from both years, operating cash flows were $5.6 million in the first
quarter of 2009 as compared to $(20.1) million in the same quarter in 2008. The
increase in operating cash flows was driven principally by lower working capital
needs, more focused cash management and cost reduction
initiatives.  The increase was partially offset by the reduction in
business volume and the associated fee income we normally receive at the time we
originate funds and mortgage loans.
  Investing
Activities
  Positive
investing cash flows in the first quarter of 2009 resulted in large part to
releases of cash escrows while the 2008 quarter included large deposits into
escrow accounts in connection with the re-securitization transaction in December
2007.  General economic conditions have also resulted in an overall
reduction in investing activities while we have also sold non-core investments
in the current period, in part to meet requirements of our Term Loan and
Revolving Credit Facility.  Additionally, we are no longer acquiring
partnership interests in tax credit properties without a stated take
out.
 - 81
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Financing
Activities
  Financing
cash flows in the first quarter of 2009 were lower than the 2008 quarter
principally due to the issuance of our 11.0% Preferred shares in the first
quarter of last year.  Additionally, the level of financing inflows
will vary with the level of mortgage originations which also impacts operating
cash flows as described above.  This category also reflects a lower
level of distributions paid and a higher level of debt repayments in the 2009
period, both as required under our Term Loan and Revolving Credit
Facility.  Excluding the financing of mortgage loan originations
discussed in Operating
Activitiesabove, total debt repaid in the first quarter of 2009 was
$35.9 million.
  Liquidity Requirements after
March 31, 2009
  Equity
distributions declared through March 31, 2009, which will be paid through April
15, 2009 are as follows:
  (in
      thousands)Equity
      Issuer Preferred shares
                
                $
                6,282Total
                
                $
                6,282
 
  Funding
for distributions on the Equity Issuer Preferred shares is offset by an equal
amount of income received from our investment in Series A-1 Freddie Mac
Certificates.
  We are in
negotiations with the landlord of an office space into which we had intended to
relocate our headquarters, with the intent to terminate the
lease.  While any termination agreement may require a cash payment, we
are currently unable to predict how much cash would be required or whether any
cash payment would be necessary.  In addition, any cash payment would
be subject to approval of the lenders of our Term Loan and Revolving Credit
Facility.
  Management
is not aware of any trends or events, commitments or uncertainties, which have
not otherwise been disclosed, that will or are likely to impact liquidity in a
material way (see also Commitments and Contingencies
below).
  Fair Value
Disclosures
  In
accordance with SFAS 157, we have categorized our assets and liabilities
recorded at fair value into a three-level hierarchy based on the observability
of the inputs to their valuations.  More information regarding the
fair value hierarchy is provided in Note 3 to the condensed consolidated
financial statements.
  In liquid
markets, readily available or observable prices are used in valuing mortgage
related positions.  In less liquid markets, such as those we have
encountered since the second half of 2007, we may be required to utilize other
available information and modeling techniques to estimate the fair value for our
positions.
  The
current lack of liquidity in the financial markets has caused investment spreads
between the cost of funds and investment income to widen dramatically on
investments, which could result in current fair values that are materially lower
than we may realize from cash income or from proceeds on settlement or
maturity.
  Many of
our investments are currently illiquid.  For our core assets and
assets within our Consolidated Partnership group, in most cases, we have the
intent and ability to hold the investments until maturity or recovery, and it is
more likely than not that we will not be required to sell the
assets.  As such, the fair value presented, considering current market
conditions, may diverge materially from the amounts that we will ultimately
realize.  This is because the premise under GAAP is that assets
generally should be valued on the basis of their current market value and, if no
market exists, on a hypothetical market value, regardless of whether we plan to
sell or would sell under market conditions such as those we are currently
experiencing.  We have not historically sold investment assets in
market transactions, but rather have held them until optional redemption dates
or allowed early redemption in exchange for penalty fees we earn.
  Similar
to other market participants, we are confronted by valuation related issues,
particularly since the second half of 2007.  These
include:
  ·
              uncertainty
      resulting from a drastic decline in market activity for certain of our
      mortgage backed products, including
CMBS;
  - 82
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  ·
              significant
      increase in dependence on model-related assumptions and/or unobservable
      inputs;
  ·
              doubts
      about the quality of the market information utilized as
      inputs;
  ·
              market
      uncertainty that may result in unduly conservative quotes from brokers;
      and
  ·
              in
      certain cases, the downgrades of certain trusts in which we may hold
      certificates.
  The fair
value of these assets as required by GAAP may not represent the future value
that we expect to realize on the settlement or maturity of these
investments.  While the terms of the debt agreements that are secured
by these assets or the expected liquidation of the funds that hold them require
that we account for the investments as available-for-sale (and therefore record
them as the GAAP fair value), we intend to hold these investments for a
substantial period of time, most likely until maturity.
  In
addition, the broker quotes that we receive incorporate assumptions that imply
severe default scenarios and discount rates that are significantly wider than
the historical averages. While market expectations reflect likely increases in
defaults and the lack of liquidity attendant to the uncertainties of the
economic climate, we believe the market values predict a stressed reality which
may not be reflective of the credit quality of the real estate portfolio that
underlies many of our securities, but instead is reflective of the lack of
liquidity in the marketplace.
  The
following table illustrates the percentage differential in values derived by
varying the default and yield assumptions from those implicit in the third party
broker quotes available.  On average, the assumptions implied in the
aggregate valuations of our available-for sale securities (CMBS, retained CMBS
certificates and CDO debt and equity), including both assets held for our own
account and those within the CMBS Fund and High-Yield Debt Fund Partnerships
are:
  ·
              a
      3.0% constant default rate (“CDR”) with a 30% severity of loss on default;
      and
  ·
              a
      90% yield to discount the cash
flows
  As a
point of reference, the current average delinquent balance is 1.71% and our
historical average loss severity is 19.4%.
  For
comparison purposes, the multiples below represent the change in the aggregate
value of the investments assuming a 1.0% CDR and a 3.0% CDR, and with varying
yield percentages used to discount the cash flows.  The loss severity
for all values is assumed to be 30%.
  Multiple
      of Broker
                  Quotes
      Assuming:Yield
      Percentage
                
