UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2010

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 1-14760





RAIT FINANCIAL TRUST

(Exact name of registrant as specified in its charter)







|                                                             |  |                                     
|------------------------------------------------------------ |  | ------------------------------------
|Maryland                                                     |  | 23-2919819                          
|State or other jurisdiction of
incorporation or organization |  | (I.R.S. Employer Identification No.)
|                                                             | 
|2929 Arch Street, 17thFloor, Philadelphia, PA                |  | 19104                               
|(Address of principal executive offices)                     |  | (Zip Code)                          

(215)
243-9000

(Registrants telephone number, including area code)





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.    x  Yes     ̈  No

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     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):

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

Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ̈  Yes    x  No

A total of 98,908,898 common shares of beneficial interest, par value $0.01 per share, of the registrant were outstanding as of November 4, 2010.









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RAIT FINANCIAL TRUST

TABLE OF CONTENTS



|                             |  |                                                                                                                                     |  |      |    | 
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                             |  |                                                                                                                                     |  | Page |   
|PART IFINANCIAL INFORMATION | 
|                             |  |                                                                                                                                    
|Item 1.                      |  | Financial Statements (unaudited)                                                                                                    |  |      |    | 
|                             |  |                                                                                                                                    
|                             |  | Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009                                                          |  |      | 1  | 
|                             |  |                                                                                                                                    
|                             |  | Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended September 
30, 2010 and 2009                 |  |      | 2  | 
|                             |  |                                                                                                                                    
|                             |  | Consolidated Statements of Comprehensive Income (Loss) for the Three-Month and Nine-Month Periods Ended September 30,
2010 and 2009 |  |      | 3  | 
|                             |  |                                                                                                                                    
|                             |  | Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2010 and
2009                                  |  |      | 4  | 
|                             |  |                                                                                                                                    
|                             |  | Notes to Consolidated Financial Statements                                                                                          |  |      | 5  | 
|                             |  |                                                                                                                                    
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                               |  |      | 28 | 
|                             |  |                                                                                                                                    
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                                          |  |      | 46 | 
|                             |  |                                                                                                                                    
|Item 4.                      |  | Controls and Procedures                                                                                                             |  |      | 47 | 
|                            
|PART IIOTHER INFORMATION    | 
|                             |  |                                                                                                                                    
|Item 1.                      |  | Legal Proceedings                                                                                                                   |  |      | 47 | 
|                             |  |                                                                                                                                    
|Item 1A.                     |  | Risk Factors                                                                                                                        |  |      | 48 | 
|                             |  |                                                                                                                                    
|Item 5.                      |  | Other Information                                                                                                                   |  |      | 48 | 
|                             |  |                                                                                                                                    
|Item 6.                      |  | Exhibits                                                                                                                            |  |      | 48 | 
|                             |  |                                                                                                                                    
|                             |  | Signatures                                                                                                                          |  |      | 49 | 



---



PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

RAIT Financial Trust

Consolidated Balance
Sheets

(Unaudited and dollars in thousands, except share and per share information)



|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | - | --------------------- | - | --------- | -
|                                                                                                                                                                                                  |  | As ofSeptember 30,2010 |           |   | As ofDecember 31,2009 |  
|Assets                                                                                                                                                                                            |  |                        |           |   |                       |   |           |  
|Investments in mortgages and loans, at amortized cost:                                                                                                                                            |  |                        |           |   |                       |   |           |  
|Commercial mortgages, mezzanine loans, other loans and preferred equity interests                                                                                                                 |  | $                      | 1,283,187 |   |                       | $ | 1,467,566 |  
|Allowance for losses                                                                                                                                                                              |  |                        | (80,988   | ) |                       |   | (86,609   | )
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total investments in mortgages and loans                                                                                                                                                          |  |                        | 1,202,199 |   |                       |   | 1,380,957 |  
|Investments in real estate                                                                                                                                                                        |  |                        | 823,881   |   |                       |   | 738,235   |  
|Investments in securities and security-related receivables, at fair value                                                                                                                         |  |                        | 705,209   |   |                       |   | 694,897   |  
|Cash and cash equivalents                                                                                                                                                                         |  |                        | 25,680    |   |                       |   | 25,034    |  
|Restricted cash                                                                                                                                                                                   |  |                        | 196,405   |   |                       |   | 156,167   |  
|Accrued interest receivable                                                                                                                                                                       |  |                        | 35,755    |   |                       |   | 37,625    |  
|Other assets                                                                                                                                                                                      |  |                        | 33,924    |   |                       |   | 28,105    |  
|Deferred financing costs, net of accumulated amortization of $9,233 and $7,290, respectively                                                                                                      |  |                        | 20,550    |   |                       |   | 23,778    |  
|Intangible assets, net of accumulated amortization of $1,628 and $82,929, respectively                                                                                                            |  |                        | 3,338     |   |                       |   | 10,178    |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total assets                                                                                                                                                                                      |  | $                      | 3,046,941 |   |                       | $ | 3,094,976 |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Liabilities and Equity                                                                                                                                                                            |  |                        |           |   |                       |   |           |  
|Indebtedness (including $151,895 and $234,433 at fair value, respectively)                                                                                                                        |  | $                      | 1,879,185 |   |                       | $ | 2,077,123 |  
|Accrued interest payable                                                                                                                                                                          |  |                        | 21,555    |   |                       |   | 17,432    |  
|Accounts payable and accrued expenses                                                                                                                                                             |  |                        | 21,278    |   |                       |   | 21,889    |  
|Derivative liabilities                                                                                                                                                                            |  |                        | 254,287   |   |                       |   | 186,986   |  
|Deferred taxes, borrowers escrows and other liabilities                                                                                                                                          |  |                        | 19,690    |   |                       |   | 21,625    |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total liabilities                                                                                                                                                                                 |  |                        | 2,195,995 |   |                       |   | 2,325,055 |  
|Equity:                                                                                                                                                                                           |  |                        |           |   |                       |   |           |  
|Shareholders equity:                                                                                                                                                                             |  |                        |           |   |                       |   |           |  
|Preferred shares, $0.01 par value per share, 25,000,000 shares authorized;                                                                                                                        |  |                        |           |   |                       |   |           |  
|7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,760,000 shares issued and
outstanding                                                           |  |                        | 28        |   |                       |   | 28        |  
|8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,258,300 shares issued and
outstanding                                                          |  |                        | 23        |   |                       |   | 23        |  
|8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 1,600,000 shares issued and
outstanding                                                          |  |                        | 16        |   |                       |   | 16        |  
|Common shares, $0.01 par value per share, 200,000,000 shares authorized, 97,071,758 and 74,420,598 issued and outstanding,
including 14,159 unvested restricted share awards at December 31, 2009 |  |                        | 971       |   |                       |   | 744       |  
|Additional paid in capital                                                                                                                                                                        |  |                        | 1,676,061 |   |                       |   | 1,630,428 |  
|Accumulated other comprehensive income (loss)                                                                                                                                                     |  |                        | (151,858  | ) |                       |   | (118,973  | )
|Retained earnings (deficit)                                                                                                                                                                       |  |                        | (676,609  | ) |                       |   | (745,262  | )
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total shareholders equity                                                                                                                                                                        |  |                        | 848,632   |   |                       |   | 767,004   |  
|Noncontrolling interests                                                                                                                                                                          |  |                        | 2,314     |   |                       |   | 2,917     |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total equity                                                                                                                                                                                      |  |                        | 850,946   |   |                       |   | 769,921   |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  
|Total liabilities and equity                                                                                                                                                                      |  | $                      | 3,046,941 |   |                       | $ | 3,094,976 |  
|                                                                                                                                                                                                  |  |                        |           |   |                       |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



1



---



RAIT Financial Trust

Consolidated Statements of Operations

(Unaudited and dollars in thousands, except share and per share information)



|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------ |  | --------------------------------------------- | ---------- | - | -------------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                               |  | For the Three-MonthPeriods Ended September 30 |            |   | For the Nine-MonthPeriods Ended September 30 |  
|                                                                               |  | 2010                                          |            |   | 2009                                         |   |            | 2010 |  |   | 2009       |  
|Revenue:                                                                       |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Investment interest income                                                     |  | $                                             | 37,252     |   |                                              | $ | 56,370     |      |  | $ | 117,755    |   |  | $ | 337,851    |  
|Investment interest expense                                                    |  |                                               | (22,415    | ) |                                              |   | (35,326    | )    |  |   | (69,203    | ) |  |   | (230,206   | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Net interest margin                                                            |  |                                               | 14,837     |   |                                              |   | 21,044     |      |  |   | 48,552     |   |  |   | 107,645    |  
|Rental income                                                                  |  |                                               | 18,443     |   |                                              |   | 11,640     |      |  |   | 52,203     |   |  |   | 31,150     |  
|Fee and other income                                                           |  |                                               | 3,204      |   |                                              |   | 8,741      |      |  |   | 15,555     |   |  |   | 20,240     |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Total revenue                                                                  |  |                                               | 36,484     |   |                                              |   | 41,425     |      |  |   | 116,310    |   |  |   | 159,035    |  
|Expenses:                                                                      |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Real estate operating expense                                                  |  |                                               | 15,574     |   |                                              |   | 10,128     |      |  |   | 42,839     |   |  |   | 28,312     |  
|Compensation expense                                                           |  |                                               | 6,766      |   |                                              |   | 7,809      |      |  |   | 21,704     |   |  |   | 19,469     |  
|General and administrative expense                                             |  |                                               | 4,331      |   |                                              |   | 5,365      |      |  |   | 14,588     |   |  |   | 14,894     |  
|Provision for losses                                                           |  |                                               | 10,813     |   |                                              |   | 18,467     |      |  |   | 35,807     |   |  |   | 204,067    |  
|Asset impairments                                                              |  |                                               |           |   |                                              |   |           |      |  |   |           |   |  |   | 46,015     |  
|Depreciation expense                                                           |  |                                               | 7,230      |   |                                              |   | 5,051      |      |  |   | 19,903     |   |  |   | 13,612     |  
|Amortization of intangible assets                                              |  |                                               | 150        |   |                                              |   | 371        |      |  |   | 673        |   |  |   | 1,038      |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Total expenses                                                                 |  |                                               | 44,864     |   |                                              |   | 47,191     |      |  |   | 135,514    |   |  |   | 327,407    |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) before other income (expense), taxes and discontinued operations |  |                                               | (8,380     | ) |                                              |   | (5,766     | )    |  |   | (19,204    | ) |  |   | (168,372   | )
|Interest and other income (expense)                                            |  |                                               | 30         |   |                                              |   | 1,109      |      |  |   | 347        |   |  |   | 3,158      |  
|Gains (losses) on sale of assets                                               |  |                                               |           |   |                                              |   | (61,846    | )    |  |   | 11,616     |   |  |   | (375,604   | )
|Gains on extinguishment of debt                                                |  |                                               | 14,278     |   |                                              |   | 47,858     |      |  |   | 51,290     |   |  |   | 95,414     |  
|Change in fair value of financial instruments                                  |  |                                               | 14,237     |   |                                              |   | (3,808     | )    |  |   | 35,120     |   |  |   | (12,256    | )
|Unrealized gains (losses) on interest rate hedges                              |  |                                               | 12         |   |                                              |   | 15         |      |  |   | 50         |   |  |   | (471       | )
|Equity in income (loss) of equity method investments                           |  |                                               |           |   |                                              |   | (3         | )    |  |   | 4          |   |  |   | (11        | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) before taxes and discontinued operations                         |  |                                               | 20,177     |   |                                              |   | (22,441    | )    |  |   | 79,223     |   |  |   | (458,142   | )
|Income tax benefit (provision)                                                 |  |                                               | 627        |   |                                              |   | 216        |      |  |   | 484        |   |  |   | (441       | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) from continuing operations                                       |  |                                               | 20,804     |   |                                              |   | (22,225    | )    |  |   | 79,707     |   |  |   | (458,583   | )
|Income (loss) from discontinued operations                                     |  |                                               | (2,556     | ) |                                              |   | 436        |      |  |   | (1,630     | ) |  |   | (881       | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss)                                                              |  |                                               | 18,248     |   |                                              |   | (21,789    | )    |  |   | 78,077     |   |  |   | (459,464   | )
|(Income) loss allocated to preferred shares                                    |  |                                               | (3,406     | ) |                                              |   | (3,406     | )    |  |   | (10,227    | ) |  |   | (10,227    | )
|(Income) loss allocated to noncontrolling interests                            |  |                                               | 210        |   |                                              |   | 503        |      |  |   | 803        |   |  |   | 12,900     |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) allocable to common shares                                   |  | $                                             | 15,052     |   |                                              | $ | (24,692    | )    |  | $ | 68,653     |   |  | $ | (456,791   | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per shareBasic:                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                                          |  | $                                             | 0.20       |   |                                              | $ | (0.39      | )    |  | $ | 0.86       |   |  | $ | (7.02      | )
|Discontinued operations                                                        |  |                                               | (0.03      | ) |                                              |   | 0.01       |      |  |   | (0.02      | ) |  |   | (0.01      | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Total earnings (loss) per shareBasic                                          |  | $                                             | 0.17       |   |                                              | $ | (0.38      | )    |  | $ | 0.84       |   |  | $ | (7.03      | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average shares outstandingBasic                                      |  |                                               | 90,990,778 |   |                                              |   | 65,025,946 |      |  |   | 82,153,353 |   |  |   | 64,990,708 |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per shareDiluted:                                             |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                                          |  | $                                             | 0.19       |   |                                              | $ | (0.39      | )    |  | $ | 0.84       |   |  | $ | (7.02      | )
|Discontinued operations                                                        |  |                                               | (0.03      | ) |                                              |   | 0.01       |      |  |   | (0.02      | ) |  |   | (0.01      | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Total earnings (loss) per shareDiluted                                        |  | $                                             | 0.16       |   |                                              | $ | (0.38      | )    |  | $ | 0.82       |   |  | $ | (7.03      | )
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average shares outstandingDiluted                                    |  |                                               | 92,661,435 |   |                                              |   | 65,025,946 |      |  |   | 83,401,943 |   |  |   | 64,990,708 |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  
|Distributions declared per common share                                        |  | $                                             |           |   |                                              | $ |           |      |  | $ |           |   |  | $ |           |  
|                                                                               |  |                                               |            |   |                                              |   |            |      |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



2



---



RAIT Financial Trust

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited and dollars in thousands)



|                                                                                                                               |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------- | ------- | - | --------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                                                               |  | For the 
Three-MonthPeriods Ended September 30 |         |   | For the 
Nine-MonthPeriods Ended September 30 |  
|                                                                                                                               |  | 2010                                           |         |   | 2009                                          |   |         | 2010 |  |   | 2009    |  
|Net income (loss)                                                                                                              |  | $                                              | 18,248  |   |                                               | $ | (21,789 | )    |  | $ | 78,077  |   |  | $ | (459,464 | )
|Other comprehensive income (loss):                                                                                             |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  
|Change in fair value of interest rate hedges                                                                                   |  |                                                | (20,720 | ) |                                               |   | (18,554 | )    |  |   | (63,423 | ) |  |   | 3,135    |  
|Reclassification adjustments associated with unrealized losses (gains) from interest rate hedges included in net income
(loss) |  |                                                | (12     | ) |                                               |   | (15     | )    |  |   | (50     | ) |  |   | 471      |  
|Realized (gains) losses on interest rate hedges reclassified to earnings                                                       |  |                                                | 11,391  |   |                                               |   | 8,592   |      |  |   | 34,662  |   |  |   | 33,551   |  
|Change in fair value of available-for-sale securities                                                                          |  |                                                | 901     |   |                                               |   | 1,533   |      |  |   | (4,074  | ) |  |   | (12,047  | )
|Realized (gains) losses on available-for-sale securities reclassified to earnings                                              |  |                                                |        |   |                                               |   |        |      |  |   |        |   |  |   | 44,275   |  
|Realized (gains) losses on sales of assets of VIEs                                                                             |  |                                                |        |   |                                               |   |        |      |  |   |        |   |  |   | 28,196   |  
|                                                                                                                               |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  
|Total other comprehensive income (loss)                                                                                        |  |                                                | (8,440  | ) |                                               |   | (8,444  | )    |  |   | (32,885 | ) |  |   | 97,581   |  
|                                                                                                                               |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  
|Comprehensive income (loss) before allocation to noncontrolling interests                                                      |  |                                                | 9,808   |   |                                               |   | (30,233 | )    |  |   | 45,192  |   |  |   | (361,883 | )
|Allocation to noncontrolling interests                                                                                         |  |                                                | 210     |   |                                               |   | 503     |      |  |   | 803     |   |  |   | 12,223   |  
|                                                                                                                               |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  
|Comprehensive income (loss)                                                                                                    |  | $                                              | 10,018  |   |                                               | $ | (29,730 | )    |  | $ | 45,995  |   |  | $ | (349,660 | )
|                                                                                                                               |  |                                                |         |   |                                               |   |         |      |  |   |         |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



3



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RAIT Financial Trust

Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)



|                                                                                      |  |                                              |         |   |      |   |          |  
|------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                      |  | For the Nine-MonthPeriods Ended September 30 |        
|                                                                                      |  | 2010                                         |         |   | 2009 |  
|Operating activities:                                                                 |  |                                              |         |   |      |   |          |  
|Net income (loss)                                                                     |  | $                                            | 78,077  |   |      | $ | (459,464 | )
|Adjustments to reconcile net income (loss) to cash flow from operating activities:    |  |                                              |         |   |      |   |          |  
|Provision for losses                                                                  |  |                                              | 35,807  |   |      |   | 204,067  |  
|Share-based compensation expense                                                      |  |                                              | 2,277   |   |      |   | 2,983    |  
|Depreciation and amortization                                                         |  |                                              | 22,432  |   |      |   | 16,721   |  
|Amortization of deferred financing costs and debt discounts                           |  |                                              | 2,046   |   |      |   | 10,215   |  
|Accretion of discounts on investments                                                 |  |                                              | (3,193  | ) |      |   | (3,981   | )
|(Gains) losses on sales of assets                                                     |  |                                              | (8,971  | ) |      |   | 377,267  |  
|Gains on extinguishment of debt                                                       |  |                                              | (51,290 | ) |      |   | (95,414  | )
|Change in fair value of financial instruments                                         |  |                                              | (35,120 | ) |      |   | 12,256   |  
|Unrealized (gains) losses on interest rate hedges                                     |  |                                              | (50     | ) |      |   | 471      |  
|Equity in (income) loss of equity method investments                                  |  |                                              | (4      | ) |      |   | 11       |  
|Asset impairments                                                                     |  |                                              |        |   |      |   | 46,015   |  
|Unrealized foreign currency (gains) losses on investments                             |  |                                              | (91     | ) |      |   | (412     | )
|Changes in assets and liabilities:                                                    |  |                                              |         |   |      |   |          |  
|Accrued interest receivable                                                           |  |                                              | 573     |   |      |   | (1,473   | )
|Other assets                                                                          |  |                                              | 443     |   |      |   | (4,226   | )
|Accrued interest payable                                                              |  |                                              | (29,872 | ) |      |   | 19,080   |  
|Accounts payable and accrued expenses                                                 |  |                                              | (1,499  | ) |      |   | 1,032    |  
|Deferred taxes, borrowers escrows and other liabilities                              |  |                                              | (6,098  | ) |      |   | (49,630  | )
|                                                                                      |  |                                              |         |   |      |   |          |  
|Cash flow from operating activities                                                   |  |                                              | 5,467   |   |      |   | 75,518   |  
|Investing activities:                                                                 |  |                                              |         |   |      |   |          |  
|Proceeds from sales of other securities                                               |  |                                              | 18,040  |   |      |   |         |  
|Purchase and origination of loans for investment                                      |  |                                              | (19,346 | ) |      |   | (22,583  | )
|Principal repayments on loans                                                         |  |                                              | 82,710  |   |      |   | 264,067  |  
|Investment in Jupiter Communities                                                     |  |                                              |        |   |      |   | (1,300   | )
|Investments in real estate                                                            |  |                                              | (13,752 | ) |      |   | (3,420   | )
|Proceeds from dispositions of real estate                                             |  |                                              | 7,064   |   |      |   | 7,611    |  
|Proceeds from sale of collateral management rights                                    |  |                                              | 14,105  |   |      |   |         |  
|(Increase) decrease in restricted cash                                                |  |                                              | (45,783 | ) |      |   | (792     | )
|                                                                                      |  |                                              |         |   |      |   |          |  
|Cash flow from investing activities                                                   |  |                                              | 43,038  |   |      |   | 243,583  |  
|Financing activities:                                                                 |  |                                              |         |   |      |   |          |  
|Proceeds from issuance of convertible senior debt and other indebtedness              |  |                                              |        |   |      |   | 1,177    |  
|Repayments on secured credit facilities, repurchase agreements and other indebtedness |  |                                              | (14,062 | ) |      |   | (24,024  | )
|Repayments on residential mortgage-backed securities                                  |  |                                              |        |   |      |   | (223,335 | )
|Repayments and repurchase of CDO notes payable                                        |  |                                              | (17,380 | ) |      |   | (36,531  | )
|Repayments and repurchase of convertible senior notes                                 |  |                                              | (12,357 | ) |      |   | (13,215  | )
|Acquisition of noncontrolling interests in CDOs                                       |  |                                              | (47     | ) |      |   |         |  
|Payments for deferred costs                                                           |  |                                              | (170    | ) |      |   | (540     | )
|Common share issuance, net of costs incurred                                          |  |                                              | 6,384   |   |      |   | 37       |  
|Distributions paid to preferred shares                                                |  |                                              | (10,227 | ) |      |   | (10,227  | )
|                                                                                      |  |                                              |         |   |      |   |          |  
|Cash flow from financing activities                                                   |  |                                              | (47,859 | ) |      |   | (306,658 | )
|                                                                                      |  |                                              |         |   |      |   |          |  
|Net change in cash and cash equivalents                                               |  |                                              | 646     |   |      |   | 12,443   |  
|Cash and cash equivalents at the beginning of the period                              |  |                                              | 25,034  |   |      |   | 27,463   |  
|                                                                                      |  |                                              |         |   |      |   |          |  
|Cash and cash equivalents at the end of the period                                    |  | $                                            | 25,680  |   |      | $ | 39,906   |  
|                                                                                      |  |                                              |         |   |      |   |          |  
|Supplemental cash flow information:                                                   |  |                                              |         |   |      |   |          |  
|Cash paid for interest                                                                |  | $                                            | 31,471  |   |      | $ | 229,873  |  
|Cash paid (refunds received) for taxes                                                |  |                                              | (1,774  | ) |      |   | 108      |  
|Non-cash decrease in trust preferred obligations                                      |  |                                              |        |   |      |   | (227,084 | )
|Non-cash increase in investments in real estate from the conversion of loans          |  |                                              | 91,287  |   |      |   | 313,946  |  
|Non-cash decrease in convertible senior notes from extinguishment of debt             |  |                                              | (32,934 | ) |      |   | (49,398  | )

The accompanying notes are
an integral part of these consolidated financial statements.