                1.0%
      CDR
                
                3.0%
      CDR100
                %
                
                1.10
                x
                
                0.94
                x90
                %
                
                1.20
                x
                
                1.01
                x(1)80
                %
                
                1.31
                x
                
                1.09
                x70
                %
                
                1.46
                x
                
                1.20
                x60
                %
                
                1.66
                x
                
                1.32
                x50
                %
                
                1.95
                x
                
                1.49
                x40
                %
                
                2.31
                x
                
                1.67
                x30
                %
                
                3.03
                x
                
                2.03
                x20
                %
                
                4.34
                x
                
                2.63
                x10
                %
                
                7.08
                x
                
                3.79
                x(1)Value approximates the third party broker quotes
      available.
 
  As
defined in FAS 157, “Level 3” assets are those for which inputs to valuation are
not observable in the marketplace and, therefore, require significant judgment
in determining fair value. Provided below is the percentage of Level 3 assets as
compared to total assets measured at fair value.  We had no Level 3
financial liabilities for the periods presented.  For additional
information, see Note 3 to the condensed consolidated financial
statements.  Discussion of the valuation techniques for Level 3 assets
can be found in our 2008 Form 10-K.
    - 83
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Level
      3 assets held for our own account:Series
      A-1 Freddie Mac Certificates
                
                $
                317,564
                
                $
                335,047Series
      B Freddie Mac Certificates
                
                
                109,365
                
                
                123,122Mortgage
      revenue bonds
                
                
                131,076
                
                
                69,217Retained
      CMBS certificates
                
                
                6,600
                
                
                7,313CMBS
                
                
                2,394
                
                
                2,550Goodwill(1)
                
                
                248,978
                
                
                248,978Mortgage
      servicing rights(2)
                
                
                63,506
                
                
                65,599Other
      intangible assets(1)
                
                
                33,606
                
                
                37,189Level
      3 assets held by Consolidated Partnerships:CMBS
                
                
                157,975
                
                
                182,828Retained
      CMBS certificates
                
                
                10,034
                
                
                9,867CDO
      debt and equity
                
                
                13,493
                
                
                33,189Total
      Level 3 assets
                
                $
                1,094,591
                
                $
                1,114,899Level
      3 assets as a percentage of total fair value assets
                
                
                90.3
                %
                
                92.4
                %(1)Non-financial asset fair valued on a non-recurring
      basis.
                  (2)Financial asset fair valued on a non-recurring
    basis.
 