4



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except share and per share amounts)

NOTE 1: THE COMPANY

RAIT Financial Trust invests in and manages a portfolio of real-estate related assets and provides a comprehensive set of debt financing options to the real estate industry. References to
RAIT, we, us, and our refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. We conduct our business through our subsidiaries, RAIT Partnership, L.P. and Taberna
Realty Finance Trust, or Taberna, as well as through their respective subsidiaries. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT. Taberna is also a Maryland REIT.

We finance a substantial portion of our investments through borrowing and securitization strategies seeking to match the maturities and
terms of our financings with the maturities and terms of those investments, and to mitigate interest rate risk through derivative instruments.

We are subject to significant competition in all aspects of our business. Existing industry participants and potential new entrants compete with us for the available supply of investments suitable for
origination or acquisition, as well as for debt and equity capital. We compete with many third parties engaged in real estate finance and investment activities, including other REITs, specialty finance companies, savings and loan associations,
banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of
Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by management in
accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our
audited financial statements as of and for the year ended December 31, 2009 included in Part II, Item 5 of this quarterly report on Form 10-Q. In the opinion of management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the
full year. Certain prior period amounts have been reclassified to conform with the current period presentation.

b. Principles of
Consolidation

The consolidated financial statements reflect our accounts and the accounts of our majority-owned and/or
controlled subsidiaries. We also consolidate entities that are variable interest entities, or VIEs, where we have determined that we are the primary beneficiary of such entities. The portions of these entities that we do not own are presented as
noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.

Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, Consolidation, the
determination of whether to consolidate a VIE is based on an evaluation as to who has both the power to direct the activities of the VIE that most significantly impact the VIEs economic performance and either the obligation to absorb losses or
the right to receive benefits that could be significant to the VIE. We define the power to direct the activities that most significantly impact the VIEs economic performance as the ability to buy, sell, refinance, or recapitalize assets or
entities, and solely control other material operating events or items of the respective entity. For our commercial mortgages, mezzanine loans, and preferred equity investments, certain rights we hold are protective in nature and would preclude us
from having the power to direct the activities that most significantly impact the VIEs economic performance. Assuming both criteria above are met, we would be considered the primary beneficiary and would consolidate the VIE. We will
continually assess our involvement with VIEs and consolidated the VIEs when we are the primary beneficiary. See Note 9 for additional disclosures pertaining to VIEs.



5



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





c. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results
could differ from those estimates.

d. Investments in Loans

We invest in commercial mortgages, mezzanine loans, debt securities and other loans. We account for our investments in commercial
mortgages, mezzanine loans and other loans at amortized cost. The carrying value of these investments is adjusted for origination discounts/premiums, nonrefundable fees and direct costs for originating loans which are amortized into income on a
level yield basis over the terms of the loans.

e. Allowance for Losses, Impaired Loans and Non-accrual Status

We maintain an allowance for losses on our investments in commercial mortgages, mezzanine loans and other loans. Managements
periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. Management reviews loans for impairment and establishes
specific reserves when a loss is probable and reasonably estimable under the provisions of FASB ASC Topic 310, Receivables. As part of the detailed loan review, we consider many factors about the specific loan, including payment history,
asset performance, borrowers financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we
consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, Contingencies. Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment
deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are
removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off impaired loans when the investment is
no longer realizable and legally discharged.

f. Investments in Real Estate

Investments in real estate are shown net of accumulated depreciation. We capitalize all costs related to the improvement of the real
property and depreciate those costs on a straight-line basis over the useful life of the asset. We depreciate real property using the following useful lives: buildings and improvements  30 years; furniture, fixtures, and equipment 
5 to 10 years; and tenant improvements  shorter of the lease term or the life of the asset. Costs for ordinary maintenance and repairs are charged to expense as incurred.

We acquire real estate assets either directly or through the conversion of our investments in loans into owned real
estate. Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, Business Combinations. Fair value is determined by management based on market conditions and
inputs at the time the asset is acquired. All expenses incurred to acquire a real estate asset are expensed as incurred.

Management reviews our investments in real estate for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived assets use and eventual disposition.
These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a
long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property.

g. Investments in Securities

We account for our investments in securities under FASB ASC Topic 320, InvestmentsDebt and Equity Securities, and designate each investment security as a trading security, an
available-for-sale security, or a held-to-maturity security based on our intent at the time of acquisition. Trading securities are recorded at their fair value each reporting period with fluctuations in fair value reported as a component of
earnings. Available-for-sale securities are recorded at fair value with changes in fair value reported as a component of other comprehensive income (loss). We classify certain available-for-sale securities as trading securities when we elect to
record them under the fair value option in accordance with FASB ASC Topic 825, Financial Instruments. See k. Fair Value of Financial Instruments. Upon the sale of an available-for-sale security, the realized gain or loss on
the sale will be recorded as a component of earnings in the respective period. Held-to-maturity investments are carried at amortized cost at each reporting period.



6



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





We account for
investments in securities where the transfer meets the criteria as a financing under FASB ASC Topic 860, Transfers and Servicing, at amortized cost. Our investments in security-related receivables represent securities that were
transferred to issuers of collateralized debt obligations, or CDOs, in which the transferors maintained some level of continuing involvement.

We use our judgment to determine whether an investment in securities has sustained an other-than-temporary decline in value. If management determines that an investment in securities has sustained an
other-than-temporary decline in its value, the investment is written down to its fair value by a charge to earnings, and we establish a new cost basis for the investment. Our evaluation of an other-than-temporary decline is dependent on the specific
facts and circumstances. Factors that we consider in determining whether an other-than-temporary decline in value has occurred include: the estimated fair value of the investment in relation to our cost basis; the financial condition of the related
entity; and the intent and ability to retain the investment for a sufficient period of time to allow for recovery of the fair value of the investment.

h. Transfers of Financial Assets

We account for transfers of
financial assets under FASB ASC Topic 860, Transfers and Servicing, as either sales or financings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred
assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferees right to pledge or exchange the assets and provides more than a trivial benefit to
the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is accounted for as a financing. Financial assets that are treated as sales are
removed from our accounts with any realized gain (loss) reflected in earnings during the period of sale. Financial assets that are treated as financings are maintained on the balance sheet with proceeds received from the legal transfer reflected as
securitized borrowings, or security-related receivables.

i. Revenue Recognition



| | 1) | Investment interest incomeWe recognize interest income from investments in commercial mortgages, mezzanine loans, and other securities on a yield to
maturity basis. Upon the acquisition of a loan at a discount, we assess the portions of the discount that constitute accretable yields and non-accretable differences. The accretable yield represents the excess of our expected cash flows from the
loan over the amount we paid for the loan. That amount, the accretable yield, is accreted to interest income over the remaining life of the loan. Many of our commercial mortgages and mezzanine loans provide for the accrual of interest at specified
rates which differ from current payment terms. Interest income is recognized on such loans at the accrual rate subject to managements determination that accrued interest and outstanding principal are ultimately collectible.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For investments that we did not elect to record at fair value under FASB ASC Topic 825,
Financial Instruments, origination fees and direct loan origination costs are deferred and amortized to net investment income, using the effective interest method, over the contractual life of the underlying loan security or loan, in
accordance with FASB ASC Topic 310, Receivables.

For investments that we elected to record at fair
value under FASB ASC Topic 825, origination fees and direct loan costs are recorded in income and are not deferred.

We recognize interest income from interests in certain securitized financial assets on an estimated effective yield to maturity basis. Management estimates the current yield on the amortized cost of the
investment based on estimated cash flows after considering prepayment and credit loss experience.



| | 2) | Rental incomeWe generate rental income from tenant rent and other tenant-related activities at our consolidated real estate properties. For multi-family
real estate properties, rental income is recorded when due from residents and recognized monthly as it is earned and realizable, under lease terms which are generally for periods of one year or less. For retail and office real estate properties,
rental income is recognized on a straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. Leases
also typically provide for tenant reimbursement of a portion of common area maintenance and other operating expenses to the extent that a tenants pro rata share of expenses exceeds a base year level set in the lease.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3) | Fee and other incomeWe generate fee and other income through our various subsidiaries by (a) providing ongoing asset management services to investment
portfolios under cancelable management agreements, (b) providing or arranging to provide financing to our borrowers, (c) providing property management services to third parties, and (d) providing fixed income trading and advisory
services to our customers. We recognize revenue for these activities when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably assured and the services under the arrangement have been provided. While we may
receive asset management fees when they are earned, we eliminate earned asset management fee income from CDOs while such CDOs are consolidated.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





During the three-month periods ended September 30, 2010 and 2009, we received $1,343 and $4,164, respectively, of
earned asset management fees. Of these fees, we eliminated $983 and $1,064, respectively, of management fee income upon consolidation of VIEs.

During the nine-month periods ended September 30, 2010 and 2009, we received $6,447 and $13,041, respectively, of earned asset management fees. Of these fees, we eliminated $2,965 and $5,941,
respectively, of management fee income upon consolidation of VIEs.

j. Derivative Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. Certain of
the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize
the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.

In accordance with FASB ASC Topic 815, Derivatives and Hedging, we measure each derivative instrument (including certain derivative instruments embedded in other contracts) at fair value
and record such amounts in our consolidated balance sheet as either an asset or liability. For derivatives designated as fair value hedges, derivatives not designated as hedges, or for derivatives designated as cash flow hedges associated with debt
for which we elected the fair value option under FASB ASC Topic 825, Financial Instruments, the changes in fair value of the derivative instrument are recorded in earnings. For derivatives designated as cash flow hedges, the changes in
the fair value of the effective portions of the derivative are reported in other comprehensive income. Changes in the ineffective portions of cash flow hedges are recognized in earnings.

k. Fair Value of Financial Instruments

In accordance with FASB ASC
Topic 820, Fair Value Measurements and Disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where
available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management
estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance
sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, Fair Value Measurements and Disclosures and directly related to the
amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:



| |  |  | Level 1: Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
The types of assets carried at Level 1 fair value generally are equity securities listed in active markets. As such, valuations of these investments do not entail a significant degree of judgment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Valuations are based on quoted prices for similar instruments in active markets or quoted prices for identical or similar
instruments in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair value assets and liabilities that are generally included in this category are unsecured REIT note receivables, commercial mortgage-backed securities, or CMBS, receivables and certain financial
instruments classified as derivatives where the fair value is based on observable market inputs.



| |  |  | Level 3: Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity
for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls has been determined 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. Generally, assets and liabilities carried at fair value and included in this category are trust preferred securities, or TruPS, and subordinated debentures, trust preferred obligations and CDO
notes payable where observable market inputs do not exist.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The availability of observable inputs can vary
depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of investment, whether the investment is new, whether the investment is traded on an active exchange or in the secondary
market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment
exercised by us in determining fair value is greatest for instruments categorized in level 3.



8



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





Fair value is a
market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are
set to reflect those that management believes market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that management believes are current as of the measurement date, including during periods
of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.

Many financial instruments have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest
price that we and others are willing to pay for an asset. Ask prices represent the lowest price that we and others are willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, we do not require that fair
value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that result in our best estimate of fair value.

Fair value for certain of our Level 3 financial instruments is derived using internal valuation models. These internal valuation models
include discounted cash flow analyses developed by management using current interest rates, estimates of the term of the particular instrument, specific issuer information and other market data for securities without an active market. In accordance
with FASB ASC Topic 820, Fair Value Measurements and Disclosures, the impact of our own credit spreads is also considered when measuring the fair value of financial assets or liabilities, including derivative contracts. Where
appropriate, valuation adjustments are made to account for various factors, including bid-ask spreads, credit quality and market liquidity. These adjustments are applied on a consistent basis and are based on observable inputs where available.
Managements estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific issuer information and managements assumptions.

l. Income Taxes

RAIT and Taberna have each elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Accordingly, we generally
will not be subject to U.S. federal income tax to the extent of our distributions to shareholders and as long as certain asset, income and share ownership tests are met. If we were to fail to meet these requirements, we would be subject to U.S.
federal income tax, which could have a material adverse impact on our results of operations and amounts available for distributions to our shareholders. Management believes that all of the criteria to maintain RAITs and Tabernas REIT
qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

We maintain various taxable REIT subsidiaries, or TRSs, which may be subject to U.S. federal, state and local income taxes and foreign taxes. Current and deferred taxes are provided on the portion of
earnings (losses) recognized by us with respect to our interest in domestic TRSs. Deferred income tax assets and liabilities are computed based on temporary differences between our GAAP consolidated financial statements and the federal and state
income tax basis of assets and liabilities as of the consolidated balance sheet date. We evaluate the realizability of our deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognize a valuation allowance if, based on
the available evidence, it is more likely than not that some portion or all of our deferred tax assets will not be realized. When evaluating the realizability of our deferred tax assets, we consider estimates of expected future taxable income,
existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires management to forecast our business and
general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in income tax expense on the consolidated statements of operations.

From time to time, our TRSs generate taxable income from intercompany transactions. The TRS entities generate taxable revenue from fees
for services provided to CDO entities. Some of these fees paid to the TRS entities are capitalized as deferred financing costs by the CDO entities. Certain CDO entities may be consolidated in our financial statements pursuant to FASB ASC Topic 810,
Consolidation. In consolidation, these fees are eliminated when the CDO entity is included in the consolidated group. Nonetheless, all income taxes are accrued by the TRSs in the year in which the taxable revenue is received. These
income taxes are not eliminated when the related revenue is eliminated in consolidation.

Certain TRS entities are domiciled
in the Cayman Islands and, accordingly, taxable income generated by these entities may not be subject to local income taxation, but generally will be included in our taxable income on a current basis, whether or not distributed. Upon distribution of
any previously included income, no incremental U.S. federal, state, or local income taxes would be payable by us.

The TRS
entities may be subject to tax laws that are complex and potentially subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments
and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates



9



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)



depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have
been filed. We review the tax balances of our TRS entities quarterly and as new information becomes available, the balances are adjusted as appropriate.

Certain TRS entities are currently subject to ongoing tax examinations in various jurisdictions. The IRS is currently examining Taberna Capital Management LLCs, or TCMs, federal income tax
returns for the 2006 through 2008 tax years. TCM engaged the services of Taberna Capital (Bermuda), Ltd., or TCB, from June 2006 through June 2008 and RAIT Capital Ireland Ltd., or RCI, from July 2008 through June 30, 2010, to provide
various sub-advisory services in connection with TCMs management of various CDOs. Pursuant to transfer pricing studies prepared by an international accounting firm, TCM deducted the costs paid to TCB and RCI for their services from its
income for federal income tax purposes. The IRS has challenged the transfer pricing methodology applied by TCM for 2006 and 2007 and has issued a Notice of Proposed Adjustment, or NOPA, for the 2006 and 2007 tax years. The NOPA proposes to
reduce the deductions by $7,057 and $14,988 for the 2006 and 2007 tax years. With respect to the 2008 tax year that has recently been included by the IRS in its examination, TCM deducted $18,971 under this transfer pricing methodology. During
2010, management obtained and provided to the IRS a second transfer pricing study prepared by another independent, international public accounting firm for the period 2006 and 2007 that supports its deductions and responded to the IRS NOPA refuting
the proposed adjustments. Management believes it has complied with the requirements outlined in the Internal Revenue Code and believes that its tax filing position will be sustained based on its merits. Accordingly, no reserve has been
established.

m. Recent Accounting Pronouncements

On January 1, 2010, we adopted accounting standards classified under FASB ASC Topic 860, Transfers and Servicing, and accounting standards classified under FASB ASC Topic 810,
Consolidation. The accounting standard classified under FASB Topic 860 eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures about
transfers of financial assets, including securitization transactions and continuing involvement with transferred financial assets. The accounting standard classified under FASB Topic 810 changes the determination of when a VIE should be
consolidated. Under this standard, the determination of whether to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIEs economic performance together with either the obligation to
absorb losses or the right to receive benefits that could be significant to the VIE, as well as the VIEs purpose and design. The adoption of these standards did not have a material effect on our consolidated financial statements. See Note 9
for additional disclosures pertaining to VIEs.

On January 1, 2010, we adopted Accounting Standards Update (ASU)
No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This accounting standard requires new disclosures for significant transfers in and out of Level 1 and 2 fair
value measurements and requires a description of the reasons for the transfer. This accounting standard also updates existing disclosures by providing fair value measurement disclosures for each class of assets and liabilities and provides
disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. For Level 3 fair value measurements, new disclosures will require entities to present information
separately for purchases, sales, issuances, and settlements; however, these disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not
have a material effect on our consolidated financial statements and management is currently evaluating the impact the new Level 3 fair value measurement disclosures may have on our consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This accounting standard update is to provide additional information to assist financial statement users in assessing an entitys credit risk exposures and evaluating the adequacy of its
allowance for credit losses. Existing disclosure guidance is amended to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses and to
disclose credit quality indicators, past due information, and modifications of its financing receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15,
2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Management is currently evaluating the impact that this accounting
standard update may have on our consolidated financial statements.

NOTE 3: INVESTMENTS IN LOANS

Our investments in mortgages and loans are accounted for at amortized cost.



10



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





Investments in Commercial
Mortgages, Mezzanine Loans, Other Loans and Preferred Equity Interests

The following table summarizes our investments
in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of September 30, 2010:



|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|---------------------------------- |  | ---------------------- | --------- | - | ------------------------------ | - | ------- | -------------- |  | - | -------------- | - |  | -------------------------- | --- |  | ----------------------- |  | --- | - |  |  | ---------------------- | 
|                                   |  | UnpaidPrincipalBalance |           |   | Unamortized(Discounts)Premiums |   |         | CarryingAmount |  |   | Number ofLoans |   |  | Weighted-AverageCoupon (1) |     |  | Range of Maturity Dates | 
|Commercial Real Estate (CRE) Loans |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|Commercial mortgages               |  | $                      | 712,547   |   |                                | $ | (2,008  | )              |  | $ | 710,539        |   |  |                            | 44  |  |                         |  | 6.7 | % |  |  | Nov 2010 to Dec. 2020  | 
|Mezzanine loans                    |  |                        | 421,089   |   |                                |   | (6,150  | )              |  |   | 414,939        |   |  |                            | 114 |  |                         |  | 9.3 | % |  |  | Nov. 2010 to Nov. 2038 | 
|Preferred equity interests         |  |                        | 83,239    |   |                                |   | (1,225  | )              |  |   | 82,014         |   |  |                            | 24  |  |                         |  | 9.8 | % |  |  | Nov. 2011 to Aug. 2025 | 
|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|Total CRE Loans                    |  |                        | 1,216,875 |   |                                |   | (9,383  | )              |  |   | 1,207,492      |   |  |                            | 182 |  |                         |  | 7.8 | % |  |  |                        | 
|Other loans                        |  |                        | 78,290    |   |                                |   | (1,287  | )              |  |   | 77,003         |   |  |                            | 5   |  |                         |  | 5.3 | % |  |  | Nov. 2010 to Oct. 2016 | 
|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|Total                              |  |                        | 1,295,165 |   |                                |   | (10,670 | )              |  |   | 1,284,495      |   |  |                            | 187 |  |                         |  | 7.6 | % |  |  |                        | 
|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|Deferred fees                      |  |                        | (1,308    | ) |                                |   |        |                |  |   | (1,308         | ) |  |                            |     |  |                         |  |     |   |  |  |                        | 
|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|Total investments in loans         |  | $                      | 1,293,857 |   |                                | $ | (10,670 | )              |  | $ | 1,283,187      |   |  |                            |     |  |                         |  |     |   |  |  |                        | 
|                                   |  |                        |           |   |                                |   |         |                |  |   |                |   |  |                            |     |  |                         |  |     |   |  |  |                        | 



|(1) | Weighted-average coupon is calculated on the unpaid principal amount of the underlying instruments which does not necessarily correspond to the carrying amount.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

During the nine-month periods ended September 30, 2010 and 2009, we completed the conversion of seven and
22 commercial real estate loans with a carrying value of $110,528 and $403,510 to owned properties. During the nine-month periods ended September 30, 2010 and 2009, we charged off $19,241 and $83,924, respectively, related to the conversion of
commercial real estate loans to owned properties. See Note 5.

The following table summarizes the delinquency statistics of
our investments in loans as of September 30, 2010 and December 31, 2009:



|                                         |  |                        |         |  |                       |   |         | 
|---------------------------------------- |  | ---------------------- | ------- |  | --------------------- | - | ------- | 
|Delinquency Status                       |  | As ofSeptember 30,2010 |         |  | As ofDecember 31,2009 |  
|30 to 59 days                            |  | $                      | 22,113  |  |                       | $ | 20,760  | 
|60 to 89 days                            |  |                        | 28,997  |  |                       |   | 82,685  | 
|90 days or more                          |  |                        | 62,822  |  |                       |   | 44,310  | 
|In foreclosure or bankruptcy proceedings |  |                        | 54,838  |  |                       |   | 47,625  | 
|                                         |  |                        |         |  |                       |   |         | 
|Total                                    |  | $                      | 168,770 |  |                       | $ | 195,380 | 
|                                         |  |                        |         |  |                       |   |         | 

As of September 30, 2010 and December 31, 2009, approximately $143,212 and $171,372, respectively,
of our commercial mortgages and mezzanine loans were on non-accrual status and had a weighted-average interest rate of 8.9% and 9.7%, respectively. As of September 30, 2010, approximately $20,908 of other loans were on non-accrual status and
had a weighted-average interest rate of 7.2%. There were no other loans on non-accrual status as of December 31, 2009.