  The
primary decrease in Level 3 assets relates to CMBS held by our Consolidated
Partnership segment.  These assets decreased principally due to the
continuing decline in marks provided by certain dealers who make a market in
these financial instruments.
  While, as
noted above, we have the ability and intent to hold most of our assets until
maturity or recovery, we have recorded impairment charges for certain assets for
which we either do not have such ability or intent, or for which the underlying
credit quality had deteriorated and, therefore, we may not recover our full
investment.
  We
recorded the following impairments of Level 3 assets for the periods presented
(see Notes 6, 11, 20 and 21 to the condensed consolidated financial
statements):
  Three
      Months Ended
                      March
      31,(in
      thousands)
                    
                    2009
                    
                    2008Series
      B Freddie Mac certificates
                    
                    $
                    8,549
                    
                    $
                    --CMBS
                    
                    
                    6,592
                    
                    
                    --Mortgage
      revenue bonds
                    
                    
                    --
                    
                    
                    6,832Subtotal
      (excluding Consolidated Partnerships)
                    
                    
                    15,141
                    
                    
                    6,832CMBS
      (held by Consolidated Partnerships)
                    
                    
                    98,567
                    
                    
                    --Retained
      CMBS certificates (held by Consolidated Partnerships)
                    
                    
                    13
                    
                    
                    688CDO
      debt and equity (held by Consolidated Partnerships)
                    
                    
                    74,774
                    
                    
                    --Total
                    
                    $
                    188,495
                    
                    $
                    7,520
 
   - 84
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Capital
Resources
  Financing
Obligations
  The table
below reflects our financing obligations at the dates presented:
  March
      31, 2009(in
      thousands)
              
              March
      31,
                2009
              
              December
      31,
                2008
              
              Available
      to
                Borrow
              
              Maximum
                CommitmentCredit
      Facilities:Term
      loan
              
              $
              47,857
              
              $
              68,884
              
              $
              --
              
              $
              47,857Termed-out
      portion of revolving credit facility
              
              
              208,000
              
              
              208,000
              
              
              --
              (1)
              
              220,000Revolving
      portion of revolving credit facility
              
              
              8,941
              
              
              20,000
              
              
              16,059
              (2)
              
              25,000Other
      Notes Payable:Mortgage
      Banking warehouse line
              
              
              68,860
              
              
              32,229
              
              
              N/A
              (3)
              
              150,000Multifamily
      ASAP plus facility
              
              
              11,276
              
              
              14,869
              
              
              N/A
              (3)
              
              N/ACMBS
      term loan
              
              
              10,060
              
              
              13,846
              
              
              N/A
              
              
              10,060Other
              
              
              233
              
              
              233
              
              
              N/A
              
              
              N/AFinancing
      Arrangements:Bond
      securitizations
              
              
              62,273
              
              
              62,424
              
              
              N/A
              
              
              N/ASubtotal
              
              
              417,500
              
              
              420,485
              
              
              16,059Freddie
      Mac Secured Financing(4)
              
              
              398,177
              
              
              348,989
              
              
              N/A
              
              
              N/ACapital
      Structure (excluding Consolidated Partnerships)
              
              
              815,677
              
              
              769,474
              
              
              16,059Consolidated
      Partnerships
              
              
              1,723,276
              
              
              1,833,330
              
              
              N/A
              
              
              N/ATotal
              
              $
              2,538,953
              
              $
              2,602,804
              
              $
              16,059(1)Availability reduced by $12.0 million for letters of
      credit.
                (2)As of April 30, 2009, the availability had increased to $24.0
      million (see Liquidity
      above).
                (3)Borrowings under these facilities are limited to available assets
      to serve as collateral.
                (4)The secured financing liability relates to mortgage revenue bonds
      that we re-securitized with Freddie Mac but for which the transaction was
      not recognized as a sale (see Note 13 to the condensed consolidated
      financial statements).
 
  Credit
Facility
  Our Term
Loan and Revolving Credit Facility require us to maintain certain financial and
other covenants (as defined in the credit agreement) including:
  ·
                a
      minimum level of Consolidated Net
Worth;
  ·
              a
      minimum ratio of consolidated EBITDA to Fixed
  Charges;
  ·
              a
      minimum ratio of Funded Debt to Consolidated EBITDA;
  and
  ·
              certain
      limitations on distributions (including distributions to non-controlling
      interests).
  As of
March 31, 2009, we believe we were in compliance with all of these
covenants.
   - 85
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 Other
Notes Payable
  Other
Notes Payable items primarily represent asset-backed financing arrangements,
such as we use to fund agency mortgage originations in our Commercial Real
Estate and Affordable Housing groups.
  Consolidated
Partnerships
  The
capital structure of our Consolidated Partnerships comprises debt facilities
that are non-recourse to us, including:
  ·
              four
      CDO financing arrangements of the CMBS Fund
  Partnerships;
  ·
              notes
      payable by the Tax Credit Fund Partnerships collateralized either by the
      funds’ limited partners’ equity subscriptions or by the underlying
      investments of the funds;
  ·
              repurchase
      agreements for the High-Yield Debt Fund Partnership;
  and
  ·
              bridge
      loans extended to a CMBS Fund Partnership by its investors (including
      us).
  Equity
  Other
than our common shares, we have several classes of equity outstanding, the
carrying amounts of which are provided in the table below, with varying claims
upon our income and cash flows:
  (in
      thousands)
                
                March
      31,
                  2009
                
                December
      31,
                  2008Mezzanine
      equity:Redeemable
      CRA shares
                
                $
                198,567
                
                $
                197,00611.0%
      Preferred shares
                
                
                129,373
                
                
                129,373Centerline
      Holding Company equity:CRA
      shares
                
                
                2,952
                
                
                3,144Non-controlling
      interests:Preferred
      shares of a subsidiary (not subject to mandatory
    repurchase)
                
                
                104,000
                
                
                104,000Convertible
      SCUs
                
                
                54,536
                
                
                64,318Convertible
      SCIs
                
                
                2,479
                
                
                2,611Other
                
                
                7,873
                
                
                8,151
   - 86
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
  Commitments and
Contingencies
  Off-Balance
Sheet Arrangements
  The
following table reflects our maximum exposure and the carrying amounts as of
March 31, 2009, for guarantees we and our subsidiaries have entered into and
other contingent liabilities:
  (in
      thousands)
                
                Maximum
                  Exposure
                
                Carrying
                  AmountTax
      Credit Fund credit intermediation(1)
                
                $
                1,360,888
                
                $
                31,086Mortgage
      banking loss sharing agreements(2)
                
                
                954,493
                
                
                13,116Credit
      support to developers(3)
                
                
                171,836
                
                
                241Centerline
      Financial credit default swaps(4)
                
                
                44,015
                
                
                1,058$
                2,531,232
                
                $
                45,501(1)These transactions were undertaken to expand our Affordable Housing
      business by offering specified rates of return to customers.  To
      date, we have had minimal exposure to losses and anticipate no material
      liquidity requirements in satisfaction of any arrangement.  The
      carrying values disclosed above relate to the fees we earn for the
      transactions, which we recognize as their fair values.
                  (2)The loss sharing agreements with Fannie Mae and Freddie Mac are a
      normal part of the DUS and DUI lender programs and afford a higher level
      of fees than we earn for other comparable transactions.  The
      carrying value disclosed above is our estimate of potential exposure under
      the guarantees, although any funding requirements for such exposure is
      based on the contractual requirements of the underlying loans we sell to
      Fannie Mae and Freddie Mac, which vary as to amount and duration, up
      to  a maximum of 30 years.  The carrying value
      disclosed above represents the reserve we have recorded for potential
      losses under the agreements.
                  (3)Generally relate to business requirements for developers to obtain
      construction financing.  As part of our role as co-developer of
      certain properties, we issue these guarantees in order to secure
      properties as assets for the funds we manage.  To date, we have
      had minimal exposure to losses under these guarantees.  The
      carrying values disclosed above relate to the fees we earn for the
      transactions, which we recognize as their fair values.
                  (4)These transactions were undertaken to expand our Credit Risk
      Products business by offering credit intermediation to third-party
      customers.  To date, we have had minimal exposure to losses and
      anticipate no material liquidity requirements in satisfaction of any
      arrangement.  The carrying values disclosed above relate to the
      fees we earn for the transactions, which we recognize as their fair
      values.
 