Allowance
For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for the
three-month periods ended September 30, 2010 and 2009:



|                                                               |  |                                                    |        |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |         |   |       |   |          |   |  |   |          |  
|-------------------------------------------------------------- |  | -------------------------------------------------- | ------ | - | --------------------------------------------------- | - | - | ----- |  | - | -------------------------------------------------- | - |  | --------------------------------------------------- | ------- | - | ----- | - | -------- | - |  | - | -------- | -
|                                                               |  | For the Three-Month Period EndedSeptember 30, 2010 |        |   | For the Three-Month Period EndedSeptember 30, 2009  |  
|                                                               |  | CommercialMortgages,Mezzanine Loansand Other Loans |        |   | ResidentialMortgages andMortgage-RelatedReceivables |   |   | Total |  |   | CommercialMortgages,Mezzanine Loansand Other Loans |   |  | ResidentialMortgages andMortgage-RelatedReceivables |         |   | Total |  
|Beginning balance                                              |  | $                                                  | 78,672 |   |                                                     | $ |  |       |  | $ | 78,672                                             |   |  | $                                                   | 108,842 |   |       | $ | 128,790  |   |  | $ | 237,632  |  
|Provision                                                      |  |                                                    | 10,813 |   |                                                     |   |  |       |  |   | 10,813                                             |   |  |                                                     | 18,467  |   |       |   |         |   |  |   | 18,467   |  
|Deductions for net charge-offs                                 |  |                                                    | (8,497 | ) |                                                     |   |  |       |  |   | (8,497                                             | ) |  |                                                     | (41,689 | ) |       |   | (1,133   | ) |  |   | (42,822  | )
|Sale of residential mortgages and mortgage-related receivables |  |                                                    |       |   |                                                     |   |  |       |  |   |                                                   |   |  |                                                     |        |   |       |   | (127,657 | ) |  |   | (127,657 | )
|                                                               |  |                                                    |        |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |         |   |       |   |          |   |  |   |          |  
|Ending balance                                                 |  | $                                                  | 80,988 |   |                                                     | $ |  |       |  | $ | 80,988                                             |   |  | $                                                   | 85,620  |   |       | $ |         |   |  | $ | 85,620   |  
|                                                               |  |                                                    |        |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |         |   |       |   |          |   |  |   |          |  



11



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





The following
table provides a roll-forward of our allowance for losses for the nine-month periods ended September 30, 2010 and 2009:



|                                                               |  |                                                    |         |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |          |   |       |   |          |   |  |   |          |  
|-------------------------------------------------------------- |  | -------------------------------------------------- | ------- | - | --------------------------------------------------- | - | - | ----- |  | - | -------------------------------------------------- | - |  | --------------------------------------------------- | -------- | - | ----- | - | -------- | - |  | - | -------- | -
|                                                               |  | For the Nine-Month Period EndedSeptember 30, 2010  |         |   | For the Nine-Month Period EndedSeptember 30, 2009   |  
|                                                               |  | CommercialMortgages,Mezzanine Loansand Other Loans |         |   | ResidentialMortgages andMortgage-RelatedReceivables |   |   | Total |  |   | CommercialMortgages,Mezzanine Loansand Other Loans |   |  | ResidentialMortgages andMortgage-RelatedReceivables |          |   | Total |  
|Beginning balance                                              |  | $                                                  | 86,609  |   |                                                     | $ |  |       |  | $ | 86,609                                             |   |  | $                                                   | 117,737  |   |       | $ | 54,236   |   |  | $ | 171,973  |  
|Provision                                                      |  |                                                    | 35,807  |   |                                                     |   |  |       |  |   | 35,807                                             |   |  |                                                     | 107,580  |   |       |   | 96,487   |   |  |   | 204,067  |  
|Deductions for net charge-offs                                 |  |                                                    | (41,428 | ) |                                                     |   |  |       |  |   | (41,428                                            | ) |  |                                                     | (139,697 | ) |       |   | (23,066  | ) |  |   | (162,763 | )
|Sale of residential mortgages and mortgage-related receivables |  |                                                    |        |   |                                                     |   |  |       |  |   |                                                   |   |  |                                                     |         |   |       |   | (127,657 | ) |  |   | (127,657 | )
|                                                               |  |                                                    |         |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |          |   |       |   |          |   |  |   |          |  
|Ending balance                                                 |  | $                                                  | 80,988  |   |                                                     | $ |  |       |  | $ | 80,988                                             |   |  | $                                                   | 85,620   |   |       | $ |         |   |  | $ | 85,620   |  
|                                                               |  |                                                    |         |   |                                                     |   |   |       |  |   |                                                    |   |  |                                                     |          |   |       |   |          |   |  |   |          |  

As of September 30, 2010 and December 31, 2009, we identified 30 and 31 commercial mortgages,
mezzanine loans and other loans with unpaid principal balances of $182,712 and $189,961 as impaired. As of September 30, 2010 and December 31, 2009, we had allowance for losses of $80,988 and $86,609 associated with our commercial
mortgages, mezzanine loans and other loans.

The average unpaid principal balance of total impaired loans was $181,301 and
$208,311 during the three-month periods ended September 30, 2010 and 2009 and $181,169 and $197,812 during the nine-month periods ended September 30, 2010 and 2009. We recorded interest income from impaired loans of $141 and $1,145 for the
three-month periods ended September 30, 2010 and 2009 and $2,633 and $2,886 for the nine-month periods ended September 30, 2010 and 2009.

NOTE 4: INVESTMENTS IN SECURITIES

Our investments in securities
and security-related receivables are accounted for at fair value. The following table summarizes our investments in securities as of September 30, 2010:



|                                   |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|---------------------------------- |  | ------------- | --------- |  | ------------------------ | - | -------- | ------------------- |  | - | ------------------------- |  |  | ------------------------------- | --- | - |  |  | ---- | 
|Investment Description             |  | AmortizedCost |           |  | Net FairValueAdjustments |   |          | EstimatedFair Value |  |   | WeightedAverageCoupon (1) |  |  | WeightedAverageYears toMaturity |    
|Trading securities                 |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|TruPS                              |  | $             | 689,070   |  |                          | $ | (232,605 | )                   |  | $ | 456,465                   |  |  |                                 | 5.1 | % |  |  | 24.0 | 
|Other securities                   |  |               | 10,000    |  |                          |   | (10,000  | )                   |  |   |                          |  |  |                                 | 5.0 | % |  |  | 42.1 | 
|                                   |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|Total trading securities           |  |               | 699,070   |  |                          |   | (242,605 | )                   |  |   | 456,465                   |  |  |                                 | 5.1 | % |  |  | 24.3 | 
|Available-for-sale securities      |  |               | 3,600     |  |                          |   | (3,510   | )                   |  |   | 90                        |  |  |                                 | 2.4 | % |  |  | 32.1 | 
|Security-related receivables       |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|TruPS receivables                  |  |               | 110,637   |  |                          |   | (23,851  | )                   |  |   | 86,786                    |  |  |                                 | 6.9 | % |  |  | 12.2 | 
|Unsecured REIT note receivables    |  |               | 61,000    |  |                          |   | 1,546    |                     |  |   | 62,546                    |  |  |                                 | 6.6 | % |  |  | 7.0  | 
|CMBS receivables (2)               |  |               | 158,868   |  |                          |   | (86,290  | )                   |  |   | 72,578                    |  |  |                                 | 6.0 | % |  |  | 33.3 | 
|Other securities                   |  |               | 105,807   |  |                          |   | (79,063  | )                   |  |   | 26,744                    |  |  |                                 | 2.9 | % |  |  | 31.2 | 
|                                   |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|Total security-related receivables |  |               | 436,312   |  |                          |   | (187,658 | )                   |  |   | 248,654                   |  |  |                                 | 5.6 | % |  |  | 23.7 | 
|                                   |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 
|Total investments in securities    |  | $             | 1,138,982 |  |                          | $ | (433,773 | )                   |  | $ | 705,209                   |  |  |                                 | 5.2 | % |  |  | 24.2 | 
|                                   |  |               |           |  |                          |   |          |                     |  |   |                           |  |  |                                 |     |   |  |  |      | 



|(1) | Weighted-average coupon is calculated on the unpaid principal amount of the underlying instruments which does not necessarily correspond to the carrying amount.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | CMBS receivables include securities with a fair value totaling $29,259 that are rated between AAA and A- by Standard & Poors,
securities with a fair value totaling $40,848 that are rated BBB+ and B- by Standard & Poors, securities with a fair value totaling $2,460 that are rated CCC by Standard & Poors and
securities with a fair value totaling $13 that are rated D by Standard & Poors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





A substantial
portion of our gross unrealized losses is greater than 12 months.

TruPS included above as trading securities include
(a) investments in TruPS issued by VIEs of which we are not the primary beneficiary and which we do not consolidate and (b) transfers of investments in TruPS securities to us that were accounted for as a sale pursuant to FASB ASC Topic
860, Transfers and Servicing.

The following table summarizes the non-accrual status of our investments in
securities:



|                            |  |                                    |         |  |                         |  |     |            |  |   |                                    |  |  |                        |         |  |            |  |     |   |  |   |        | 
|--------------------------- |  | ---------------------------------- | ------- |  | ----------------------- |  | --- | ---------- |  | - | ---------------------------------- |  |  | ---------------------- | ------- |  | ---------- |  | --- | - |  | - | ------ | 
|                            |  | As of September 30, 2010           |         |  | As of December 31, 2009 | 
|                            |  | Principal /ParAmount onNon-accrual |         |  | WeightedAverage Coupon  |  |     | Fair Value |  |   | Principal /ParAmount onNon-accrual |  |  | WeightedAverage Coupon |         |  | Fair Value | 
|TruPS and TruPS receivables |  | $                                  | 178,682 |  |                         |  | 3.5 | %          |  | $ | 52,812                             |  |  | $                      | 108,125 |  |            |  | 4.9 | % |  | $ | 26,400 | 
|Other securities            |  |                                    | 40,754  |  |                         |  | 2.9 | %          |  |   | 824                                |  |  |                        | 24,500  |  |            |  | 3.1 | % |  |   | 370    | 
|CMBS receivables            |  |                                    | 14,204  |  |                         |  | 5.7 | %          |  |   | 413                                |  |  |                        |        |  |            |  |    |   |  |   |       | 

The assets of our
consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of September 30, 2010 and December 31, 2009, investment in securities of $806,700 and $888,681, respectively, in principal amount of TruPS
and subordinated debentures, and $219,868 and $230,768, respectively, in principal amount of unsecured REIT note receivables and CMBS receivables, collateralized the consolidated CDO notes payable of such entities.

NOTE 5: INVESTMENTS IN REAL ESTATE

As of September 30, 2010, we maintained investments in 44 real estate properties and three parcels of land. As of December 31, 2009, we maintained investments in 36 real estate properties and
three parcels of land.

The table below summarizes our investments in real estate as of September 30, 2010:



|                                                |  |            |         |   |                     |  |    |                           |  |  |      |  
|----------------------------------------------- |  | ---------- | ------- | - | ------------------- |  | -- | ------------------------- |  |  | ---- | -
|                                                |  | Book Value |         |   | Number ofProperties |  |    | Average PhysicalOccupancy | 
|Multi-family real estate properties             |  | $          | 582,872 |   |                     |  | 33 |                           |  |  | 84.6 | %
|Office real estate properties                   |  |            | 215,191 |   |                     |  | 9  |                           |  |  | 52.5 | %
|Retail real estate property                     |  |            | 39,364  |   |                     |  | 2  |                           |  |  | 57.7 | %
|Parcels of land                                 |  |            | 22,208  |   |                     |  | 3  |                           |  |  |     |  
|                                                |  |            |         |   |                     |  |    |                           |  |  |      |  
|Subtotal                                        |  |            | 859,635 |   |                     |  | 47 |                           |  |  | 74.8 | %
|Plus: Escrows and reserves                      |  |            | 5,697   |   |                     |  |    |                           |  |  |      |  
|Less: Accumulated depreciation and amortization |  |            | (41,451 | ) |                     |  |    |                           |  |  |      |  
|                                                |  |            |         |   |                     |  |    |                           |  |  |      |  
|Investments in real estate                      |  | $          | 823,881 |   |                     |  |    |                           |  |  |      |  
|                                                |  |            |         |   |                     |  |    |                           |  |  |      |  

As of September 30, 2010, we have identified three properties as assets held for sale. The
carrying amount of these assets is $65,238 and liabilities related to these assets are $10,769. These amounts are included in the investments in real estate and indebtedness, accrued interest payable, accounts payable and accrued expenses, and
deferred taxes, borrowers escrows and other liabilities financial statement captions. Liabilities related to assets held for sale exclude $48,114 of first mortgages held by RAIT I and RAIT II that are eliminated in our consolidated balance
sheet. See Note 14Assets Held For Sale and Discontinued Operations.

During the nine-month period ended
September 30, 2010, we converted seven loans with a carrying value of $110,528, relating to eight multi-family properties and one office property, to owned real estate. Upon conversion, we recorded the nine properties at fair value of $91,287.
We previously held bridge or mezzanine loans with respect to these real estate properties.



13



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





As of
January 1, 2010, we adopted an accounting standard which changed the determination of the consolidation of VIEs. Accordingly, we consolidated two office properties as of January 1, 2010 as we were determined to be the primary beneficiary
of the VIEs. The fair value of the properties consolidated, net of their related liabilities at fair value, was $5,005 as of January 1, 2010.

The following table summarizes the aggregate estimated fair value of the assets and liabilities associated with the 11 properties acquired during the nine-month period ended September 30, 2010, on
the respective date of each conversion, for the real estate accounted for under FASB ASC Topic 805.



|                                            |  |                     |         | 
|------------------------------------------- |  | ------------------- | ------- | 
|Description                                 |  | EstimatedFair Value |        
|Assets acquired:                            |  |                     |         | 
|Investments in real estate                  |  | $                   | 113,190 | 
|Cash and cash equivalents                   |  |                     | 561     | 
|Restricted cash                             |  |                     | 1,735   | 
|Other assets                                |  |                     | 4,178   | 
|                                            |  |                     |         | 
|Total assets acquired                       |  |                     | 119,664 | 
|Liabilities assumed:                        |  |                     |         | 
|Loans payable on real estate                |  |                     | 17,372  | 
|Accounts payable and accrued expenses       |  |                     | 3,812   | 
|Other liabilities                           |  |                     | 1,832   | 
|                                            |  |                     |         | 
|Total liabilities assumed                   |  |                     | 23,016  | 
|                                            |  |                     |         | 
|Estimated fair value of net assets acquired |  | $                   | 96,648  | 
|                                            |  |                     |         | 

The following table summarizes the consideration transferred to acquire the real estate properties and the
amounts of identified assets acquired and liabilities assumed at the respective conversion date:



|                                              |  |                     |         |  
|--------------------------------------------- |  | ------------------- | ------- | -
|Description                                   |  | EstimatedFair Value |        
|Fair value of consideration transferred:      |  |                     |         |  
|Commercial real estate loans                  |  | $                   | 109,661 |  
|Other considerations                          |  |                     | (13,013 | )
|                                              |  |                     |         |  
|Total fair value of consideration transferred |  | $                   | 96,648  |  
|                                              |  |                     |         |  

During the nine-month period ended September 30, 2010, these investments contributed revenue of $6,600
and a net loss allocable to common shares of $931. During the nine-month period ended September 30, 2010, we did not incur any third-party acquisition-related costs.

Our consolidated unaudited pro forma information, after including the acquisition of real estate properties, is presented below as if the acquisition occurred on January 1, 2009 and 2010,
respectively. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information
purport to represent the results of operations for future periods:



|                                                          |  |                                                 |         |  |                                                 |   |          |  
|--------------------------------------------------------- |  | ----------------------------------------------- | ------- |  | ----------------------------------------------- | - | -------- | -
|Description                                               |  | For theNine-MonthPeriod EndedSeptember 30, 2010 |         |  | For theNine-MonthPeriod EndedSeptember 30, 2009 |  
|Total revenue, as reported                                |  | $                                               | 116,310 |  |                                                 | $ | 159,035  |  
|Pro forma revenue                                         |  |                                                 | 119,738 |  |                                                 |   | 166,938  |  
|Net income (loss) allocable to common shares, as reported |  |                                                 | 68,653  |  |                                                 |   | (456,791 | )
|Pro forma net income (loss) allocable to common shares    |  |                                                 | 68,670  |  |                                                 |   | (455,419 | )

These amounts have been
calculated after adjusting the results of the acquired businesses to reflect the additional depreciation that would have been charged assuming the fair value adjustments to our investments in real estate had been applied from January 1, 2009
and 2010, respectively, together with the consequential tax effects.

We have not yet completed the process of estimating the
fair value of assets acquired and liabilities assumed. Accordingly, our preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as we complete the process. In accordance with FASB ASC
Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in our financial statements retrospectively.



14



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





As of
September 30, 2010, our investments in real estate of $823,881 are financed through $85,817 of mortgages held by third parties and $756,392 of mortgages held by our RAIT I and RAIT II CDO securitizations. Together, along with commercial real
estate loans held by RAIT I and RAIT II, these mortgages serve as collateral for the CDO notes payable issued by the RAIT I and RAIT II CDO securitizations. All intercompany balances and interest charges are eliminated in consolidation.

NOTE 6: INDEBTEDNESS

We maintain various forms of long-term financing arrangements. Generally, these financing agreements are collateralized by assets within
CDOs. The following table summarizes our total recourse and non-recourse indebtedness as of September 30, 2010:



|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|-------------------------------------------- |  | ---------------------- | --------- |  | -------------- | - | --------- | ----------------------------- |  |  | -------------------- | - |  |  | ----------------------- | 
|Description                                  |  | UnpaidPrincipalBalance |           |  | CarryingAmount |   |           | Weighted-AverageInterest Rate |  |  | Contractual Maturity |  
|Recourse indebtedness:                       |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Convertible senior notes (1)                 |  | $                      | 143,613   |  |                | $ | 143,447   |                               |  |  | 6.9                  | % |  |  | Apr. 2027               | 
|Secured credit facilities                    |  |                        | 38,736    |  |                |   | 38,736    |                               |  |  | 4.7                  | % |  |  | Feb. 2011 to Dec. 2011  | 
|Senior secured notes                         |  |                        | 63,950    |  |                |   | 63,950    |                               |  |  | 11.7                 | % |  |  | Apr. 2014               | 
|Loans payable on real estate                 |  |                        | 22,432    |  |                |   | 22,432    |                               |  |  | 5.5                  | % |  |  | Apr. 2012 to Sept. 2012 | 
|Junior subordinated notes, at fair value (2) |  |                        | 38,052    |  |                |   | 4,422     |                               |  |  | 9.2                  | % |  |  | Oct. 2015 to Mar. 2035  | 
|Junior subordinated notes, at amortized cost |  |                        | 25,100    |  |                |   | 25,100    |                               |  |  | 7.7                  | % |  |  | Apr. 2037               | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total recourse indebtedness                  |  |                        | 331,883   |  |                |   | 298,087   |                               |  |  | 7.8                  | % |  |  |                         | 
|Non-recourse indebtedness:                   |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|CDO notes payable, at amortized cost (3)(4)  |  |                        | 1,370,250 |  |                |   | 1,370,250 |                               |  |  | 0.7                  | % |  |  | 2045 to 2046            | 
|CDO notes payable, at fair value (2)(3)(5)   |  |                        | 1,172,505 |  |                |   | 147,473   |                               |  |  | 1.0                  | % |  |  | 2037 to 2038            | 
|Loans payable on real estate                 |  |                        | 63,375    |  |                |   | 63,375    |                               |  |  | 5.8                  | % |  |  | Nov. 2010 to Aug. 2016  | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total non-recourse indebtedness              |  |                        | 2,606,130 |  |                |   | 1,581,098 |                               |  |  | 1.0                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total indebtedness                           |  | $                      | 2,938,013 |  |                | $ | 1,879,185 |                               |  |  | 1.8                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 



|(1) | Our convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.
|--- | -----------------------------------------------------------------------------------------

|(3) | Excludes CDO notes payable purchased by us which are eliminated in consolidation.
|--- | ---------------------------------------------------------------------------------

|(4) | Collateralized by $1,771,696 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by
separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Collateralized by $1,348,963 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of
these investments as of September 30, 2010 was $896,099. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our
creditors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the
loans payable on real estate that are guaranteed by RAIT or RAIT Partnership. As indicated in the table above, our consolidated financial statements include recourse indebtedness of $298,087 as of September 30, 2010. Non-recourse indebtedness
consists of indebtedness of consolidated VIEs (such as CDOs and other securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE
have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or
during the nine-month period ended September 30, 2010 is as follows:

Recourse Indebtedness

Convertible senior notes. During the nine-month period ended September 30, 2010, we repurchased $102,750 in aggregate
principal amount of our 6.875% Convertible Senior Notes due 2027, or the convertible senior notes, for a total consideration of $72,637. The purchase price consisted of $12,357 in cash, the issuance of 18,915,000 common shares, and the issuance of a
$22,000 10.0% Senior Secured Convertible Note due April 2014, or the senior secured convertible note. See Senior Secured Convertible Note below. As a result of these transactions, we recorded gains on extinguishment of debt of $29,974,
net of deferred financing costs and unamortized discounts that were written off.



15



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





Secured
credit facilities.As of September 30, 2010, we have borrowed an aggregate amount of $38,736 under three secured credit facilities, each with a different bank. All of our secured credit facilities are secured by designated
commercial mortgages and mezzanine loans. As of September 30, 2010, the first secured credit facility had an unpaid principal balance of $20,576 which is payable in December 2011 under the current terms of this facility. As of
September 30, 2010, the second secured credit facility had an unpaid principal balance of $16,160 which is payable in October 2011 under the current terms of this facility. As of September 30, 2010, the third secured credit facility
had an unpaid principal balance of $2,000. We are amortizing this balance with monthly principal repayments of $500 which will result in the full repayment of this credit facility by February 2011.