  The
maximum exposure amount is not indicative of our expected losses under the
guarantees.  For details of these transactions, see Note 26 to the
condensed consolidated financial statements.
  SECTION 5 – FORWARD LOOKING
STATEMENTS
  Certain
statements made in this report may constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  These
forward-looking statements are not historical facts, but rather our beliefs and
expectations that are based on our current estimates, projections and
assumptions about our Company and industry.  Words such as
“anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates”
and similar expressions are intended to identify forward-looking
statements.  These statements are not guarantees of future performance
and are subject to risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements.  Some of these risks include, among other
things:
  ·
              business
      limitations caused by adverse changes in real estate and credit markets
      and general economic and business
conditions;
    - 87
-
 Management’s
Discussion and Analysis of
 Financial
Condition and Results of Operations
 (continued)
 ·
              risks
      related to the form and structure of our financing
      arrangements;
  ·
              our
      ability to generate new income sources, raise capital for investment funds
      and maintain business relationships with providers and users of
      capital;
  ·
              changes
      in applicable laws and regulations;
  ·
              our
      tax treatment, the tax treatment of our subsidiaries and the tax treatment
      of our investments;
  ·
              competition
      with other companies;
  ·
              risk
      of loss from direct and indirect investments in commercial mortgage-backed
      securities (“CMBS”) and collateralized debt obligations (“CDOs”) and
      mortgage revenue bonds;
  ·
              risk
      of loss under mortgage banking loss sharing
  agreements;
  ·
              risks
      associated with providing credit intermediation;
  and
  ·
              risks
      associated with enforcement by our creditors of any rights or remedies
      which they may possess.
  These
risks are more fully described in our Form 10-K for the year ended December 31,
2008.  We caution you not to place undue reliance on these
forward-looking statements, which reflect our view only as of the date of this
report.  We are under no obligation (expressly disclaim any obligation
to) update or alter any  forward-looking statements contained herein
to reflect any change in our expectations with regard thereto or change in
events, conditions, or circumstances on which any such statement is
based.
  
   - 88
-
  Item
3.  Quantitative and Qualitative Disclosures about Market
Risk.
  We invest
in certain financial instruments that are subject to various forms of market
risk, including interest rate risk.  We seek to prudently and actively
manage such risks to earn sufficient compensation to justify the undertaking of
such risks and to maintain capital levels which are commensurate with the risks
we undertake.
  The
assumptions related to the following discussion of market risk involve judgments
concerning future economic market conditions, future corporate decision and
other interrelating factors, many of which are beyond our control and all of
which are difficult or impossible to predict with precise
accuracy.  Although we believe that the assumptions underlying the
forward-looking information are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
information included herein will prove to be accurate.  Due to the
significant uncertainties inherent in forward-looking information, the inclusion
of such information should not be regarded as our representation that our
objectives and plans would be achieved.
  Interest Rate
Risk
  The
nature of our investments and the instruments used to raise capital for their
acquisition expose us to income and expense volatility due to fluctuations in
market interest rates.  Market interest rates are highly sensitive to
many factors, including governmental policies, domestic and international
economic and political considerations and other factors, all of which are beyond
our control.  A rising interest rate environment could reduce the
demand for multifamily tax-exempt and taxable financing, which could limit our
ability to invest in mortgage revenue bonds or to structure
transactions.  Conversely, falling interest rates may prompt
historical renters to become homebuyers, in turn potentially reducing the demand
for multifamily housing.
  Impact
on Earnings
  Many of
our investments bear interest at fixed rates, or pay interest which does not
fluctuate with changes in market interest rates.
  In
contrast, we have variable-rate debt related to our credit and warehouse
facilities, with rates based on LIBOR.  Other long-term sources of
capital, such as our preferred shares of our subsidiary and our preferred
shares, carry a fixed dividend rate and as such, are not impacted by changes in
market interest rates.
  As of
March 31, 2009, of the total amount of our liabilities labeled on our Condensed
Consolidated Balance Sheets as “Financing Arrangements and Secured Financing”
and “Notes Payable”, $152.7 million is variable rate debt not hedged via
interest rate swap agreements.  We also have escrow balances of $412.2
million maintained by our Portfolio Management Group and we are entitled to the
interest earned on those balances.  A 1.0% increase in interest rates
would therefore result in a net increase of our annual pre-tax income by $1.6
million.
  We manage
this risk through the use of interest rate swaps as described in Note 23 to the
condensed consolidated financial statements.  In addition, we manage
our exposure by striving for diversification in our businesses, including
analysis of our susceptibility to interest rate changes and by managing our
leverage.
  Item 4.  Controls and
Procedures.
  a)
              Evaluation
      of Disclosure Controls and
Procedures
  Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this quarterly
report.  Based on such evaluation, such officers have concluded that
our disclosure controls and procedures as of the end of the period covered by
this quarterly report were effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC rules and forms, and to ensure that such information is accumulated
and communicated to our management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
  b)
              Internal
      Control over Financial Reporting
  There
were no changes in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter ending March 31, 2009, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
   - 89
-
  
  PART
II – OTHER INFORMATION
  Item
1.  Legal Proceedings.
  We are
subject to routine litigation and administrative proceedings arising in the
ordinary course of business.  In addition, we are party to the
following actions:
  Putative Class and
Derivative Actions
  In 2008,
we and our trustees were named as defendants in fourteen shareholder putative
class and/or derivative actions arising out of our announcements in late 2007
that (i) we had taken steps to transition our business to more of a fund manager
and in connection with such action intended to reduce the dividend payable on
our common shares from that which had been paid in prior years and (ii) we had
committed to sell and then sold the 11.0% Preferred Shares to an affiliate of
TRCLP (see Note 16 to the condensed consolidated financial
statements).  Six of these cases are putative class actions pending in
federal court in New York that assert claims under the federal securities
laws.  The other eight cases are primarily derivative actions,
although some purport also to assert class claims, arising under state
law.  Each of the actions is summarized below.
  Federal
Securities Cases
  On
January 18, 2008, the first of the federal securities putative class actions was
filed against us and certain of our officers and trustees in the United States
District Court for the Southern District of New York.  Thereafter,
five other, essentially duplicative putative class actions were also filed in
the same court.  The complaint in each case asserted that we and other
defendants allegedly violated federal securities law by failing to disclose in a
timely fashion our December 2007 transaction with Freddie Mac.  On May
5, 2008, the Court designated Centerline Investor Group, which is made up of
several shareholders, as lead plaintiff for these cases.  Pursuant to
the Court’s stipulation and order dated March 3, 2008, the lead plaintiff filed
a consolidated complaint on July 7, 2008 in this action, In re Centerline
Holding Company Securities Litigation, No. 08 CV 00505.  The
consolidated complaint also alleges violations of the federal securities laws in
connection with our announcement of the Freddie Mac transaction, changes to the
Company’s business model, and the reduction in dividend guidance policy, and
seeks an unspecified amount of compensatory damages and other relief on behalf
of all persons or entities that purchased the common stock of Centerline Holding
Company during the period March 12, 2007 through December 28,
2007.  The defendants in this action filed a motion to dismiss the
consolidated complaint on October 27, 2008 and the motion was granted by U.S
District Court Judge Shira Scheindlin on January 12, 2009.  Judge
Scheindlin granted the plaintiff leave to replead, and the plaintiff filed an
Amended Consolidated Complaint on March 13, 2009.  On April 30, 2009,
the Defendants in this case filed a motion to dismiss the Amended Consolidated
Complaint. The lead Plaintiff has until June 12, 2009 to file his opposition to
Defendants' motion to dismiss. The Defendants have been given until June 30,
2009 to file their reply to any opposition motion filed by the
Plaintiffs.
  Derivative
Lawsuits
  On
January 15, 2008, the first of the state law cases, a putative class and
derivative action, entitled Off v. Ross, CA No. 3468-VCP,
was filed against us, our Board of Trustees and TRCLP in the Delaware Court of
Chancery.  The lawsuit concerns our sale of a new issue of convertible
preferred stock to an affiliate of TRCLP.  The lawsuit alleges claims
for breach of fiduciary duty against the Trustees and seeks an unspecified
amount of compensatory damages from them as well as injunctive relief against
all defendants.  Thereafter, seven other derivative lawsuits asserting
the same or similar claims were filed in state and federal courts in New York
and in the Delaware Chancery Court.  Four of these later-filed actions
also allege that the trustees breached their fiduciary duties to us by allegedly
violating the federal securities laws (as alleged in the federal securities
lawsuits described above).  We are named solely as a nominal defendant
in all eight derivative actions and no monetary relief is sought against us in
any of those cases.  The seven derivative actions filed subsequent to
the Off case
are:
  ·
              On
      January 18, 2008, Kramer v. Ross, et al., Index. No. 100861-08, was filed
      against us and our board of trustees, in New York County Supreme
      Court;
  ·
              On
      January 25, 2008, Carfagno v. Schnitzer, et al., No. 08 CV 00912, was
      filed against us and our board of trustees in the United States District
      Court for the Southern District of New
York;
  ·
              On
      January 30, 2008, Ciszerk v. Ross, et al., CA No. 3511, was filed against
      us, our board of trustees and The Related Companies, L.P. in the Delaware
      Court of Chancery;
  ·
              On
      February 22, 2008, Kanter v. Ross, et al., 08 Civ. 01827, was filed
      against us, our board of trustees and The Related Companies, L.P. in the
      United States District Court for the Southern District of New
      York;
    - 90
-
  ·
              On
      February 27, 2008, Broy v. Centerline Holding Company et al., No. 08 CV
      01971, was filed against us and certain of our officers and trustees in
      the United States District Court for the Southern District of New
      York;
  ·
              On
      April 10, 2008, Kastner v. Schnitzer et al, Index No. 601043-08, was filed
      against us and our board of trustees, in New York Supreme Court;
      and
  ·
              On
      April 10, 2008, Kostecka v. Schnitzer et al, Index No. 601044-08, was
      filed against us and our board of trustees, in New York Supreme