Senior secured convertible note.On March 25, 2010, pursuant to a securities exchange agreement, we acquired from a
noteholder $47,000 aggregate principal amount of our convertible senior notes for a total consideration of $31,240. The purchase price consisted of (a) our issuance of the $22,000 senior secured convertible note, (b) 1,500,000 common
shares issued, and (c) $6,000 in cash. The senior secured convertible note is convertible into our common shares at the option of the holder. The conversion price is $3.50 per common share and the senior secured convertible note may be
converted at any time during its term. We also paid $1,427 of accrued and unpaid interest on the convertible notes through March 25, 2010. The holder of the senior secured convertible note converted $1,050 principal amount of the senior secured
convertible note into 300,000 common shares effective May 5, 2010.

The senior secured convertible note bears interest at
a rate of 10.0% per year. Interest accrues from March 25, 2010 and will be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning July 15, 2010. The senior
secured convertible note matures on April 20, 2014 unless previously prepaid in accordance with its terms prior to such date. The senior secured convertible note is fully and unconditionally guaranteed by two wholly-owned subsidiaries of RAIT,
or the guarantors: RAIT Asset Holdings III Member, LLC, or RAHM3, and RAIT Asset Holdings III, LLC, or RAH3. RAHM3 is the sole member of RAH3 and has pledged the equity of RAH3 to secure its guarantee. RAH3s assets consist of certain CDO notes
payable issued by RAITs consolidated securitization, RAIT Preferred Funding II, LTD.

The maturity date of the senior
secured convertible note may be accelerated upon the occurrence of specified customary events of default, the satisfaction of any related notice provisions and the failure to remedy such event of default, where applicable. These events of default
include: RAITs failure to pay any amount of principal or interest on the senior secured convertible note when due; the failure of RAIT or any guarantor to perform any obligation on its or their part in any transaction document; and events of
bankruptcy, insolvency or reorganization affecting RAIT or any guarantor.

Junior subordinated notes, at fair value.On October 25, 2010, pursuant to a securities exchange agreement, we exchanged $18,671 in aggregate principal amount of the junior subordinated notes with an interest rate of 8.7% for $18,671 of junior subordinated notes with a reduced
interest rate and provided $5,000 of our convertible senior notes as collateral for the new junior subordinated notes. The new junior subordinated notes have a fixed rate of interest of 0.5% through March 30, 2015, thereafter with a floating
rate of three-month LIBOR plus 400 basis points, with such floating rate not to exceed 7.0%. The maturity date remains the same at March 30, 2035. At issuance, we elected to record these junior subordinated notes at fair value under FASB ASC
Topic 825, with all subsequent changes in fair value recorded in earnings.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost.CDO notes payable at amortized cost represent notes issued by consolidated CDO
entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various
classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their interest coverage and overcollateralization triggers, or OC Triggers, tests as of September 30, 2010.

During the nine-month period ended September 30, 2010, we repurchased, from the market, a total of $26,500 in aggregate
principal amount of CDO notes payable issued by RAIT II. The aggregate purchase price was $4,840 and we recorded a gain on extinguishment of debt of $21,316, net of deferred financing costs that were written off.

CDO notes payable, at fair value.Both of our Taberna consolidated CDOs are failing OC Trigger tests which
cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC Trigger test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as
equity distributions, or in some cases interest payments on our retained CDO notes payable, to be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC Trigger test failures are due to defaulted
collateral assets and credit risk securities. During the nine-month period ended September 30, 2010, $12,556 of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO
notes payable.

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The
principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure



16



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)



as well as to hedge specific anticipated transactions. The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other
financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will
fail to meet their obligations.

Cash Flow Hedges

We have entered into various interest rate swap contracts to hedge interest rate exposure on floating rate indebtedness. We designate interest rate hedge agreements at inception and determine whether or
not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we
concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting
period, we update our regression analysis and, as of September 30, 2010, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective
portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair
value of our derivative instruments as of September 30, 2010 and December 31, 2009:



|                    |  |                          |           |  |                         |   |          |          |  |   |            |  |  |   |          |  
|------------------- |  | ------------------------ | --------- |  | ----------------------- | - | -------- | -------- |  | - | ---------- |  |  | - | -------- | -
|                    |  | As of September 30, 2010 |           |  | As of December 31, 2009 |  
|                    |  | Notional                 |           |  | Fair Value              |   |          | Notional |  |   | Fair Value | 
|Cash flow hedges:   |  |                          |           |  |                         |   |          |          |  |   |            |  |  |   |          |  
|Interest rate swaps |  | $                        | 1,750,698 |  |                         | $ | (254,287 | )        |  | $ | 1,826,167  |  |  | $ | (186,986 | )
|Interest rate caps  |  |                          | 36,000    |  |                         |   | 1,369    |          |  |   | 36,000     |  |  |   | 1,335    |  
|                    |  |                          |           |  |                         |   |          |          |  |   |            |  |  |   |          |  
|Net fair value      |  | $                        | 1,786,698 |  |                         | $ | (252,918 | )        |  | $ | 1,862,167  |  |  | $ | (185,651 | )
|                    |  |                          |           |  |                         |   |          |          |  |   |            |  |  |   |          |  

For interest rate swaps that are considered effective hedges, we reclassified realized gains (losses) of
$(11,391) and $(8,592) to earnings for the three-month periods ended September 30, 2010 and 2009. For interest rate swaps that are considered ineffective hedges, we reclassified unrealized gains (losses) of $12 and $15 to earnings for the
three-month periods ended September 30, 2010 and 2009.

The following table summarizes the effect on income by derivative
instrument type for the nine-month periods ended September 30, 2010 and 2009:



|                    |  |                                                                    |         |   |                                                                        |   |    |                                                                   |  |   |                                                                       |   |  |   |      |  
|------------------- |  | ------------------------------------------------------------------ | ------- | - | ---------------------------------------------------------------------- | - | -- | ----------------------------------------------------------------- |  | - | --------------------------------------------------------------------- | - |  | - | ---- | -
|                    |  | For the Nine-Month
PeriodEnded September 30, 2010                  |         |   | For the Nine-Month 
PeriodEnded September 30, 2009                     |  
|Type of Derivative  |  | AmountsReclassified 
toEarnings
forEffectiveHedgesGains 
(Losses) |         |   | AmountsReclassified 
toEarnings
forHedgeIneffectivenessGains
(Losses) |   |    | AmountsReclassified toEarnings
forEffectiveHedgesGains 
(Losses) |  |   | AmountsReclassified toEarnings forHedgeIneffectivenessGains (Losses) |  
|Interest rate swaps |  | $                                                                  | (34,662 | ) |                                                                        | $ | 50 |                                                                   |  | $ | (33,551                                                               | ) |  | $ | (450 | )
|Currency options    |  |                                                                    |        |   |                                                                        |   |   |                                                                   |  |   |                                                                      |   |  |   | (21  | )
|                    |  |                                                                    |         |   |                                                                        |   |    |                                                                   |  |   |                                                                       |   |  |   |      |  
|Total               |  | $                                                                  | (34,662 | ) |                                                                        | $ | 50 |                                                                   |  | $ | (33,551                                                               | ) |  | $ | (471 | )
|                    |  |                                                                    |         |   |                                                                        |   |    |                                                                   |  |   |                                                                       |   |  |   |      |  

On January 1, 2008, we adopted the fair value option, which has been classified under FASB ASC Topic
825, Financial Instruments, for certain of our CDO notes payable. Upon the adoption of this standard, hedge accounting for any previously designated cash flow hedges associated with these CDO notes payable was discontinued and all
changes in fair value of these cash flow hedges were thereafter recorded in earnings. As of September 30, 2010, the notional value associated with these cash flow hedges where hedge accounting was discontinued was $970,276 and a liability with
a fair value of $139,772. See Note 8: Fair Value of Financial Instruments for the changes in value of these hedges during the three-month and nine-month periods ended September 30, 2010 and 2009. The change in value of these hedges
was recorded as a component of the change in fair value of financial instruments in our consolidated statement of operations.

Amounts reclassified to earnings associated with effective cash flow hedges are reported in investment interest expense and the fair
value of these hedge agreements is included in other assets or derivative liabilities.



17



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





NOTE 8: FAIR VALUE OF FINANCIAL
INSTRUMENTS

Fair Value of Financial Instruments

FASB ASC Topic 825, Financial Instruments requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. The fair value of investments in
mortgages and loans, investments in securities, trust preferred obligations, CDO notes payable, convertible senior notes, junior subordinated notes and derivative assets and liabilities is based on significant observable and unobservable inputs. The
fair value of cash and cash equivalents, restricted cash, secured credit facilities, senior secured notes, loans payable on real estate and other indebtedness approximates cost due to the nature of these instruments.

The following table summarizes the carrying amount and the fair value of our financial instruments as of September 30, 2010:



|                                                           |  |                |           |  |                     |   |           | 
|---------------------------------------------------------- |  | -------------- | --------- |  | ------------------- | - | --------- | 
|Financial Instrument                                       |  | CarryingAmount |           |  | EstimatedFair Value |  
|Assets                                                     |  |                |           |  |                     |   |           | 
|Commercial mortgages, mezzanine loans and other loans      |  | $              | 1,283,187 |  |                     | $ | 1,213,398 | 
|Investments in securities and security-related receivables |  |                | 705,209   |  |                     |   | 705,209   | 
|Cash and cash equivalents                                  |  |                | 25,680    |  |                     |   | 25,680    | 
|Restricted cash                                            |  |                | 196,405   |  |                     |   | 196,405   | 
|Derivative assets                                          |  |                | 1,369     |  |                     |   | 1,369     | 
|Liabilities                                                |  |                |           |  |                     |   |           | 
|Recourse indebtedness:                                     |  |                |           |  |                     |   |           | 
|Convertible senior notes                                   |  |                | 143,447   |  |                     |   | 101,743   | 
|Secured credit facilities                                  |  |                | 38,736    |  |                     |   | 38,736    | 
|Senior secured notes                                       |  |                | 63,950    |  |                     |   | 63,950    | 
|Junior subordinated notes, at fair value                   |  |                | 4,422     |  |                     |   | 4,422     | 
|Junior subordinated notes, at amortized cost               |  |                | 25,100    |  |                     |   | 2,917     | 
|Loans payable on real estate                               |  |                | 22,432    |  |                     |   | 22,432    | 
|Non-recourse indebtedness:                                 |  |                |           |  |                     |   |           | 
|CDO notes payable, at amortized cost                       |  |                | 1,370,250 |  |                     |   | 668,690   | 
|CDO notes payable, at fair value                           |  |                | 147,473   |  |                     |   | 147,473   | 
|Loans payable on real estate                               |  |                | 63,375    |  |                     |   | 63,375    | 
|Derivative liabilities                                     |  |                | 254,287   |  |                     |   | 254,287   | 

Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring
basis as of September 30, 2010, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:



|                                |  |                                                                 |   |  |                                                 |   |         |                                             |  |   |                                |  |  |   |         | 
|------------------------------- |  | --------------------------------------------------------------- | - |  | ----------------------------------------------- | - | ------- | ------------------------------------------- |  | - | ------------------------------ |  |  | - | ------- | 
|Assets:                         |  | Quoted Prices inActive Markets forIdentical Assets(Level 1)
(a) |   |  | Significant OtherObservable Inputs(Level 2) (a) |   |         | SignificantUnobservable Inputs(Level 3) (a) |  |   | Balance as ofSeptember 30,2010 | 
|Trading securities              |  |                                                                 |   |  |                                                 |   |         |                                             |  |   |                                |  |  |   |         | 
|TruPS                           |  | $                                                               |  |  |                                                 | $ |        |                                             |  | $ | 456,465                        |  |  | $ | 456,465 | 
|Other securities                |  |                                                                 |  |  |                                                 |   |        |                                             |  |   |                               |  |  |   |        | 
|Available-for-sale securities   |  |                                                                 |  |  |                                                 |   | 90      |                                             |  |   |                               |  |  |   | 90      | 
|Security-related receivables    |  |                                                                 |   |  |                                                 |   |         |                                             |  |   |                                |  |  |   |         | 
|TruPS receivables               |  |                                                                 |  |  |                                                 |   |        |                                             |  |   | 86,786                         |  |  |   | 86,786  | 
|Unsecured REIT note receivables |  |                                                                 |  |  |                                                 |   | 62,546  |                                             |  |   |                               |  |  |   | 62,546  | 
|CMBS receivables                |  |                                                                 |  |  |                                                 |   | 72,578  |                                             |  |   |                               |  |  |   | 72,578  | 
|Other securities                |  |                                                                 |  |  |                                                 |   | 26,744  |                                             |  |   |                               |  |  |   | 26,744  | 
|Derivative assets               |  |                                                                 |  |  |                                                 |   | 1,369   |                                             |  |   |                               |  |  |   | 1,369   | 
|                                |  |                                                                 |   |  |                                                 |   |         |                                             |  |   |                                |  |  |   |         | 
|Total assets                    |  | $                                                               |  |  |                                                 | $ | 163,327 |                                             |  | $ | 543,251                        |  |  | $ | 706,578 | 
|                                |  |                                                                 |   |  |                                                 |   |         |                                             |  |   |                                |  |  |   |         | 



18



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





|                                         |  |                                                                 |   |  |                                                     |   |         |                                             |  |   |                                |  |  |   |         | 
|---------------------------------------- |  | --------------------------------------------------------------- | - |  | --------------------------------------------------- | - | ------- | ------------------------------------------- |  | - | ------------------------------ |  |  | - | ------- | 
|Liabilities:                             |  | Quoted Prices inActive Markets forIdentical Assets(Level 1)
(a) |   |  | Significant OtherObservable Inputs(Level 2) (a) (b) |   |         | SignificantUnobservable Inputs(Level 3) (b) |  |   | Balance as ofSeptember 30,2010 | 
|Junior subordinated notes, at fair value |  | $                                                               |  |  |                                                     | $ |        |                                             |  | $ | 4,422                          |  |  | $ | 4,422   | 
|CDO notes payable, at fair value         |  |                                                                 |  |  |                                                     |   |        |                                             |  |   | 147,473                        |  |  |   | 147,473 | 
|Derivative liabilities                   |  |                                                                 |  |  |                                                     |   | 254,287 |                                             |  |   |                               |  |  |   | 254,287 | 
|                                         |  |                                                                 |   |  |                                                     |   |         |                                             |  |   |                                |  |  |   |         | 
|Total liabilities                        |  | $                                                               |  |  |                                                     | $ | 254,287 |                                             |  | $ | 151,895                        |  |  | $ | 406,182 | 
|                                         |  |                                                                 |   |  |                                                     |   |         |                                             |  |   |                                |  |  |   |         | 



|(a) | During the nine-month period ended September 30, 2010, there were no transfers between Level 1 and Level 2, nor were there any transfers into or out of assets
categorized as Level 3.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | During the nine-month period ended September 30, 2010, we determined that junior subordinated notes elected under the fair value option should be categorized as a
Level 3 liability due to the limited market activity for these financial instruments and increased reliance on managements estimates and assumptions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair
value for the nine-month period ended September 30, 2010:



|                                              |  |                                                    |          |   |                                                                         |   |        |                    |  |   |          |  
|--------------------------------------------- |  | -------------------------------------------------- | -------- | - | ----------------------------------------------------------------------- | - | ------ | ------------------ |  | - | -------- | -
|Assets                                        |  | TradingSecuritiesTruPS and SubordinatedDebentures |          |   | Security-RelatedReceivablesTruPS and
SubordinatedDebenture Receivables |   |        | TotalLevel 3Assets | 
|Balance, as of December 31, 2009              |  | $                                                  | 471,106  |   |                                                                         | $ | 73,649 |                    |  | $ | 544,755  |  
|Change in fair value of financial instruments |  |                                                    | 196,434  |   |                                                                         |   | 16,418 |                    |  |   | 212,852  |  
|Purchases and sales, net                      |  |                                                    | (140,203 | ) |                                                                         |   | (3,281 | )                  |  |   | (143,484 | )
|Deconsolidation of VIEs                       |  |                                                    | (70,872  | ) |                                                                         |   |       |                    |  |   | (70,872  | )
|                                              |  |                                                    |          |   |                                                                         |   |        |                    |  |   |          |  
|Balance, as of September 30, 2010             |  | $                                                  | 456,465  |   |                                                                         | $ | 86,786 |                    |  | $ | 543,251  |  
|                                              |  |                                                    |          |   |                                                                         |   |        |                    |  |   |          |  



|                                              |  |                            |         |   |                                |   |         |                                       |  |   |                         |  |  |   |         |  
|--------------------------------------------- |  | -------------------------- | ------- | - | ------------------------------ | - | ------- | ------------------------------------- |  | - | ----------------------- |  |  | - | ------- | -
|Liabilities                                   |  | Trust PreferredObligations |         |   | CDO NotesPayable, atFair Value |   |         | JuniorSubordinatedNotes, atFair Value |  |   | TotalLevel 3Liabilities | 
|Balance, as of December 31, 2009              |  | $                          | 70,872  |   |                                | $ | 146,557 |                                       |  | $ |                        |  |  | $ | 217,429 |  
|Change in fair value of financial instruments |  |                            |        |   |                                |   | 13,472  |                                       |  |   |                        |  |  |   | 13,472  |  
|Purchases and sales, net                      |  |                            |        |   |                                |   | (12,556 | )                                     |  |   |                        |  |  |   | (12,556 | )
|Deconsolidation of VIEs                       |  |                            | (70,872 | ) |                                |   |        |                                       |  |   |                        |  |  |   | (70,872 | )
|Transfer in from Level 2 to Level 3 (a)       |  |                            |        |   |                                |   |        |                                       |  |   | 4,422                   |  |  |   | 4,422   |  
|                                              |  |                            |         |   |                                |   |         |                                       |  |   |                         |  |  |   |         |  
|Balance, as of September 30, 2010             |  | $                          |        |   |                                | $ | 147,473 |                                       |  | $ | 4,422                   |  |  | $ | 151,895 |  
|                                              |  |                            |         |   |                                |   |         |                                       |  |   |                         |  |  |   |         |  



|(a) | During the nine-month period ended September 30, 2010, we determined that junior subordinated notes elected under the fair value option should be categorized as a
Level 3 liability due to the limited market activity for these financial instruments and increased reliance on managements estimates and assumptions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Change in Fair Value of Financial Instruments

The following table
summarizes realized and unrealized gains and losses on assets and liabilities for which we elected the fair value option of FASB ASC Topic 825, Financial Instruments as reported in change in fair value of financial instruments in the
accompanying consolidated statements of operations:



|                                                                                             |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |          |  
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                             |  | For the Three-MonthPeriods EndedSeptember 30 |         |   | For the Nine-MonthPeriods EndedSeptember 30 |  
|Description                                                                                  |  | 2010                                         |         |   | 2009                                        |   |         | 2010 |  |   | 2009    |  
|Change in fair value of trading securities and security-related receivables                  |  | $                                            | 26,004  |   |                                             | $ | 13,300  |      |  | $ | 109,003 |   |  | $ | (168,736 | )
|Change in fair value of CDO notes payable, trust preferred obligations and other liabilities |  |                                              | 7,555   |   |                                             |   | 7,445   |      |  |   | (891    | ) |  |   | 159,039  |  
|Change in fair value of derivatives                                                          |  |                                              | (19,322 | ) |                                             |   | (24,553 | )    |  |   | (72,992 | ) |  |   | (2,559   | )
|                                                                                             |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |          |  
|Change in fair value of financial instruments                                                |  | $                                            | 14,237  |   |                                             | $ | (3,808  | )    |  | $ | 35,120  |   |  | $ | (12,256  | )
|                                                                                             |  |                                              |         |   |                                             |   |         |      |  |   |         |   |  |   |          |  

The changes in the fair value for the investment in securities, CDO notes payable and other liabilities for
which the fair value option was elected for the three-month and nine-month periods ended September 30, 2010 and 2009 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for
which the fair value option was elected for the three-month and nine-month periods ended September 30, 2010 and 2009 was mainly due to changes in interest rates.