      Court.
  On April
28, 2008, a consolidated amended verified complaint alleging breaches of
fiduciary duties of loyalty, candor, due care, fair dealing, waste of corporate
assets and unjust enrichment, was filed against us and our board of trustees in
Carfagno v. Schnitzer et al., 08 CV 912 (SAS) and Broy v. Blau, 08 CV 1971
(SAS), pending in the U.S. District Court for the Southern District of New
York.  The action is styled both as a derivative suit and as a class
action on behalf of all holders of Centerline securities who qualified to
purchase our 11.0% Preferred Shares pursuant to the rights offering but who did
not do so.  Under the scheduling order adopted by the Court, fact
discovery has been completed and defendants have filed a motion for summary
judgment and the plaintiff has filed a reply brief.  However, in late
March 2009, the plaintiffs and defendants reached a basis of settlement which
would require a reduction in the rate payable on the 11.0% Convertible Preferred
Shares held by TRCLP and its affiliates to 9.5% and an increase in the
conversion price from $10.75 to $12.35.  A Stipulation of Settlement
was filed with the U.S. District Court (SDNY) on April 8, 2009 and a fairness
hearing for approval of the settlement has been scheduled for May 18,
2009.
  A
settlement with the plaintiff in the Offcase based on the rights
offering was negotiated, but on November 26, 2008, the Delaware Court of
Chancery rejected the settlement and stayed any further proceedings in the
action, pending resolution of the Carfagnocase.  As
a  result,  several  of  the  other  derivative  lawsuits
that had  been
voluntarily  stayed  by  the  plaintiffs,
including the Kramer,
Ciszerk and Kanter actions
are  now  subject  to  various
stipulations  deferring  further  activity  in  those  actions  until  a
decision  on  the Stipulation of Settlement in Carfagno (described
above)  or,  in  the case of Kastnerand Kostecka,, pending further
activity in the consolidated securities class action. The CarfagnoStipulation of
Settlement is contingent upon the dismissal with prejudice of the overlapping
Off and Ciszerk actions pending
before the Delaware Court of Chancery.  Should the District Court find
the Carfagnosettlement
to be fair, it will enter the Final Judgment approving the Settlement, which
will become effective once the Delaware Court of Chancery dismisses the Off and Ciszerk matters with
prejudice.  Upon entry of the Final Judgment by the District Court,
defendants intend to move for dismissal in the Court of Chancery of the Off and Ciszerk matters with
prejudice. A fairness hearing has been scheduled by the District Court for May
18, 2009.
  In
addition, the outside members of the Board of Trustees have received a letter
from one of our purported shareholders demanding that they investigate potential
claims against our officers and others arising out of the allegations asserted
in the federal securities litigation.  The independent Trustees
determined, at their meeting on March 11, 2009, to defer further consideration
of the letter until after the District Court had decided the motion to dismiss
the Amended Consolidated Complaint described above.
  Other
  On or
about October 30, 2008, a complaint was filed in the District Court of Dallas
County, Texas that names the company, its subsidiaries and an affiliated fund as
defendants.  The lawsuit is entitled Dallas/Glen Hills 2003 L.P., et al.
v. Centerline Corporate Partners V, L.P., et al., Case No.
08-13801.   The complaint alleged claims for breach of contract
and breach of fiduciary duty and sought unspecified amounts of actual damages,
prejudgment interest, exemplary damages and attorneys’ fees.  The
citation and complaint, however, were never served on any of the
defendants.  On April 1, 2009, the plaintiffs voluntarily dismissed
the action with prejudice in connection with the sale of the real property owned
by Dallas/Glen Hills, L.P.
  On or
about March 11, 2009, a complaint was filed in the Supreme Court of Nassau
County, New York that names CCG and other unrelated parties as
defendants.  The lawsuit is entitled MASS OP LLC and MASS ONE LLC v.
Principal Life Insurance Company, et al, Index No.
004457/2009.  The complaint alleges, among other claims, that
Principal Life and its affiliates lent the plaintiffs an excessive amount of
money and misrepresented the requirements of a securitized loan.  CCG
was purportedly sued in its capacity as servicer of the loan, although it does
not act in that capacity and one of its affiliates does.  Plaintiffs
seek reformation of the loan reducing its principal amount and
damages.  Management believes that the suit is without merit as to the
servicer and has sought dismissal with respect to all Centerline
entities.  If the motion to dismiss is not approved, we will
diligently defend this lawsuit.
  Item
1A.  Risk Factors.
  As noted
in the 2008 Form 10-K (Risks
Related to Investing in Our Company - There are possible adverse effects arising
from shares available for future sale), a creditor of the Company has the
option of converting amounts outstanding in June 2009 into common shares of the
Company.  The amount outstanding as of March 31, 2009 was $28.4
million.  As a result of the low market price of our common shares,
exercise of this option could result in a change of control of the Company based
on the number of shares that would be required to be
issued.  Management has also determined that the Company has
insufficient authorized shares to meet a conversion of the entire debt into
common shares should the creditor seek to do so.  To date, we have
received no indication that the creditor intends to convert the Company’s debt
into shares, but there can be no assurance that it will not attempt to do
so.
    - 91
-
 
 There
have been no other material changes to the risk factors as disclosed on our Form
10-K for the year ended December 31, 2008.
   - 92
-
  
 Item 2.  Unregistered Sales
of Equity Securities and Use of Proceeds.
  Equity Securities purchased
by us
  The
following table presents information related to our repurchases of our equity
securities during the first quarter of 2009 and other information related to our
repurchase program:
  Period
              
              Total
                number
      of
                shares
                purchased
              
              Weighted
                average
                price
      paid
                per
      share
              
              Total
      number
                of
      shares
                purchased
      as
                part
      of publicly
                announced
      plans
                or
      programs
              
              Maximum
      number
                of
      shares that may
                yet
      be purchased
                under
      the
                plans
      or programsCommon
      shares(1):January
      1 – 31, 2009
              
              3,121
              
              $
              0.18
              
              --February
      1 – 28, 2009
              
              20,875
              
              
              0.23
              
              --March
      1 – 31, 2009
              
              151,593
              
              
              0.15
              
              --Total
      common shares
              
              175,589
              
              $
              0.16
              
              --
              
              303,854(1)All of the share repurchases were in payment of tax withholding
      obligations incurred by holders of newly vested restricted shares and were
      outside of our share repurchase program.
 
  The Term
Loan and Revolving Credit Facility prohibit us from paying common and preferred
dividends (see Note 2 to the condensed consolidated financial
statements).
  Item
      3.
              
              Defaults
      upon Senior Securities.
                As
      of March 31, 2009, dividends in arrears were $7.2 million for the 11.0%
      Cumulative Convertible Preferred Shares and $2.8 million for the
      Redeemable CRA Preferred Shares and Convertible Redeemable CRA Preferred
      Shares (see Note 16 to the condensed consolidated financial
      statements).Item
      4.
              
              Submission of Matters to a Vote
      of Security Holders.NoneItem
      5.
              
              Other
      Information.None.Item
      6.
              
              Exhibits.10.1
              
              Amendment to Executive Employment Agreement of Paul G.
      Smyth, dated March 17, 2009.*10.2
              
              Amendment to Executive Employment Agreement of Donald
      J. Meyer, dated March 17, 2009.*31.1
              
              Certification by the Chief Executive Officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
              
              Certification by the Chief Financial Officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
              
              Certification by the Chief Executive Officer and Chief
      Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**
              
              Filed
      herewith.
 
 
  - 93
-
   SIGNATURES
 
 
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 
 CENTERLINE
HOLDING COMPANY
 (Registrant)
 
 
 
 Date:
      May 14, 2009
              By:
              /s/
      Marc D. SchnitzerMarc
      D. Schnitzer
                Managing
      Trustee, Chief Executive Officer and President
                (Principal
      Executive Officer)Date:
      May 14, 2009
              By:
              /s/
      Robert L. LevyRobert
      L. Levy
                Chief
      Financial Officer
                (Principal
      Financial Officer and Principal Accounting
  Officer)
 
 - 94
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