19



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





NOTE 9: VARIABLE INTEREST
ENTITIES

On January 1, 2010, we adopted an accounting standard which provided guidance when to consolidate a VIE.
Under the new standard, the determination of when to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIEs economic performance together with either the obligation to absorb losses
or the right to receive benefits that could be significant to the VIE. Upon adoption, we evaluated our investments under this new consolidation standard and the following changes in previous consolidation conclusions were made:



| |  |  | TruPS Investment and Obligations  Previously, we held implicit interests in trusts which issued TruPS. Under the previous consolidation
guidance, we were considered to be primary beneficiaries of the trusts and reported their assets and liabilities in our consolidated balance sheet. RAIT does not meet both criteria to be the primary beneficiary of these entities as we do not have
the power to direct the activities of the underlying trusts. Therefore, we deconsolidated these entities as of January 1, 2010 thereby reducing our assets and liabilities by $70,872.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Investments in Real Estate  We identified two properties to be VIEs that we previously did not consolidate as we were not previously the
primary beneficiary: Willow Grove and Cherry Hill. RAIT evaluated its interests in these real estate properties and determined that we are the primary beneficiary. Upon consolidation of these properties on January 1, 2010, we increased our
assets and liabilities by $20,931.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the assets and liabilities of our
consolidated VIEs as of each respective date. As of September 30, 2010, our consolidated VIEs were: Taberna Preferred Funding VIII, Ltd., Taberna Preferred Funding IX, Ltd, RAIT CRE CDO I, Ltd., RAIT Preferred Funding II, Ltd., Willow Grove and
Cherry Hill.



|                                                                                             |  |                        |           |   |                           |   |           |  
|-------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | - | ------------------------- | - | --------- | -
|                                                                                             |  | As ofSeptember 30,2010 |           |   | As ofDecember 31,2009 (a) |  
|Assets                                                                                       |  |                        |           |   |                           |   |           |  
|Investments in mortgages and loans, at amortized cost:                                       |  |                        |           |   |                           |   |           |  
|Commercial mortgages, mezzanine loans, other loans and preferred equity interests            |  | $                      | 1,933,494 |   |                           | $ | 1,959,118 |  
|Allowance for losses                                                                         |  |                        | (10,738   | ) |                           |   | (10,903   | )
|                                                                                             |  |                        |           |   |                           |   |           |  
|Total investments in mortgages and loans                                                     |  |                        | 1,922,756 |   |                           |   | 1,948,215 |  
|Investments in real estate                                                                   |  |                        | 21,353    |   |                           |   |          |  
|Investments in securities and security-related receivables, at fair value                    |  |                        | 705,123   |   |                           |   | 694,809   |  
|Cash and cash equivalents                                                                    |  |                        | 45        |   |                           |   | 272       |  
|Restricted cash                                                                              |  |                        | 157,286   |   |                           |   | 117,322   |  
|Accrued interest receivable                                                                  |  |                        | 51,134    |   |                           |   | 38,397    |  
|Deferred financing costs, net of accumulated amortization of $8,016 and $5,897, respectively |  |                        | 18,591    |   |                           |   | 20,132    |  
|                                                                                             |  |                        |           |   |                           |   |           |  
|Total assets                                                                                 |  | $                      | 2,876,288 |   |                           | $ | 2,819,147 |  
|                                                                                             |  |                        |           |   |                           |   |           |  
|Liabilities and Equity                                                                       |  |                        |           |   |                           |   |           |  
|Indebtedness (including $147,473 and $217,429 at fair value, respectively)                   |  | $                      | 1,706,876 |   |                           | $ | 1,794,339 |  
|Accrued interest payable                                                                     |  |                        | 31,350    |   |                           |   | 21,855    |  
|Accounts payable and accrued expenses                                                        |  |                        | 1,147     |   |                           |   | 232       |  
|Derivative liabilities                                                                       |  |                        | 254,287   |   |                           |   | 186,986   |  
|Deferred taxes, borrowers escrows and other liabilities                                     |  |                        | 1,756     |   |                           |   | 3,136     |  
|                                                                                             |  |                        |           |   |                           |   |           |  
|Total liabilities                                                                            |  |                        | 1,995,416 |   |                           |   | 2,006,548 |  
|Equity:                                                                                      |  |                        |           |   |                           |   |           |  
|Shareholders equity:                                                                        |  |                        |           |   |                           |   |           |  
|Accumulated other comprehensive income (loss)                                                |  |                        | (147,554  | ) |                           |   | (115,004  | )
|RAIT Investment                                                                              |  |                        | 123,871   |   |                           |   | 167,011   |  
|Retained earnings (deficit)                                                                  |  |                        | 904,555   |   |                           |   | 760,592   |  
|                                                                                             |  |                        |           |   |                           |   |           |  
|Total shareholders equity                                                                   |  |                        | 880,872   |   |                           |   | 812,599   |  
|                                                                                             |  |                        |           |   |                           |   |           |  
|Total liabilities and equity                                                                 |  | $                      | 2,876,288 |   |                           | $ | 2,819,147 |  
|                                                                                             |  |                        |           |   |                           |   |           |  



|(a) | Includes the assets and liabilities described in the TruPS Investments and Obligations above. Based on the adoption of the accounting standard, these VIEs were
deconsolidated as of January 1, 2010 and no longer appear in our consolidated financial statements. Upon deconsolidation, investments in securities and indebtedness both decreased by $70,872 as of January 1, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





The assets of the
VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with other RAIT subsidiaries that maintain investments in the debt or
equity securities issued by these entities.

RAIT does not have any contractual obligation to provide the VIEs listed above
with any financial support. RAIT has not provided and does not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

NOTE 10: EQUITY

Preferred Shares

On January 26, 2010, our board of trustees declared first quarter 2010 cash dividends of $0.484375 per share on our 7.75% Series A
Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on March 31, 2010 to holders of record on March 1, 2010 and totaled
$3,406.

On April 22, 2010, our board of trustees declared second quarter 2010 cash dividends of $0.484375 per share on
our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on June 30, 2010 to holders of record on June 1,
2010 and totaled $3,415.

On July 27, 2010, our board of trustees declared third quarter 2010 cash dividends of $0.484375
per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on September 30, 2010 to holders of record
on September 1, 2010 and totaled $3,406.

On October 28, 2010, our board of trustees declared fourth quarter 2010
cash dividends of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends will be paid on
December 31, 2010 to holders of record on December 1, 2010.

Common Shares

Share Repurchases:

On
January 26, 2010, the compensation committee approved a cash payment to the Boards eight non-management trustees intended to constitute a portion of their respective 2010 annual non-management trustee compensation. The cash payment was
subject to terms and conditions set forth in a letter agreement, or the letter agreement, between each of the non-management trustees and RAIT. The terms and conditions included a requirement that each trustee use a portion of the cash payment to
purchase RAITs common shares in purchases that, individually and in the aggregate with all purchases made by all the other non-management trustees pursuant to their respective letter agreements, complied with Rule 10b-18 promulgated under the
Securities Exchange Act of 1934, as amended. The aggregate amount required to be used by all of the non-management trustees to purchase common shares was $240 and was used to purchase 152,800 common shares, in the aggregate, in March 2010.

Equity Compensation:

On January 26, 2010, the compensation committee awarded 1,500,000 phantom units, valued at $1,905 using our closing stock price of $1.27 on that date, to our executive officers. Half of these awards
vested immediately and the remainder vests in one year from the date of grant. On January 26, 2010, the compensation committee awarded 500,000 phantom units, valued at $635 using our closing stock price of $1.27 on that date, to our
non-executive officer employees. These awards generally vest over three-year periods.

During the nine-month period ended
September 30, 2010, 73,425 phantom unit awards were redeemed for common shares. These phantom units were fully vested at the time of redemption.

Share Issuances:

During the nine-month period ended September 30,
2010, we issued 18,915,000 common shares, along with cash and the issuance of a senior secured convertible note, to repurchase $102,750 of our convertible notes.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We
implemented an amended and restated dividend reinvestment and share purchase plan, or DRSPP, effective as of March 13, 2008, pursuant to which we have registered and reserved for issuance, in the aggregate, 18,787,635 common shares. During the
nine-month period ended September 30, 2010, we issued a total of 1,918,831 common shares pursuant to the DRSPP at a weighted-average price of $2.29 per share and we received $4,353 of proceeds. As of September 30, 2010, 11,711,509 common
shares, in aggregate, remain available for issuance under the DRSPP.



21



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





Standby Equity Distribution
Agreement (SEDA):

On January 13, 2010, we entered into a standby equity distribution agreement, or the SEDA, with YA
Global Master SPV Ltd., or YA Global, which is managed by Yorkville Advisors, LLC, whereby YA Global agreed to purchase up to $50,000, or the commitment amount, worth of newly issued RAIT common shares upon notices given by us, subject to the terms
and conditions of the SEDA. The number of common shares issued or issuable pursuant to the SEDA, in the aggregate, cannot exceed 12,500,000 common shares. The SEDA terminates automatically on the earlier of January 13, 2012 or the date YA
Global has purchased $50,000 worth of common shares under the SEDA. During the period from the effective date of the SEDA through September 30, 2010, 1,152,984 common shares were issued pursuant to this arrangement at a weighted average price
of $2.17 and we received $2,500 of proceeds. As of September 30, 2010, 11,347,016 common shares, in the aggregate, remain available for issuance under the SEDA.

Capital on Demand Sales Agreement:

On August 6, 2010, we
entered into a Capital on Demand Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 17,500,000 of our common shares from time to time
through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. During the period from the effective date of the COD sales agreement through September 30, 2010, 549,518 common shares were
issued pursuant to this arrangement at a weighted average price of $1.57 and we received $863 of proceeds. In October 2010, 1,584,234 common shares were issued pursuant to the COD sales agreement at a weighted average price of $1.74 and we received
$2,750 of proceeds. After reflecting the common shares issued in October 2010, 15,366,248 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

NOTE 11: EARNINGS (LOSS) PER SHARE

The following table presents
a reconciliation of basic and diluted earnings (loss) per share for the three-month and nine-month periods ended September 30, 2010 and 2009:



|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------- |  | ---------------------------------------------- | ---------- | - | --------------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                    |  | For the 
Three-MonthPeriods Ended September 30 |            |   | For the 
Nine-MonthPeriods Ended September 30 |  
|                                                                    |  | 2010                                           |            |   | 2009                                          |   |            | 2010 |  |   | 2009       |  
|Income (loss) from continuing operations                            |  | $                                              | 20,804     |   |                                               | $ | (22,225    | )    |  | $ | 79,707     |   |  | $ | (458,583   | )
|(Income) loss allocated to preferred shares                         |  |                                                | (3,406     | ) |                                               |   | (3,406     | )    |  |   | (10,227    | ) |  |   | (10,227    | )
|(Income) loss allocated to noncontrolling interests                 |  |                                                | 210        |   |                                               |   | 503        |      |  |   | 803        |   |  |   | 12,900     |  
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Income (loss) from continuing operations allocable to common shares |  |                                                | 17,608     |   |                                               |   | (25,128    | )    |  |   | 70,283     |   |  |   | (455,910   | )
|Income (loss) from discontinued operations                          |  |                                                | (2,556     | ) |                                               |   | 436        |      |  |   | (1,630     | ) |  |   | (881       | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Net income (loss) allocable to common shares                        |  | $                                              | 15,052     |   |                                               | $ | (24,692    | )    |  | $ | 68,653     |   |  | $ | (456,791   | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average shares outstandingBasic                           |  |                                                | 90,990,778 |   |                                               |   | 65,025,946 |      |  |   | 82,153,353 |   |  |   | 64,990,708 |  
|Dilutive securities under the treasury stock method                 |  |                                                | 1,670,657  |   |                                               |   |           |      |  |   | 1,248,590  |   |  |   |           |  
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Weighted-average shares outstandingDiluted                         |  |                                                | 92,661,435 |   |                                               |   | 65,025,946 |      |  |   | 83,401,943 |   |  |   | 64,990,708 |  
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per shareBasic:                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                               |  | $                                              | 0.20       |   |                                               | $ | (0.39      | )    |  | $ | 0.86       |   |  | $ | (7.02      | )
|Discontinued operations                                             |  |                                                | (0.03      | ) |                                               |   | 0.01       |      |  |   | (0.02      | ) |  |   | (0.01      | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Total earnings (loss) per shareBasic                               |  | $                                              | 0.17       |   |                                               | $ | (0.38      | )    |  | $ | 0.84       |   |  | $ | (7.03      | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) per shareDiluted:                                  |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Continuing operations                                               |  | $                                              | 0.19       |   |                                               | $ | (0.39      | )    |  | $ | 0.84       |   |  | $ | (7.02      | )
|Discontinued operations                                             |  |                                                | (0.03      | ) |                                               |   | 0.01       |      |  |   | (0.02      | ) |  |   | (0.01      | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  
|Total earnings (loss) per shareDiluted                             |  | $                                              | 0.16       |   |                                               | $ | (0.38      | )    |  | $ | 0.82       |   |  | $ | (7.03      | )
|                                                                    |  |                                                |            |   |                                               |   |            |      |  |   |            |   |  |   |            |  

For the three-month and nine-month periods ended September 30, 2009, securities convertible into
15,104,889 and 15,799,188 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive. For the three-month and nine-month periods ended September 30, 2010,
securities convertible into 11,094,817 common shares were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

NOTE 12: RELATED PARTY TRANSACTIONS

In the ordinary course of our
business operations, we have ongoing relationships and have engaged in transactions with several related entities described below. All of these relationships and transactions were approved or ratified by our audit committee as being on terms
comparable to those available on an arms-length basis from an unaffiliated third party or otherwise not creating a conflict of interest.



22



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





Our Chairman,
Betsy Z. Cohen, is the Chief Executive Officer and a director of The Bancorp, Inc., or Bancorp, and Chairman of the Board and Chief Executive Officer of its wholly-owned subsidiary, The Bancorp Bank, a commercial bank. On September 22, 2010,
Mrs. Cohen advised our Board of Trustees that she plans to retire as our Chairman of the Board and as a Trustee effective December 31, 2010. Mrs. Cohens son, Daniel G. Cohen, was our chief executive officer from the date of the
Taberna acquisition until his resignation from that position on February 22, 2009. Mr. Cohen was a trustee of RAIT from the date of the Taberna acquisition until his resignation from that position on February 26, 2010. Mr. Cohen
is the Chairman of the Board of Bancorp and Vice-Chairman of the Board of Bancorp Bank. Scott F. Schaeffer is our Chief Executive Officer and President and, effective December 31, 2010 upon the retirement of Mrs. Cohen, will become our
Chairman and a Trustee on our Board of Trustees. Mr. Schaeffers spouse, Linda Schaeffer, is a director of Bancorp and she and Mr. Schaeffer own, in the aggregate, less than 1% of Bancorps outstanding common shares. Each
transaction with Bancorp is described below:

a). Cash and Restricted CashWe maintain checking and
demand deposit accounts at Bancorp. As of September 30, 2010 and December 31, 2009, we had $112 and $410, respectively, of cash and cash equivalents and $580 and $1,601, respectively, of restricted cash on deposit at Bancorp. During the
three-month and nine-month periods ended September 30, 2009, we received $0 and $11 of interest income from Bancorp. We did not receive any interest income from the Bancorp during the three-month and nine-month periods ended September 30,
2010. Restricted cash held at Bancorp relates to borrowers escrows for taxes, insurance and capital reserves. Any interest earned on these deposits enures to the benefit of the specific borrower and not to us.

b). Office LeasesWe sublease a portion of our downtown Philadelphia office space from Bancorp at an annual
rental expense based upon the amount of square footage occupied. We have signed a sublease agreement with a third party for the remaining term of our sublease. Rent paid to Bancorp was $79 and $71 for the three-month periods ended September 30,
2010 and 2009, respectively, and $226 and $239 for the nine-month periods ended September 30, 2010 and 2009. Rent received for our sublease was $42 and $124 for the three-month and nine-month periods ended September 30, 2010, respectively.

Mr. Cohen holds controlling positions in various companies with which we conduct business. Mr. Cohen serves as the
Chairman of the board of directors and Chief Executive Officer of Cohen & Company Inc. or, Cohen & Company, and as the Chairman of the board of managers, Chief Executive Officer and Chief Investment Officer of Cohen Brothers, LLC,
or Cohen Brothers, a majority owned subsidiary of Cohen & Company. Each transaction between us and Cohen & Company is described below:

a). Office LeasesWe maintain sub-lease agreements for shared office space and facilities with Cohen & Company. Rent expense during the three-month periods ended September 30,
2010 and 2009, relating to these leases was $12 and for the nine-month periods ended September 30, 2010 and 2009 was $37. Rent expense has been included in general and administrative expense in the accompanying consolidated statements of
operations. Future minimum lease payments due over the remaining term of the lease are $271.

b). Common
Shares As of December 31, 2009, Cohen & Company and its affiliate entities owned 510,434 of our common shares. During the period ended September 30, 2010, Cohen & Company and its affiliates sold these shares and
do not own any of our common shares as September 30, 2010.

c). Brokerage ServicesDuring
2010, Cohen & Company sold $7,000 in aggregate principal amount of debt securities to an unrelated third party using the broker-dealer services of RAIT Securities, LLC, for which we earned $38 in principal transaction income. During the
nine-month period ended September 30, 2009 we repurchased $14,000 of our RAIT CRE CDO I notes payable rated BBB and $300 of CMBS receivables from a third party using the broker-dealer services of Cohen & Company. Cohen &
Company received $113 of total principal transaction income in connection with these transactions.

d). Star
AsiaStar Asia is an affiliate of Cohen & Company. During 2010, Star Asia purchased $2,315 in aggregate principal of debt securities from an unrelated third party using the broker-dealer services of RAIT Securities, LLC, for which
we did not earn any principal transaction income. In March 2009, Star Asia issued debt securities to a third party, upon which a subsequent exchange offer was entered into with Taberna Preferred Funding III, Ltd., or Taberna III, for $22,425 and
Taberna Preferred Funding IV, Ltd., or Taberna IV, for $19,434. Taberna Capital Management was the collateral manager for Taberna III and Taberna IV. We received an opinion from an independent third party concluding that the transaction was fair
from Taberna III and IVs financial viewpoint. There were no fees earned by Taberna Capital Management or Star Asia. In June 2009 we sold our interests in Taberna III and Taberna IV. See Note 13Asset Dispositions.

e).Kleros Preferred Funding VIII, Ltd.Kleros Preferred Funding VIII, Ltd., or Kleros VIII, is a
securitization managed by Cohen & Company. In June 2007, we purchased approximately $26,400 in par amount of bonds rated A through BBB issued by Kleros VIII, for a purchase price of approximately $23,997. As of September 30, 2010, the
bonds have a current fair value of $0 and have been on non-accrual since December 31, 2007.

Edward E. Cohen, the spouse
of Betsy Z. Cohen and father of Daniel G. Cohen, is the Chairman of Resource America, Inc, or Resource America. Jonathan Z. Cohen, the son of Betsy Z. Cohen and brother of Daniel G. Cohen, is the Chief Executive Officer of



23



---

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)



Resource America. During the three-month period ended September 30, 2009, we repurchased $3,500 of our RAIT CRE CDO I notes payable rated BBB from a third party using the broker-dealer
services of a subsidiary of Resource America. The Resource America subsidiary received $7 principal transaction income in connection with this transaction.

Brandywine Construction & Management, Inc., or Brandywine, is an affiliate of Edward E. Cohen. Brandywine provided real estate management services to two properties underlying our investments in
real estate. During the three-month periods ended September 30, 2010 and 2009, Brandywine earned management fees of $22 and $29, respectively, and $74 and $75 for the nine-month periods ended September 30, 2010 and 2009. We believe that
the management fees charged by Brandywine are comparable to those that could be obtained from unaffiliated third parties.

NOTE 13: ASSET
DISPOSITIONS

On April 22, 2010 RAIT sold or delegated its collateral management rights and responsibilities relating
to eight Taberna securitizations with approximately $5,858,931 in total assets under management to an affiliate of certain funds managed by an affiliate of Fortress Investment Group LLC for $16,518. These securitizations were not consolidated by
RAIT and were comprised of Taberna Preferred Funding II, Ltd. through Taberna Preferred Funding VII, Ltd., Taberna Europe CDO I, P.L.C., and Taberna Europe CDO II, P.L.C. The transaction generated a $7,938 in gain on sale of asset.

During 2009, we disposed of our investments in six residential mortgage portfolios and four Taberna CDOs. All assets sold and related
liabilities were removed from our consolidated balance sheet on the date of sale, with any gains or losses on dispositions recorded in our accompanying statements of operations under gains (losses) on sale of assets.

On July 16, 2009, we sold our residential mortgage portfolio to an affiliate of Angelo, Gordon & Co.,
L.P., pursuant to a Purchase and Sale Agreement, dated as of July 15, 2009 between our subsidiary, Taberna Loan Holdings I, LLC, and AG Park Lane I Corp. We sold all of our notes and equity interests, or the retained interests, together with
any principal or interest payable thereon, issued by the following six securitizations of residential mortgage loans: Bear Stearns ARM Trust 2005-7, Bear Stearns ARM Trust 2005-9, Citigroup Mortgage Loan Trust 2005-1, CWABS Trust 2005 HYB9, Merrill
Lynch Mortgage Investors Trust, Series 2005-A9 and Merrill Lynch Mortgage Backed Securities Trust, Series 2007-2. The purchase price paid by the buyer was $15,800, plus accrued interest and we recorded a $61,841 loss on sale of assets.

Previously we consolidated Taberna Preferred Funding III, Ltd, Taberna Preferred Funding IV, Ltd., Taberna Preferred Funding
VI, Ltd. and Taberna Preferred Funding VII, Ltd., four securitizations in which we were determined to be the primary beneficiary primarily due to our majority ownership of the equity interests issued by the securitizations. On June 25, 2009, we
sold all of our equity interests and a portion of the non-investment grade debt that we owned in these four securitizations and determined that we were no longer the primary beneficiary and, therefore, we deconsolidated the securitizations in
accordance with FASB ASC Topic 810, Consolidation. We recorded losses on the sales of assets related to these VIEs of $313,808 in June 2009.

Summarized Statement of Operations

The table below summarizes the
statement of operations for the four Taberna CDOs and six residential mortgage portfolios sold in June and July 2009, respectively. The information presented below is for the nine-month periods ended September 30, 2009 (dollars in thousands).



|                                                    |  |                                              |          |  
|--------------------------------------------------- |  | -------------------------------------------- | -------- | -
|                                                    |  | For the Nine-Months 
EndedSeptember 30, 2009 |         
|Revenue:                                            |  |                                              |          |  
|Investment interest income                          |  | $                                            | 176,780  |  
|Investment interest expense                         |  |                                              | (129,899 | )
|                                                    |  |                                              |          |  
|Net interest margin                                 |  |                                              | 46,881   |  
|General and administrative expenses                 |  |                                              | (830     | )
|Provision for losses                                |  |                                              | (101,980 | )
|                                                    |  |                                              |          |  
|Income before other income (expense)                |  |                                              | (55,929  | )
|Losses on sales of assets                           |  |                                              | (375,649 | )
|Change in fair value of financial instruments       |  |                                              | (59,716  | )
|                                                    |  |                                              |          |  
|Net income (loss)                                   |  |                                              | (491,294 | )
|(Income) loss allocated to noncontrolling interests |  |                                              | 12,053   |  
|                                                    |  |                                              |          |  
|Net income (loss) allocable to common shares        |  | $                                            | (479,241 | )
|                                                    |  |                                              |          |  



24



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands, except
share and per share amounts)





NOTE 14: ASSETS HELD FOR
SALE AND DISCONTINUED OPERATIONS

As of September 30, 2010, we have three properties designated as held for sale. As
of December 31, 2009, we had four properties designated as held for sale, including two properties that were sold or deconsolidated during the nine-month period ended September 30, 2010. The following table summarizes the consolidated
balance sheet of the real estate properties classified as assets held for sale:



|                                                      |  |                         |        |  |                        |   |        | 
|----------------------------------------------------- |  | ----------------------- | ------ |  | ---------------------- | - | ------ | 
|                                                      |  | As of
September 30,2010 |        |  | As of
December 31,2009 |  
|Assets:                                               |  |                         |        |  |                        |   |        | 
|Investments in real estate                            |  | $                       | 61,245 |  |                        | $ | 79,790 | 
|Cash and cash equivalents                             |  |                         | 968    |  |                        |   | 1,069  | 
|Other assets                                          |  |                         | 2,884  |  |                        |   | 2,410  | 
|Deferred financing costs, net                         |  |                         | 141    |  |                        |   | 161    | 
|                                                      |  |                         |        |  |                        |   |        | 
|Total assets held for sale                            |  | $                       | 65,238 |  |                        | $ | 83,430 | 
|                                                      |  |                         |        |  |                        |   |        | 
|Liabilities:                                          |  |                         |        |  |                        |   |        | 
|Other indebtedness                                    |  |                         | 8,490  |  |                        |   | 18,508 | 
|Accrued interest payable                              |  |                         | 46     |  |                        |   | 62     | 
|Accounts payable and accrued expenses                 |  |                         | 1,322  |  |                        |   | 1,667  | 
|Other liabilities                                     |  |                         | 911    |  |                        |   | 766    | 
|                                                      |  |                         |        |  |                        |   |        | 
|Total liabilities related to assets held for sale (a) |  | $                       | 10,769 |  |                        | $ | 21,003 | 
|                                                      |  |                         |        |  |                        |   |        | 



|(a) | Liabilities related to assets held for sale exclude $48,114 of first mortgages held by RAITs CDO securitizations that are eliminated against the corresponding
investment asset in our consolidated balance sheet.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For the three-month and nine-month periods ended
September 30, 2010 and 2009, income (loss) from discontinued operations relates to three real estate properties designated as held for sale and four real estate properties sold or deconsolidated since January 1, 2009. The following table
summarizes revenue and expense information for real estate properties classified as discontinued operations:



|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------ |  | -------------------------------------------- | ------ | - | ------------------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                 |  | For the Three-MonthPeriods EndedSeptember 30 |        |   | For the Nine-MonthPeriods EndedSeptember 30 |  
|                                                 |  | 2010                                         |        |   | 2009                                        |   |       | 2010 |  |   | 2009   |  
|Revenue:                                         |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Rental income                                    |  | $                                            | 2,397  |   |                                             | $ | 2,140 |      |  | $ | 7,495  |   |  | $ | 7,320  |  
|Expenses:                                        |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Real estate operating expense                    |  |                                              | 1,411  |   |                                             |   | 1,597 |      |  |   | 4,626  |   |  |   | 4,893  |  
|General and administrative expense               |  |                                              |       |   |                                             |   |      |      |  |   |       |   |  |   | 19     |  
|Depreciation expense                             |  |                                              | 631    |   |                                             |   | 848   |      |  |   | 1,856  |   |  |   | 2,071  |  
|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Total expenses                                   |  |                                              | 2,042  |   |                                             |   | 2,445 |      |  |   | 6,482  |   |  |   | 6,983  |  
|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Income (loss) before interest and other income   |  |                                              | 355    |   |                                             |   | (305  | )    |  |   | 1,013  |   |  |   | 337    |  
|Interest and other income                        |  |                                              |       |   |                                             |   | 207   |      |  |   | 2      |   |  |   | 445    |  
|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Income (loss) from discontinued operations       |  |                                              | 355    |   |                                             |   | (98   | )    |  |   | 1,015  |   |  |   | 782    |  
|Gain (loss) on sale of assets                    |  |                                              | (2,911 | ) |                                             |   | 534   |      |  |   | (2,645 | ) |  |   | (1,663 | )
|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  
|Total income (loss) from discontinued operations |  | $                                            | (2,556 | ) |                                             | $ | 436   |      |  | $ | (1,630 | ) |  | $ | (881   | )
|                                                 |  |                                              |        |   |                                             |   |       |      |  |   |        |   |  |   |        |  

Discontinued operations have not been segregated in the consolidated statements of cash
flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.



25



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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of September 30, 2010

(Unaudited and dollars in thousands,
except share and per share amounts)





NOTE 15: COMMITMENTS AND
CONTINGENCIES

Riverside National Bank of Florida Litigation

RAIT subsidiary Taberna Capital Management, LLC is one of fifteen defendants in a lawsuit by the Federal Deposit Insurance Corporation, as
Receiver for Riverside National Bank of Florida. The lawsuit was originally commenced by Riverside on August 6, 2009 in the Supreme Court of the State of New York, County of Kings, and subsequently discontinued without prejudice and refiled in
New York County on November 13, 2009. On April 16, 2010, the Office of the Comptroller of the Currency closed Riverside and named the FDIC as receiver and thus as successor-in-interest to Riverside as plaintiff in the action. On
June 3, 2010, the defendants removed the case to the United States District Court for the Southern District of New York. The action, now titled FDIC v. The McGraw-Hill Companies, Inc., Moodys Investors Service, Inc., Fitch, Inc., Taberna
Capital Management, LLC, Cohen & Company Financial Management, LLC f/k/a Cohen Bros. Financial Management LLC, FTN Financial Capital Markets, Keefe Bruyette & Woods, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc.,
JPMorgan Chase & Co., J.P. Morgan Securities Inc., Citigroup Global Markets, Credit Suisse Securities (USA) LLC, ABN Amro, Inc., Cohen & Company, and SunTrust Robinson Humphrey, Inc., asserts claims in connection with
Riversides purchase of certain CDO securities, including securities from the Taberna Preferred Funding II, IV, and V CDOs. Riverside alleges that offering materials issued in connection with the CDOs it purchased did not adequately disclose
the process by which the rating agencies rated each of the securities. Riverside also alleges, among other things, that the offering materials should have disclosed an alleged conflict of interest of the rating agencies as well as the role that the
rating agencies played in structuring each CDO. Riverside seeks damages in excess of $132 million, rescission of its purchases of the securities at issue, an accounting of certain amounts received by the defendants together with the imposition of a
constructive trust, and punitive damages of an unspecified amount.

On June 25, 2010, the federal court directed the
parties to refile papers supporting and opposing the defendants motions to dismiss, which had been filed in state court but not argued or decided. On August 20, 2010, the court granted the FDICs motion for substitution of counsel
and to stay the action for 90 days, and on October 28, 2010, it granted an additional 90-day stay at the FDICs request. Defendants must refile their motions to dismiss or answer Plaintiffs complaint by February 23, 2011. An
adverse resolution of the litigation could have a material adverse effect on our financial condition and results of operations.

Routine
Litigation

We are involved from time to time in litigation on various matters, including disputes with tenants of owned
properties, disputes arising out of agreements to purchase or sell properties and disputes arising out of our loan portfolio. Given the nature of our business activities, these lawsuits are considered routine to the conduct of our business. The
result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. We do not expect that the liabilities, if any, that may ultimately result from
such routine legal actions will have a material adverse effect on our consolidated financial position, results of operations or cash flows.



26



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees and Shareholders of RAIT Financial Trust

We have reviewed the accompanying consolidated balance sheet of RAIT Financial Trust and subsidiaries as of September 30, 2010, and the related consolidated statements of operations, comprehensive
income (loss) and cash flows for the three and nine-month periods ended September 30, 2010 and 2009. These interim financial statements are the responsibility of the Companys management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of
interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them
to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 2(m)
and 9 to the consolidated financial statements, the Company adopted the new accounting standards classified under FASB ASC Topic 810 Consolidation for variable interest entities on January 1, 2010.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of the Company as of December 31, 2009, and the related consolidated statements of operations, comprehensive income (loss), shareholders equity and cash flows for the year then ended (included in Item 5 of
this Quarterly Report), and in our report dated March 1, 2010 (except for Notes 6 and 15, as to which the date is November 5, 2010), we expressed an unqualified opinion on those consolidated financial statements.



|                                           
|-------------------------------------------
|/s/ Grant Thornton LLP                     
|Philadelphia, Pennsylvania
November 5, 2010



27



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

In addition to historical information, this discussion and analysis contains forward-looking statements. These statements can be
identified by the use of forward-looking terminology including may, believe, will, expect, anticipate, estimate, continue or similar words. These forward-looking
statements are subject to risks and uncertainties, as more particularly set forth in our filings with the Securities and Exchange Commission, including those described in the Forward Looking Statements and Risk Factors
sections of our Annual Report on Form 10-K for the year ended December 31, 2009, that could cause actual results to differ materially from those projected in the forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect managements analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the
date of this report, except as may be required by applicable law.

Overview

We are a vertically integrated commercial real estate company capable of originating, investing in, managing, servicing, trading and
advising on commercial real estate-related assets. In 2010, we continue to make progress in adapting RAIT to the current market environment. We are positioning RAIT for future growth in its historical core competency, commercial real estate lending,
while diversifying the revenue generated from our commercial real estate loans and properties and reducing or removing other non-core assets and activities.

In order to take advantage of market opportunities in the future, and to maximize shareholder value over time, we will continue to focus on:



| |  |  | expanding RAITs commercial real estate revenue by investing in commercial real estate-related assets, managing and servicing investments for our
own account or for others, providing property management services and providing our broker-dealer activities, including fixed-income trading and real estate advisory services;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | creating value through investing in our commercial real estate properties and implementing cost savings programs to help maximize property value;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reducing our leverage while developing new financing sources;
| | - |  | -------------------------------------------------------------



| |  |  | managing our investment portfolios to reposition non-performing assets, increase our cash flows and ultimately recover the carrying value of our
assets; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | managing the size and cost structure of our business to match our operating environment.
| | - |  | ----------------------------------------------------------------------------------------

We generated net income allocable to common shares of $68.7 million, or $0.82 per common share-diluted, during the nine-month period
ended September 30, 2010. The primary items affecting our operating performance were the following:



| |  |  | Gains on debt extinguishments. During the nine-month period ended September 30, 2010, we repurchased $102.8 million of our convertible
notes and $26.5 million of our CDO notes payable for total consideration of $77.5 million. The consideration was comprised of: cash of $19.4 million, the issuance of a $22.0 million convertible senior note and 18.9 million common shares. These
transactions generated $51.3 million in gains on extinguishment of debt. See Liquidity and Capital Resources-Capitalization below for more information regarding these transactions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provision for losses. The provision for losses recorded during the nine-month period ended September 30, 2010 was $35.8 million. While we
recorded additional provision for losses during the nine-month period ended September 30, 2010, we saw improvement in the performance of our portfolio of commercial real estate loans from prior quarters.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Change in fair value of financial instruments. For the nine-month period ended September 30, 2010, the net change in fair value of
financial instruments increased net income by $35.1 million. Generally, the change in fair value of our financial assets, which are recorded at fair value under FASB ASC Topic 825, Financial Instruments, was the primary driver of this
improvement with several of our assets improving. This is consistent with the general improvement in asset pricing throughout the financial sector during the first and second quarters of 2010.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expect to continue to focus our efforts on enhancing our commercial real estate property portfolio and our commercial real estate loan
portfolio, which are our primary investment portfolios. We are seeing signs of stabilization in these portfolios, including improved occupancy rates in our commercial real estate property portfolio. Although certain economic conditions are
improving, some of our borrowers within our commercial real estate loan portfolio are under financial stress. Where it is likely to enhance our ultimate returns, we will consider restructuring loans or foreclosing on the underlying property. During
the nine-month period ended September 30, 2010, we converted seven loans into directly owned real estate. We expect to engage in ongoing workout activity with respect to our commercial real estate loans that may result in the conversion of some
of the properties into owned real estate. We may take a non-cash charge to earnings at the time of any loan conversion to the extent the amount of our loan, reduced by any allowance for losses and certain other expenses, exceeds the fair value of
the property at the time of the conversion. The conversion of loans to owned properties is reflected in the growing portion of our revenue derived from rental income as opposed to net interest margin.



28



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We are seeking to
develop new sources of fee income. As described below under Securitizations, in April 2010 we sold or delegated our collateral management rights and responsibilities relating to eight unconsolidated Taberna securitizations which will
reduce our collateral management fees for managing securitizations going forward. We are seeking to enhance our fee income through management fees generated by our property management subsidiaries, Jupiter Communities, LLC and CRP Commercial
Services, LLC, and commissions and other fees generated by our broker/dealer subsidiary, RAIT Securities, LLC, as well as other potential new businesses. We may also generate fee income by developing arrangements with third parties to originate
commercial real estate investments.

Key Statistics

Set forth below are key statistics relating to our business through September 30, 2010 (dollars in thousands, except per share data):



|                                                   |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|-------------------------------------------------- |  | ------------------------------------------ | --------- | - | ------------ | - | --------- | ------------- |  | - | ---------------- | - |  | ----------------- | ---------- | - |  | - | ---------- | -
|                                                   |  | As of or For the Three-Month Periods Ended |          
|                                                   |  | September 30,2010                          |           |   | June 30,2010 |   |           | March 31,2010 |  |   | December 31,2009 |   |  | September 30,2009 |           
|Financial Statistics:                              |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|Recourse debt maturing within 1-year               |  | $                                          | 7,919     |   |              | $ | 9,919     |               |  | $ | 10,905           |   |  | $                 | 24,390     |   |  | $ | 49,494     |  
|Assets under management (a)                        |  | $                                          | 3,901,342 |   |              | $ | 4,014,556 |               |  | $ | 9,911,824        |   |  | $                 | 10,126,853 |   |  | $ | 10,374,491 |  
|Debt to equity                                     |  |                                            | 2.6x      |   |              |   | 2.7x      |               |  |   | 2.8x             |   |  |                   | 3.0x       |   |  |   | 3.3x       |  
|Total revenue                                      |  | $                                          | 36,484    |   |              | $ | 37,137    |               |  | $ | 42,689           |   |  | $                 | 38,475     |   |  | $ | 41,425     |  
|Earnings per share, diluted                        |  | $                                          | 0.16      |   |              | $ | 0.27      |               |  | $ | 0.41             |   |  | $                 | 0.24       |   |  | $ | (0.38      | )
|                                                   |  |                                            |           |   |             
|Commercial Real Estate (CRE) Loan Portfolio (b): |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|Reported CRE Loansunpaid principal                |  | $                                          | 1,216,875 |   |              | $ | 1,288,466 |               |  | $ | 1,305,816        |   |  | $                 | 1,360,811  |   |  | $ | 1,467,806  |  
|Non-accrual loansunpaid principal                 |  | $                                          | 143,212   |   |              | $ | 131,377   |               |  | $ | 132,978          |   |  | $                 | 171,372    |   |  | $ | 246,029    |  
|Non-accrual loans as a % of reported loans         |  |                                            | 11.8      | % |              |   | 10.2      | %             |  |   | 10.2             | % |  |                   | 12.6       | % |  |   | 16.8       | %
|Reserve for losses                                 |  | $                                          | 73,029    |   |              | $ | 70,699    |               |  | $ | 68,850           |   |  | $                 | 78,636     |   |  | $ | 77,647     |  
|Reserves as a % of non-accrual loans               |  |                                            | 51.0      | % |              |   | 53.8      | %             |  |   | 51.8             | % |  |                   | 45.9       | % |  |   | 31.6       | %
|Provision for losses                               |  | $                                          | 10,813    |   |              | $ | 7,644     |               |  | $ | 17,350           |   |  | $                 | 22,500     |   |  | $ | 18,467     |  
|                                                   |  |                                            |           |   |             
|CRE Property Portfolio:                            |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|Reported investments in real estate                |  | $                                          | 823,881   |   |              | $ | 803,548   |               |  | $ | 795,952          |   |  | $                 | 738,235    |   |  | $ | 645,484    |  
|Number of properties owned                         |  |                                            | 47        |   |              |   | 47        |               |  |   | 46               |   |  |                   | 39         |   |  |   | 34         |  
|Multifamily units owned                            |  |                                            | 8,231     |   |              |   | 7,893     |               |  |   | 7,893            |   |  |                   | 6,967      |   |  |   | 6,367      |  
|Office square feet owned                           |  |                                            | 1,634,997 |   |              |   | 1,732,626 |               |  |   | 1,550,401        |   |  |                   | 1,350,177  |   |  |   | 1,061,244  |  
|Retail square feet owned                           |  |                                            | 1,069,588 |   |              |   | 1,069,588 |               |  |   | 1,069,652        |   |  |                   | 1,069,643  |   |  |   | 1,069,643  |  
|                                                   |  |                                            |           |   |             
|Average physical occupancy data:                   |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|Multifamily properties                             |  |                                            | 84.6      | % |              |   | 83.5      | %             |  |   | 78.0             | % |  |                   | 77.7       | % |  |   | 78.6       | %
|Office properties                                  |  |                                            | 52.5      | % |              |   | 55.5      | %             |  |   | 54.2             | % |  |                   | 48.2       | % |  |   | 53.6       | %
|Retail properties                                  |  |                                            | 57.7      | % |              |   | 58.7      | %             |  |   | 60.1             | % |  |                   | 58.0       | % |  |   | 57.6       | %
|                                                   |  |                                            |           |   |              |   |           |               |  |   |                  |   |  |                   |            |   |  |   |            |  
|Total                                              |  |                                            | 74.8      | % |              |   | 74.4      | %             |  |   | 70.8             | % |  |                   | 69.8       | % |  |   | 73.1       | %



|(a) | On April 22, 2010 as a result of the sale of our collateral management rights and responsibilities relating to eight unconsolidated Taberna securitizations with
$5.9 billion of assets to an affiliate of Fortress Investment Group, LLC, RAITs assets under management were reduced to $4.1 billion.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | CRE Loan Portfolio includes commercial mortgages, mezzanine loans, and preferred equity interests only and does not include other loans. See Note 3-Investments in
Loans in the Notes to Consolidated Financial Statements for information relating to all loans held by RAIT.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



29



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Investors should read
the Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, or the Annual Report, for a detailed discussion of the
following items:



| |  |  | Credit, capital markets and liquidity risk.
| | - |  | -------------------------------------------



| |  |  | Interest rate environment.
| | - |  | --------------------------



| |  |  | Prepayment rates.
| | - |  | -----------------



| |  |  | Commercial real estate lack of liquidity and reduced performance.
| | - |  | -----------------------------------------------------------------

Our Investment Portfolio

Our consolidated investment portfolio is
currently comprised of the following asset classes:

Commercial mortgages, mezzanine loans, other loans and preferred
equity interests.We have originated senior long-term mortgage loans, short-term bridge loans, subordinated, or mezzanine, financing and preferred equity interests. Our financing is usually non-recourse.
Non-recourse financing means we look primarily to the assets securing the payment of the loan, subject to certain standard exceptions. We may also engage in recourse financing by requiring personal guarantees from controlling persons of our
borrowers. We also acquire existing commercial real estate loans held by banks, other institutional lenders or third-party investors. Where possible, we seek to maintain direct lending relationships with borrowers, as opposed to investing in loans
controlled by third party lenders.

The tables below describe certain characteristics of our commercial mortgages, mezzanine
loans, other loans and preferred equity interests as of September 30, 2010 (dollars in thousands):



|                                   |  |            |           |  |                        |  |     |                     |  |  |                        |  |  |  |     | 
|---------------------------------- |  | ---------- | --------- |  | ---------------------- |  | --- | ------------------- |  |  | ---------------------- |  |  |  | --- | 
|                                   |  | Book Value |           |  | Weighted-AverageCoupon |  |     | Range of Maturities |  |  | Numberof Loans         | 
|Commercial Real Estate (CRE) Loans |  |            |           |  |                        |  |     |                     |  |  |                        |  |  |  |     | 
|Commercial mortgages               |  | $          | 710,539   |  |                        |  | 6.7 | %                   |  |  | Nov. 2010 to Dec. 2020 |  |  |  | 44  | 
|Mezzanine loans                    |  |            | 414,939   |  |                        |  | 9.3 | %                   |  |  | Nov. 2010 to Nov. 2038 |  |  |  | 114 | 
|Preferred equity interests         |  |            | 82,014    |  |                        |  | 9.8 | %                   |  |  | Nov. 2011 to Aug. 2025 |  |  |  | 24  | 
|                                   |  |            |           |  |                        |  |     |                     |  |  |                        |  |  |  |     | 
|Total CRE Loans                    |  |            | 1,207,492 |  |                        |  | 7.8 | %                   |  |  |                        |  |  |  | 182 | 
|Other loans                        |  |            | 77,003    |  |                        |  | 5.3 | %                   |  |  | Nov. 2010 to Oct. 2016 |  |  |  | 5   | 
|                                   |  |            |           |  |                        |  |     |                     |  |  |                        |  |  |  |     | 
|Total investments in loans         |  | $          | 1,284,495 |  |                        |  | 7.6 | %                   |  |  |                        |  |  |  | 187 | 
|                                   |  |            |           |  |                        |  |     |                     |  |  |                        |  |  |  |     | 

Due to current economic conditions, we have limited capacity to originate new investments. However, we
expect to focus on this asset class when economic conditions improve and as existing loans are repaid.



30



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The charts below
describe the property types and the geographic breakdown of our commercial mortgages, mezzanine loans, other loans, and preferred equity interests as of September 30, 2010:

LOGO





|(a) | Based on book value.
|--- | --------------------

See Key
Statistics-CRE Loan Portfolio above for key statistics relating to this portfolio.

Investments in real estate.We generate a return on our real estate investments through rental income and other sources of income from the operations of the real estate underlying our investments. We also benefit from any increase in the value of the real estate in
addition to current income. We finance our acquisitions of real estate through a combination of secured mortgage financing provided by financial institutions and existing financing provided by our two CRE loan securitizations. During the nine-month
period ended September 30, 2010, we acquired $91.3 million of real estate investments upon conversion of $110.5 million of commercial real estate loans, usually subject to retaining the existing financing provided by our two CRE loan
securitizations. Leases for our multi-family properties are generally one-year or less and leases on our office and retail properties are operating leases.

The table below describes certain characteristics of our investments in real estate as of September 30, 2010 (dollars in thousands, except average effective rent):



|                                        |  |                               |         |  |                           |  |      |                           |  |  |                     |  |  |                           |    |  |  |   |       | 
|--------------------------------------- |  | ----------------------------- | ------- |  | ------------------------- |  | ---- | ------------------------- |  |  | ------------------- |  |  | ------------------------- | -- |  |  | - | ----- | 
|                                        |  | Investments in RealEstate (a) |         |  | Average PhysicalOccupancy |  |      | Units /Square Feet /Acres |  |  | Number ofProperties |  |  | Average EffectiveRent (b) |   
|Multi-family real estate properties (c) |  | $                             | 560,048 |  |                           |  | 84.6 | %                         |  |  | 8,231               |  |  |                           | 33 |  |  | $ | 713   | 
|Office real estate properties (d)       |  |                               | 203,858 |  |                           |  | 52.5 | %                         |  |  | 1,634,997           |  |  |                           | 9  |  |  |   | 18.87 | 
|Retail real estate properties (d)       |  |                               | 37,767  |  |                           |  | 57.7 | %                         |  |  | 1,069,588           |  |  |                           | 2  |  |  |   | 9.39  | 
|Parcels of land                         |  |                               | 22,208  |  |                           |  |     |                           |  |  | 7.3                 |  |  |                           | 3  |  |  |   |      | 
|                                        |  |                               |         |  |                           |  |      |                           |  |  |                     |  |  |                           |    |  |  |   |       | 
|Total                                   |  | $                             | 823,881 |  |                           |  | 74.8 | %                         |  |  |                     |  |  |                           | 47 |  |  |   |       | 
|                                        |  |                               |         |  |                           |  |      |                           |  |  |                     |  |  |                           |    |  |  |   |       | 



|(a) | Investments in real estate include $61.2 million of assets held for sale as of September 30, 2010.
|--- | --------------------------------------------------------------------------------------------------

|(b) | Based on operating performance for the nine-month period ended September 30, 2010.
|--- | ----------------------------------------------------------------------------------

|(c) | Average effective rent is rent per unit per month.
|--- | --------------------------------------------------

|(d) | Average effective rent is rent per square foot per year.
|--- | --------------------------------------------------------

We expect to continue to protect or enhance our risk-adjusted returns by taking control of properties underlying our commercial real estate loans when restructuring or otherwise exercising our remedies
regarding loans that become subject to increased credit risks.



31



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The charts below
describe the property types and the geographic breakdown of our investments in real estate as of September 30, 2010:

LOGO



|(a) | Based on book value.
|--- | --------------------

See Key
Statistics-CRE Property Portfolio above for key statistics relating to this portfolio.

Investment in debt
securities. We have provided REITs and real estate operating companies the ability to raise subordinated debt capital through TruPS and subordinated debentures. TruPS are long-term instruments, with maturities ranging from 5 to 30 years,
which are priced based on short-term variable rates, such as the three-month London Inter-Bank Offered Rate, or LIBOR. TruPS are unsecured and generally contain minimal financial and operating covenants. We financed most of our debt securities
portfolio in a series of non-recourse securitizations which provided long-dated, interest-only, match funded financing to the TruPS and subordinated debenture investments. As of September 30, 2010, we retained a controlling interest in two
securitizationsTaberna VIII and Taberna IX, which are consolidated entities. All of the collateral assets for the debt securities and the related non-recourse CDO financing obligations are presented at fair value in our reported results.



32



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The table below
describes our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of September 30, 2010 (dollars in thousands):



|                     |  |                     |         |  |                        |  |     |                                                      |  |  |                                        |   |  |  |      | 
|-------------------- |  | ------------------- | ------- |  | ---------------------- |  | --- | ---------------------------------------------------- |  |  | -------------------------------------- | - |  |  | ---- | 
|                     |  |                     |         |  |                        |  |     | Issuer Statistics                                    | 
|Industry Sector      |  | EstimatedFair Value |         |  | Weighted-AverageCoupon |  |     | Weighted AverageRatio of Debt to TotalCapitalization |  |  | Weighted AverageInterest CoverageRatio |  
|Commercial Mortgage  |  | $                   | 97,148  |  |                        |  | 2.6 | %                                                    |  |  | 67.7                                   | % |  |  | 1.5x | 
|Office               |  |                     | 143,849 |  |                        |  | 7.8 | %                                                    |  |  | 65.8                                   | % |  |  | 1.5x | 
|Residential Mortgage |  |                     | 44,252  |  |                        |  | 2.3 | %                                                    |  |  | 80.2                                   | % |  |  | 3.9x | 
|Specialty Finance    |  |                     | 70,947  |  |                        |  | 5.0 | %                                                    |  |  | 86.1                                   | % |  |  | 1.9x | 
|Homebuilders         |  |                     | 62,309  |  |                        |  | 7.8 | %                                                    |  |  | 62.1                                   | % |  |  | 0.9x | 
|Retail               |  |                     | 73,466  |  |                        |  | 3.8 | %                                                    |  |  | 82.0                                   | % |  |  | 1.6x | 
|Hospitality          |  |                     | 26,542  |  |                        |  | 6.3 | %                                                    |  |  | 77.3                                   | % |  |  | 0.3x | 
|Storage              |  |                     | 24,738  |  |                        |  | 8.0 | %                                                    |  |  | 59.9                                   | % |  |  | 3.9x | 
|                     |  |                     |         |  |                        |  |     |                                                      |  |  |                                        |   |  |  |      | 
|Total                |  | $                   | 543,251 |  |                        |  | 5.2 | %                                                    |  |  | 72.1                                   | % |  |  | 1.7x | 
|                     |  |                     |         |  |                        |  |     |                                                      |  |  |                                        |   |  |  |      | 

The chart below describes the equity capitalization of the issuers of the TruPS and subordinated debentures
included in our consolidated financial statements as of September 30, 2010:

LOGO



|(a) | Based on the most recent information available to management as provided by our TruPS issuers or through public filings.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(b) | Based on estimated fair value.
|--- | ------------------------------

We have invested, and expect to continue to invest, in CMBS, unsecured REIT notes and other real estate-related debt securities.

Unsecured REIT notes are publicly traded debentures issued by large public reporting REITs and other real estate companies.
These debentures generally pay interest semi-annually. These companies are generally rated investment grade by one or more nationally recognized rating agencies.

CMBS generally are multi-class debt or pass-through certificates secured or backed by single loans or pools of mortgage loans on commercial real estate properties. Our CMBS investments may include loans
and securities that are rated investment grade at the date of origination by one or more nationally-recognized rating agencies, as well as both unrated and non-investment grade loans and securities.



33



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The table and the
chart below describe certain characteristics of our real estate-related debt securities as of September 30, 2010 (dollars in thousands):



|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 
|------------------------------- |  | ------------------- | ------- |  | ---------------------- |  | --- | -------------------------------- |  |  | ---------- |  |  | - | ------- | 
|Investment Description          |  | EstimatedFair Value |         |  | Weighted-AverageCoupon |  |     | Weighted-AverageYears toMaturity |  |  | Book Value | 
|Unsecured REIT note receivables |  | $                   | 62,546  |  |                        |  | 6.6 | %                                |  |  | 7.0        |  |  | $ | 61,000  | 
|CMBS receivables                |  |                     | 72,578  |  |                        |  | 6.0 | %                                |  |  | 33.3       |  |  |   | 158,868 | 
|Other securities                |  |                     | 26,834  |  |                        |  | 3.0 | %                                |  |  | 32.1       |  |  |   | 119,407 | 
|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 
|Total                           |  | $                   | 161,958 |  |                        |  | 5.0 | %                                |  |  | 28.3       |  |  | $ | 339,275 | 
|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 

LOGO



|(a) | S&P Ratings as of September 30, 2010.
|--- | -------------------------------------

Securitization Summary

Overview.We have used
securitizations, mainly through CDOs, to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our portfolio
for the long-term. To finance our investments in the foreseeable future, management will seek to structure match funded financing through reinvesting asset repayments in our existing securitizations, loan participations, bank lines of credit,
joint-venture opportunities and other methods that preserve our capital while making investments that generate an attractive return.

CDO Performance. Our CDOs contain interest coverage and overcollateralization triggers, or OC Triggers, that must be met in order for us to receive our subordinated management fees, return
on our lower-rated debt and residual equity returns. If the interest coverage or OC Triggers are not met in a given period, then the cash flows are redirected from lower rated tranches and used to repay the principal amounts to the senior tranches
of CDO notes payable. These conditions and the re-direction of cash flow continue until the triggers are met by curing the underlying payment defaults, paying down the CDO notes payable or other actions permitted under the relevant CDO indenture.

As of the most recent payment information, our Taberna I, Taberna VIII and Taberna IX CDO securitizations that we manage were
not passing their required interest coverage or OC Triggers and we received only senior asset management fees. While events of default do not currently exist in the CDO securitizations that we manage, we are unable to predict with certainty which
CDOs, in the future, will experience events of default or which, if any, remedies the appropriate note holders may seek to exercise in the future. All applicable interest coverage and OC Triggers continue to be met for our two commercial real estate
CDOs, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these CDOs. In September 2010, we reduced the amount of debt issued by our two commercial real estate securitizations, RAIT I and
RAIT II, by cancelling $37.5 million in aggregate principal amount of non-recourse debt issued by those securitizations that we held.



34



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Set forth below is a
summary of the CDO investments in our consolidated securitizations as of the most recent payment information is as follows (dollars in millions):



| |  |  | RAIT IRAIT I has $1.0 billion of total collateral, of which $74.7 million is defaulted. The current O/C test is passing at 123.3% with an
O/C trigger of 116.2%. We have invested $181.0 million in this CDO. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | RAIT IIRAIT II has $814.7 million of total collateral, of which $29.6 million is defaulted. The current O/C test is passing at 114.2% with
an O/C trigger of 111.7%. We have invested $224.7 million in this CDO. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Taberna VIIITaberna VIII has $665.7 million of total collateral, of which $115.8 million is defaulted. The current overcollateralization
(O/C) test is failing at 87.5% with an O/C trigger of 103.5%. We have invested $133.0 million in this CDO. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Taberna IXTaberna IX has $670.0 million of total collateral, of which $189.7 million is defaulted. The current O/C test is failing at
75.5% with an O/C trigger of 105.4%. We have invested $186.5 million in this CDO. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Generally, our investments in the subordinated notes and equity securities in our consolidated CDOs are subordinate in right of payment
and in liquidation to the senior notes issued by the CDOs.

Assets Under Management

We use assets under management, or AUM, as a tool to measure our financial and operating performance. The following defines this measure
and describes its relevance to our financial and operating performance:

Assets under management represent the total assets
that we own or are managing for third parties. While not all AUM generates fee income, it is an important operating measure to gauge our asset growth, volume of originations, size and scale of our operations and our financial performance. AUM
includes our total investment portfolio and assets associated with unconsolidated CDOs for which we derive asset management fees.

The table below summarizes our assets under management as of September 30, 2010 and December 31, 2009 (dollars in thousands):



|                                     |  |                                             |           |  |                                            |   |            | 
|------------------------------------ |  | ------------------------------------------- | --------- |  | ------------------------------------------ | - | ---------- | 
|                                     |  | Assets UnderManagement atSeptember 30, 2010 |           |  | Assets UnderManagement atDecember 31, 2009 |  
|Commercial real estate portfolio (1) |  | $                                           | 2,002,645 |  |                                            | $ | 2,084,685  | 
|European portfolio (2)               |  |                                             |          |  |                                            |   | 1,878,601  | 
|U.S. TruPS portfolio (3)             |  |                                             | 1,898,010 |  |                                            |   | 6,162,790  | 
|Other investments                    |  |                                             | 687       |  |                                            |   | 777        | 
|                                     |  |                                             |           |  |                                            |   |            | 
|Total                                |  | $                                           | 3,901,342 |  |                                            | $ | 10,126,853 | 
|                                     |  |                                             |           |  |                                            |   |            | 



|(1) | As of September 30, 2010 and December 31, 2009, our commercial real estate portfolio was comprised of $1.1 billion and $1.2 billion, respectively, of assets
collateralizing RAIT I and RAIT II, $823.9 million and $738.2 million, respectively, of investments in real estate and $66.8 million and $106.6 million, respectively, of commercial mortgages, mezzanine loans and preferred equity interests that were
not securitized.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our European portfolio as of December 31, 2009 was comprised of assets collateralizing Taberna Europe I and Taberna Europe II. On April 22, 2010 as a result
of the sale of our collateral management rights and responsibilities relating to eight unconsolidated Taberna securitizations to an affiliate of Fortress Investment Group, LLC, RAITs assets under management were reduced by $5.9 billion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Our U.S. TruPS portfolio as of December 31, 2009 was comprised of assets collateralizing Taberna I through Taberna IX, and includes TruPS and subordinated
debentures, unsecured REIT note receivables, CMBS receivables, other securities, commercial mortgages and mezzanine loans. On April 22, 2010 as a result of the sale of our collateral management rights and responsibilities relating to eight
unconsolidated Taberna securitizations to an affiliate of Fortress Investment Group, LLC, RAITs assets under management were reduced by $5.9 billion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|



35



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REIT Taxable Income

To qualify as a REIT, we are required to make annual distributions to our shareholders in an amount at least equal to 90% of our REIT
taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains and with regard to any applicable net operating loss carry-forward. In addition, to avoid certain U.S. federal excise taxes, we are
required to make distributions to our shareholders in an amount at least equal to 90% of our REIT taxable income for each year, after applying all net operating losses not utilized in prior years. Because we expect to make distributions based on the
foregoing requirements, and not based on our earnings computed in accordance with GAAP, we expect that our distributions may at times be more or less than our reported earnings as computed in accordance with GAAP.

Our board of trustees monitors RAITs REIT taxable income and all available net operating losses not utilized in prior years, and
under its policy, will determine dividends when a full year of REIT taxable income is available. The board intends to declare a dividend, if any, in at least the amount necessary to maintain RAITs REIT status. The board will also
consider the composition of any common dividends declared, including the option of paying a portion in cash and the balance in additional common shares. Generally, dividends payable in stock are not treated as dividends for purposes of the deduction
for dividends, or as taxable dividends to the recipient. However, the Internal Revenue Service, in Revenue Procedure 2010-12, has given guidance with respect to certain stock distributions by publicly traded REITS. That Revenue Procedure applies to
distributions made on or after January 1, 2008 and declared with respect to a taxable year ending on or before December 31, 2011. It provides that publicly-traded REITs can distribute stock (common shares in our case) to satisfy their REIT
distribution requirements if stated conditions are met. These conditions include that at least 10% of the aggregate declared distributions be paid in cash and that the shareholders be permitted to elect whether to receive cash or stock, subject to
the limit set by the REIT on the cash to be distributed in the aggregate to all shareholders. The board expects to continue to review and determine the dividends on RAITs preferred shares on a quarterly basis.

Total taxable income and REIT taxable income are non-GAAP financial measurements, and do not purport to be an alternative to reported net
income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Our total taxable income represents the aggregate amount of
taxable income generated by us and by our domestic and foreign TRSs. REIT taxable income is calculated under U.S. federal tax laws in a manner that, in certain respects, differs from the calculation of net income pursuant to GAAP. REIT taxable
income excludes the undistributed taxable income of our domestic TRSs, which is not included in REIT taxable income until distributed to us. Subject to TRS value limitations, there is no requirement that our domestic TRSs distribute their earnings
to us. REIT taxable income, however, generally includes the taxable income of our foreign TRSs because we will generally be required to recognize and report our taxable income on a current basis. Since we are structured as a REIT and the Internal
Revenue Code requires that we distribute substantially all of our net taxable income in the form of distributions to our shareholders, we believe that presenting the information management uses to calculate our net taxable income is useful to
investors in understanding the amount of the minimum distributions that we must make to our shareholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies use identical calculations, this presentation
of total taxable income and REIT taxable income may not be comparable to other similarly titled measures as determined and reported by other companies.



36



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The table below
reconciles the differences between reported net income (loss) total taxable income (loss) and estimated REIT taxable income (loss) for the three-month and nine-month periods ended September 30, 2010 and 2009 (dollars in thousands):



|                                                                                   |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  
|---------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | -------------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                                   |  | For the Three-MonthPeriods Ended September 30 |         |   | For the Nine-MonthPeriods Ended September 30 |  
|                                                                                   |  | 2010                                          |         |   | 2009                                         |   |         | 2010 |  |   | 2009    |  
|Net income (loss), as reported                                                     |  | $                                             | 18,248  |   |                                              | $ | (21,789 | )    |  | $ | 78,077  |   |  | $ | (459,464 | )
|Add (deduct):                                                                      |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  
|Provision for losses                                                               |  |                                               | 10,813  |   |                                              |   | 18,467  |      |  |   | 35,807  |   |  |   | 204,067  |  
|Charge-offs on allowance for losses                                                |  |                                               | (8,497  | ) |                                              |   | (2,757  | )    |  |   | (41,428 | ) |  |   | (122,013 | )
|Domestic TRS book-to-total taxable income differences:                             |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  
|Income tax (benefit) provision                                                     |  |                                               | (627    | ) |                                              |   | (216    | )    |  |   | (484    | ) |  |   | 441      |  
|Fees received and deferred in consolidation                                        |  |                                               | (198    | ) |                                              |   |        |      |  |   | (198    | ) |  |   |         |  
|Stock compensation, forfeitures and other temporary tax differences                |  |                                               |        |   |                                              |   | 1,107   |      |  |   | 98      |   |  |   | 173      |  
|Capital loss carry-forward offsetting capital gains                                |  |                                               |        |   |                                              |   |        |      |  |   | (7,938  | ) |  |   |         |  
|Asset impairments                                                                  |  |                                               |        |   |                                              |   |        |      |  |   |        |   |  |   | 46,015   |  
|Capital losses not offsetting capital gains and other temporary tax differences    |  |                                               | 615     |   |                                              |   | 61,841  |      |  |   | 615     |   |  |   | 375,649  |  
|Change in fair value of financial instruments, net of noncontrolling interests (1) |  |                                               | (14,237 | ) |                                              |   | 3,808   |      |  |   | (35,120 | ) |  |   | (10,002  | )
|Amortization of intangible assets                                                  |  |                                               | 150     |   |                                              |   | 371     |      |  |   | 673     |   |  |   | 1,038    |  
|CDO investments aggregate book-to-taxable income differences (2)                   |  |                                               | (11,733 | ) |                                              |   | (12,202 | )    |  |   | (38,037 | ) |  |   | (49,757  | )
|Accretion of (premiums) discounts                                                  |  |                                               |        |   |                                              |   |        |      |  |   |        |   |  |   | (211     | )
|Other book to tax differences                                                      |  |                                               | 2,386   |   |                                              |   | 85      |      |  |   | 5,019   |   |  |   | 142      |  
|                                                                                   |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  
|Total taxable income (loss)                                                        |  |                                               | (3,080  | ) |                                              |   | 48,715  |      |  |   | (2,916  | ) |  |   | (13,922  | )
|Less: Taxable income attributable to domestic TRS entities                         |  |                                               | 3,576   |   |                                              |   | (473    | )    |  |   | 5,422   |   |  |   | (7,114   | )
|Plus: Dividends paid by domestic TRS entities                                      |  |                                               | 5,500   |   |                                              |   | 13      |      |  |   | 14,000  |   |  |   | 5,038    |  
|Less: Deductible preferred dividends                                               |  |                                               | (3,406  | ) |                                              |   | (3,406  | )    |  |   | (10,227 | ) |  |   | (10,227  | )
|                                                                                   |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  
|Estimated REIT taxable income (loss)(3)                                            |  | $                                             | 2,590   |   |                                              | $ | 44,849  |      |  | $ | 6,279   |   |  | $ | (26,225  | )
|                                                                                   |  |                                               |         |   |                                              |   |         |      |  |   |         |   |  |   |          |  



|(1) | Change in fair value of financial instruments is reported net of allocation to noncontrolling interests of $(22,258) for the nine-month period ended September 30,
2009.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Amounts reflect the aggregate book-to-taxable income differences and are primarily comprised of (a) unrealized gains on interest rate hedges within CDO entities
that Taberna consolidated, (b) amortization of original issue discounts and debt issuance costs and (c) differences in tax year-ends between Taberna and its CDO investments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As of December 31, 2009, RAIT has an estimated tax net operating loss carry-forward of approximately $35.5 million that may be used to offset its REIT taxable
income in the future.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results of Operations

Three-Month Period Ended September 30, 2010 Compared to the Three-Month Period Ended September 30, 2009

Revenue

Investment interest income.Investment interest
income decreased $19.1 million, or 33.9%, to $37.3 million for the three-month period ended September 30, 2010 from $56.4 million for the three-month period ended September 30, 2009. This net decrease was primarily attributable to a
decrease in interest income of $8.6 million resulting from the disposition of the residential mortgage portfolio in July 2009. The remaining decrease primarily resulted from $220.6 million of commercial real estate loans that were converted to owned
real estate since September 30, 2009 and $397.8 million in total principal amount of investments on non-accrual status as of September 30, 2010 compared to $363.7 million as of September 30, 2009.

Investment interest expense.Investment interest expense decreased $12.9 million, or 36.5%, to $22.4 million for the three-month
period ended September 30, 2010 from $35.3 million for the three-month period ended September 30, 2009. This net decrease was primarily attributable to a decrease in interest expense of $8.0 million resulting from the disposition of the
residential mortgage portfolio in July 2009. The remaining decrease is primarily attributable to repurchases of $102.8 million of our convertible senior notes since September 30, 2009, net of additional interest cost incurred for the issuance
of new debt instruments associated therewith.

Rental income. Rental income increased $6.8 million, or 58.4%, to $18.4
million for the three-month period ended September 30, 2010 from $11.6 million for the three-month period ended September 30, 2009. This increase was primarily attributable to: $3.8 million resulting from 11 new properties, with direct
real estate investments of $182.9 million, acquired or consolidated since



37



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September 30, 2009, $1.6 million resulting from a full quarter of operations at four properties acquired or consolidated during the three-month period ended September 30, 2009 and $1.4
million resulting from increased occupancy at properties acquired or consolidated prior to July 1, 2009. Occupancy increased 5.4% to 79.2% as of September 30, 2010 from 73.8% as of September 30, 2009 for properties acquired or
consolidated prior to July 1, 2009.

Fee and other income. Fee and other income decreased $5.5 million, or 63.3%,
to $3.2 million for the three-month period ended September 30, 2010 from $8.7 million for the three-month period ended September 30, 2009. Fee income from our restructuring advisory services decreased $1.8 million for the three-month
period ended September 30, 2010 compared to the three-month period ended September 30, 2009 and asset management fees decreased $2.7 million due to the sale or delegation of our collateral management rights and responsibilities relating to
eight Taberna securitizations during April 2010.

Expenses

Real estate operating expense.Real estate operating expense increased $5.5 million, or 53.8%, to $15.6 million for the three-month
period ended September 30, 2010 from $10.1 million for the three-month period ended September 30, 2009. This increase was primarily attributable to: $2.2 million resulting from 11 new properties, with direct real estate investments of
$182.9 million, acquired or consolidated since September 30, 2009, $2.0 million resulting from a full three months of operations at four properties acquired or consolidated during the three-month period ended September 30, 2009 and $1.3
million of higher operating expenses from properties acquired or consolidated prior to July 1, 2009.

Compensation
expense. Compensation expense decreased $1.0 million, or 13.4%, to $6.8 million for the three-month period ended September 30, 2010 from $7.8 million for the three-month period ended September 30, 2009. This decrease is primarily
due to lower stock compensation expense of $0.3 million and lower bonus expense of $0.3 million during the three-month period ended September 30, 2010 compared to the three-month period ended September 30, 2009.

General and administrative expense. General and administrative expense decreased $1.1 million, or 19.3%, to $4.3 million for the
three-month period ended September 30, 2010 from $5.4 million for the three-month period ended September 30, 2009. This decrease is primarily due to lower consulting and professional fees of $0.7 million and lower rent expenses of
$0.2 million during the three-month period ended September 30, 2010 compared to the three-month period ended September 30, 2009.

Provision for losses.During the three-month periods ended September 30, 2010 and 2009, the provision for losses related to our investments in our commercial mortgage loan portfolio decreased
by $7.7 million, or 41.4%, to $10.8 million for the three-month period ended September 30, 2010 from $18.5 million for the three-month period ended September 30, 2009. Subsequent to September 30, 2009, we transitioned 12 loans to real
estate owned properties, with direct real estate investments of $188.5 million, including one property that was sold and one asset held for sale, and realized losses of $32.1 million when these loans were converted from impaired loans to owned real
estate. While we believe we have adequately reserved for the probable losses in our portfolio, we continually monitor our portfolio for evidence of loss and accrue additional provisions for loan losses as circumstances or conditions change.

Depreciation expense. Depreciation expense increased $2.1 million, or 43.1%, to $7.2 million for the three-month
period ended September 30, 2010 from $5.1 million for the three-month period ended September 30, 2009. This increase was primarily attributable to 11 new properties, with direct real estate investments of $182.9 million, acquired or
consolidated since September 30, 2009.

Amortization of intangible assets. Intangible amortization represents the
amortization of intangible assets acquired from Taberna on December 11, 2006 and Jupiter Communities on May 1, 2009. Amortization expense decreased $0.2 million, or 59.6%, to $0.2 million for the three-month period ended September 30,
2010 from $0.4 million for the three-month period ended September 30, 2009. This decrease resulted from a $6.2 million charge-off to net intangible assets in connection with the sale or delegation of our collateral management rights and
responsibilities relating to eight Taberna securitizations during April 2010.

Other Income (Expense)

Gains (losses) on sale of assets. During the three-month period ended September 30, 2009, losses on sale
of assets are attributable solely to the disposition of our residential mortgage portfolio. On July 16, 2009, we sold all of our retained interests in our six residential mortgage securitizations and recorded losses on sales of assets of $61.8
million.

Gains on extinguishment of debt. Gains on extinguishment of debt during the three-month period ended
September 30, 2010 are attributable to the repurchase of $28.3 million in aggregate principal amount of convertible senior notes and $10.0 million in aggregate principal amount of CDO notes payable. The aggregate debt was repurchased from the
market for 10,725,000 of our common shares and $4.9 million of cash. As a result of these repurchases, we recorded gains on extinguishment of debt of $14.3 million.



38



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Change in fair
value of financial instruments. The change in fair value of financial instruments pertains to the majority of our assets within our investments in securities and any related CDO notes payable and derivative instruments used to finance such
assets. During the three-month periods ended September 30, 2010 and 2009, the fair value adjustments we recorded were as follows (dollars in thousands):



|                                                                                             |  |                                                  |         |   |                                                  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | ------------------------------------------------ | - | ------- | -
|Description                                                                                  |  | For theThree-MonthPeriod EndedSeptember 30, 2010 |         |   | For theThree-MonthPeriod EndedSeptember 30, 2009 |  
|Change in fair value of trading securities and security-related receivables                  |  | $                                                | 26,004  |   |                                                  | $ | 13,300  |  
|Change in fair value of CDO notes payable, trust preferred obligations and other liabilities |  |                                                  | 7,555   |   |                                                  |   | 7,445   |  
|Change in fair value of derivatives                                                          |  |                                                  | (19,322 | ) |                                                  |   | (24,553 | )
|                                                                                             |  |                                                  |         |   |                                                  |   |         |  
|Change in fair value of financial instruments                                                |  | $                                                | 14,237  |   |                                                  | $ | (3,808  | )
|                                                                                             |  |                                                  |         |   |                                                  |   |         |  

Discontinued operations. Income (loss) from discontinued operations decreased $3.0 million to a loss
of $2.6 million for the three-month period ended September 30, 2010 compared to income of $0.4 million for the three-month period ended September 30, 2009 primarily due to the timing of properties acquired, sold or deconsolidated during
the respective periods. Additionally, we recorded a loss of $2.9 million on a property that was deconsolidated in August 2010 and a gain of $0.5 million on a property that was sold in July 2009.

Nine-Month Period Ended September 30, 2010 Compared to the Nine-Month Period Ended September 30, 2009

Revenue

Investment interest income.Investment interest income decreased $220.1 million, or 65.1%, to $117.8 million for the nine-month period ended September 30, 2010 from $337.9 million for the
nine-month period ended September 30, 2009. This net decrease was primarily attributable to decreases in interest income of: $80.9 million resulting from the disposition of the Taberna III, Taberna IV, Taberna VI and Taberna VII securitizations
in June 2009 and $106.5 million resulting from the disposition of the residential mortgage portfolio in July 2009. The remaining decrease primarily resulted from $220.6 million of commercial real estate loans that were converted to owned real estate
since September 30, 2009, $397.8 million in total principal amount of investments on non-accrual status as of September 30, 2010 compared to $363.7 million as of September 30, 2009, and the reduction in short-term LIBOR of
approximately 0.4% during the nine-month period ended September 30, 2010 compared to the nine-month period ended September 30, 2009.

Investment interest expense.Investment interest expense decreased $161.0 million, or 69.9%, to $69.2 million for the nine-month period ended September 30, 2010 from $230.2 million for the
nine-month period ended September 30, 2009. This net decrease was primarily attributable to decreases in interest expense of: $43.6 million resulting from the disposition of the Taberna III, Taberna IV, Taberna VI and Taberna VII
securitizations in June 2009 and $98.6 million resulting from the disposition of the residential mortgage portfolio in July 2009. The remaining decrease is primarily attributable to repurchases of $102.8 million of our convertible senior notes since
September 30, 2009, net of additional interest cost incurred for the issuance of new debt instruments associated therewith, and the effect on our floating rate indebtedness from the reduction in short-term LIBOR of approximately 0.4% during the
nine-month period ended September 30, 2010 compared to the nine-month period ended September 30, 2009.

Rental
income. Rental income increased $21.0 million, or 67.6%, to $52.2 million for the nine-month period ended September 30, 2010 from $31.2 million for the nine-month period ended September 30, 2009. This increase was primarily
attributable to: $8.3 million resulting from 11 new properties, with direct real estate investments of $182.9 million, acquired or consolidated since September 30, 2009, $9.9 million resulting from a full nine months of operations in 2010 at 20
properties acquired or consolidated during the nine-month period ended September 30, 2009 and $2.8 million resulting from increased occupancy at properties acquired or consolidated prior to January 1, 2009. Occupancy increased 3.5% to
82.9% as of September 30, 2010 from 79.4% as of September 30, 2009 for properties acquired or consolidated prior to January 1, 2009.

Fee and other income. Fee and other income decreased $4.6 million, or 23.1%, to $15.6 million for the nine-month period ended September 30, 2010 from $20.2 million for the nine-month period
ended September 30, 2009. Fee income from our restructuring advisory services decreased $2.8 million for the nine-month period ended September 30, 2010 compared to the nine-month period ended September 30, 2009 and asset management
fees decreased $3.6 million due to the sale or delegation of our collateral management rights and responsibilities relating to eight Taberna securitizations during April 2010. We generated $1.5 million of riskless principal trade income through our
broker-dealer during the three-month period ended September 30, 2010.

Expenses

Real estate operating expense.Real estate operating expense increased $14.5 million, or 51.3%, to $42.8 million for the nine-month
period ended September 30, 2010 from $28.3 million for the nine-month period ended September 30, 2009. This increase was primarily attributable to: $6.5 million resulting from 11 new properties, with direct real estate investments of
$182.9 million, acquired or consolidated since September 30, 2009, $7.6 million resulting from a full nine months of operations at 20 properties acquired or consolidated during the nine-month period ended September 30, 2009 and $0.4
million of higher operating expenses from properties acquired or consolidated prior to January 1, 2009.



39



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Compensation
expense. Compensation expense increased $2.2 million, or 11.5%, to $21.7 million for the nine-month period ended September 30, 2010 from $19.5 million for the nine-month period ended September 30, 2009. This increase was primarily due
to an increase of $1.4 million of compensation costs associated with the property management activities that were acquired in May 2009 and $2.1 million due to the expansion of our broker-dealer and advisory activities offset by $0.8 million of lower
bonus expense.

General and administrative expense. General and administrative expense decreased $0.3 million, or 2.1%,
to $14.6 million for the nine-month period ended September 30, 2010 from $14.9 million for the nine-month period ended September 30, 2009. This decrease is primarily due to lower rent expenses of $0.4 million during the nine-month
period ended September 30, 2010 compared to the nine-month period ended September 30, 2009.

Provision for
losses.The provision for losses relates to our investments in our commercial mortgage loan and residential mortgage portfolios. The provision for losses decreased by $168.3 million, or 82.5%, to $35.8 million for the nine-month period ended
September 30, 2010 from $204.1 million for the nine-month period ended September 30, 2009. This decrease was primarily attributable to $96.5 million of provision for losses related to our residential mortgage portfolio during the
nine-month period ended September 30, 2009 which was disposed during July 2009. Subsequent to September 30, 2009, we transitioned 12 loans to real estate owned properties, with direct real estate investments of $188.5 million, including
one property that was sold and one asset held for sale, and realized losses of $32.1 million when these loans were converted from impaired loans to owned real estate. While we believe we have adequately reserved for the probable losses in our
portfolio, we continually monitor our portfolio for evidence of loss and accrue additional provisions for loan losses as circumstances or conditions change.

Asset impairments. For the nine-month period ended September 30, 2009, we recorded asset impairments totaling $46.0 million that were associated with certain investments in loans and
available-for-sale securities for which we did not elect the fair value option. In making this determination, management considered the estimated fair value of the investments in relation to our cost bases, the financial condition of the related
entity and our intent and ability to hold the investments for a sufficient period of time to recover our investments. For the identified investments, management believes full recovery is not likely and wrote down the investments to their current
recovery value, or estimated fair value.

Depreciation expense. Depreciation expense increased $6.3 million, or 46.2%,
to $19.9 million for the nine-month period ended September 30, 2010 from $13.6 million for the nine-month period ended September 30, 2009. This increase was primarily attributable to 11 new properties, with direct real estate investments
of $182.9 million, acquired or consolidated since September 30, 2009 as well as increased depreciation of furniture and fixtures we added since September 30, 2009.

Amortization of intangible assets. Intangible amortization represents the amortization of intangible assets acquired from Taberna on December 11, 2006 and Jupiter Communities on May 1,
2009. Amortization expense decreased $0.3 million, or 35.2%, to $0.7 million for the nine-month period ended September 30, 2010 from $1.0 million for the nine-month period ended September 30, 2009. This decrease resulted from a $6.2
million charge-off to net intangible assets in connection with the sale of our collateral management rights in eight Taberna securitizations during April 2010.

Other Income (Expense)

Gains (losses) on sale of assets.
Gains on sale of assets were $11.6 million during the nine-month period ended September 30, 2010. The gains on sale of assets are primarily attributable to the sale or delegation of our collateral management rights and responsibilities relating
to eight Taberna securitizations to an affiliate of certain funds managed by an affiliate of Fortress Investment Group LLC for $16.5 million. These securitizations were not consolidated by us and were comprised of Taberna Preferred Funding II, Ltd.
through Taberna Preferred Funding VII, Ltd., Taberna Europe CDO I, P.L.C., and Taberna Europe CDO II, P.L.C. This transaction generated a $7.9 million gain on sale of assets. In addition, we disposed of $11.4 million in total principal amount of
unsecured REIT note receivables in our CRE securitizations and recorded a gain of $3.8 million. Losses on sale of assets were $375.6 million during the nine-month period ended September 30, 2009. Losses on sale of assets are primarily
attributable to the deconsolidation of the Taberna III, Taberna IV, Taberna VI and Taberna VII securitizations. On June 25, 2009, we sold all of our equity interests and a portion of our non-investment grade debt that we owned in these four
securitizations and concluded that we were no longer the primary beneficiary of the securitizations and, therefore, we deconsolidated the securitizations in accordance with FASB ASC Topic 810, Consolidation. We recorded losses on sale of
assets of $313.8 million for the nine-month period ended September 30, 2009. During the nine-month period ended September 30, 2009, we sold all of our retained interests in our six residential mortgage securitizations and recorded losses
on sales of assets of $61.8 million.

Gains on extinguishment of debt. Gains on extinguishment of debt during the
nine-month period ended September 30, 2010 are attributable to the repurchase of $102.8 million in aggregate principal amount of convertible senior notes and $26.5 million in



40



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aggregate principal amount of CDO notes payable. The aggregate debt was repurchased from the market for 18,915,000 of our common shares, the issuance of a $22.0 million senior secured convertible
note and $16.9 million of cash. As a result of these repurchases, we recorded gains on extinguishment of debt of $51.3 million.

Change in fair value of financial instruments. The change in fair value of financial instruments pertains to the majority of our
assets within our investments in securities and any related CDO notes payable and derivative instruments used to finance such assets. During the nine-month periods ended September 30, 2010 and 2009, the fair value adjustments we recorded were
as follows (dollars in thousands):



|                                                                                             |  |                                                 |         |   |                                                 |   |          |  
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------- | - | ----------------------------------------------- | - | -------- | -
|Description                                                                                  |  | For theNine-MonthPeriod EndedSeptember 30, 2010 |         |   | For theNine-MonthPeriod EndedSeptember 30, 2009 |  
|Change in fair value of trading securities and security-related receivables                  |  | $                                               | 109,003 |   |                                                 | $ | (168,736 | )
|Change in fair value of CDO notes payable, trust preferred obligations and other liabilities |  |                                                 | (891    | ) |                                                 |   | 159,039  |  
|Change in fair value of derivatives                                                          |  |                                                 | (72,992 | ) |                                                 |   | (2,559   | )
|                                                                                             |  |                                                 |         |   |                                                 |   |          |  
|Change in fair value of financial instruments                                                |  | $                                               | 35,120  |   |                                                 | $ | (12,256  | )
|                                                                                             |  |                                                 |         |   |                                                 |   |          |  

Discontinued operations. Income (loss) from discontinued operations decreased $0.7 million to a loss
of $1.6 million for the nine-month period ended September 30, 2010 compared to a loss of $0.9 million for the nine-month period ended September 30, 2009 primarily due to the timing of properties acquired, sold or deconsolidated during the
respective periods. Additionally, we recorded a loss of $2.9 million on a VIE that was deconsolidated in August 2010 offset by a gain of $0.3 million on a property that was sold in March 2010 compared to a loss of $2.1 million on a property that was
deconsolidated in March 2009 offset by a gain of $0.5 million on a property that was sold in July 2009.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay
borrowings, fund and maintain investments, pay distributions and other general business needs. The disruption in the credit markets has reduced our liquidity and capital resources, limited our ability to originate new investments and has generally
increased the cost of any new sources of capital over historical levels. Due to current market conditions, the cash flow to us from a number of the securitizations we sponsored has been reduced or eliminated. We are seeking to expand our use of
secured lines of credit while developing other financing resources that will permit us to originate or acquire new investments to generate attractive returns while preserving our capital, such as loan participations and joint venture financing
arrangements.

Our consolidated securitizations collateralized by U.S. commercial real estate loans, RAIT I and RAIT II,
continue to perform and make distributions on our retained interests and pay us management fees. In addition, the restricted cash in these securitizations from repayment of underlying loans and other sources can be used to make new investments held
by those securitizations, including future funding commitments of existing investments. As we continue to recycle capital obtained from loan sales and loan repayments in these securitizations, we expect to reinvest the proceeds to fund commercial
real estate loans. RAIT I and RAIT II are our primary source of cash from our operations. While our consolidated securitizations collateralized by trust preferred securities, or TruPS, Taberna VIII and Taberna IX, are currently failing several of
their respective over-collateralization tests, we continue to receive our senior management fees from these securitizations. We continue to explore strategies to generate liquidity from our investments in real estate and our investments in debt
securities as we seek to focus on our commercial real estate lending platform.

We believe our available cash and restricted
cash balances, other financing arrangements, and cash flows from operations will be sufficient to fund our liquidity requirements for the next 12 months. Should our liquidity needs exceed our available sources of liquidity, we believe that our
assets could be sold directly to raise additional cash. We may not be able to obtain additional financing when we desire to do so, or may not be able to obtain desired financing on terms and conditions acceptable to us. If we fail to obtain
additional financing, our ability to maintain or grow our business will be constrained.

Our primary cash requirements are as
follows:



| |  |  | to make investments and fund the associated costs;
| | - |  | --------------------------------------------------



| |  |  | to repay our indebtedness, including repurchasing or retiring our debt before it becomes due;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | to pay our expenses, including compensation to our employees;
| | - |  | -------------------------------------------------------------



| |  |  | to pay U.S. federal, state, and local taxes of our TRSs; and
| | - |  | ------------------------------------------------------------



| |  |  | to distribute a minimum of 90% of our REIT taxable income and to make investments in a manner that enables us to maintain our qualification as a REIT.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



41



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We intend to meet
these liquidity requirements primarily through the following:



| |  |  | the use of our cash and cash equivalent balances of $25.7 million as of September 30, 2010;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | cash generated from operating activities, including net investment income from our investment portfolio, and fee income generated by our commercial
real estate platform;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | proceeds from the sales of assets;
| | - |  | ----------------------------------



| |  |  | proceeds from future borrowings; and
| | - |  | ------------------------------------



| |  |  | proceeds from future offerings of our common and preferred shares, including our COD sales agreement, SEDA and DRSPP Plan.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

Our two commercial real estate securitized financing arrangements, RAIT I and RAIT II, include a revolving
credit option that allows us to repay the AAA rated debt tranches totaling $475.0 million as loan repayments occur, and then draw up to the available committed amounts through the fifth anniversary of each financing in 2011 and 2012. At
September 30, 2010, these revolvers are fully utilized and have no additional capacity.

Our restricted cash balance was
$196.4 million as of September 30, 2010. We have $72.0 million of restricted cash in RAIT I and RAIT II available to invest in qualifying commercial loans as of September 30, 2010, subject to $51.3 million of future funding commitments,
leaving $20.7 million available to lend. Accordingly, this $72.0 million of restricted cash is not available to RAITs creditors or for other general trust purposes. As of September 30, 2010, $85.5 million of restricted cash is held by
Taberna VIII and Taberna IX. This restricted cash reflects early prepayments of principal, including $33.2 million that occurred during the quarter-ended September 30, 2010, that cannot be used for any other general trust purposes.

Cash Flows

As of
September 30, 2010 and 2009, we maintained cash and cash equivalents of approximately $25.7 million and $39.9 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):



|                                                 |  |                                              |         |   |      |   |          |  
|------------------------------------------------ |  | -------------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                 |  | For the Nine-Month PeriodsEnded September 30 |        
|                                                 |  | 2010                                         |         |   | 2009 |  
|Cash flow from operating activities              |  | $                                            | 5,467   |   |      | $ | 75,518   |  
|Cash flow from investing activities              |  |                                              | 43,038  |   |      |   | 243,583  |  
|Cash flow from financing activities              |  |                                              | (47,859 | ) |      |   | (306,658 | )
|                                                 |  |                                              |         |   |      |   |          |  
|Net change in cash and cash equivalents          |  |                                              | 646     |   |      |   | 12,443   |  
|Cash and cash equivalents at beginning of period |  |                                              | 25,034  |   |      |   | 27,463   |  
|                                                 |  |                                              |         |   |      |   |          |  
|Cash and cash equivalents at end of period       |  | $                                            | 25,680  |   |      | $ | 39,906   |  
|                                                 |  |                                              |         |   |      |   |          |  

Our principal source of cash flow historically has been from our investing activities. The cash inflow from
our investing activities primarily resulted from $79.8 million in principal repayments on loans during the nine-month period ended September 30, 2010 as compared to $264.1 million during the nine-month period ended September 30, 2009. We
received $18.0 million during the nine-month period ended September 30, 2010 in proceeds from the sale of other securities and $16.2 million in net proceeds from the sale of collateral management rights. We did not receive any proceeds from
these investing activities during the nine-month period ended September 30, 2009. In addition, the increase in our restricted cash of $45.8 million during the nine-month period ended September 30, 2010 was substantially due to loan
repayments in our securitizations. The increase in restricted cash for the nine-month period ended September 30, 2009 was $0.8 million.

Our decreased cash inflow from operating activities is primarily due to the disposition of the Taberna III, Taberna IV, Taberna VI, and Taberna VII securitizations in June 2009 and from the disposition of
the residential mortgage portfolio in July 2009.

The cash outflow from financing activities was driven by repurchases of
convertible notes of $12.4 million, repayments on secured credit facilities and other indebtedness of $14.1 million, and repurchases of CDO notes payable of $17.4 million for the nine-month period ended September 30, 2010. These outflows were
offset by proceeds from common share issuances of $6.4 million for the nine-month period ended September 30, 2010. The improvement in our cash flow from financing activities during the nine-month period ended September 30, 2010 is
primarily due to a reduction in the repayments on residential mortgage-backed securities. This portfolio was sold in July 2009 and repayments on residential mortgage-backed securities were $223.3 million during the nine-month period ended
September 30, 2009.



42



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Capitalization

We maintain various forms of long-term financing arrangements. Generally, these financing agreements are
collateralized by assets within CDOs. The following table summarizes our total recourse and non-recourse indebtedness as of September 30, 2010:



|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|-------------------------------------------- |  | ---------------------- | --------- |  | -------------- | - | --------- | ----------------------------- |  |  | -------------------- | - |  |  | ----------------------- | 
|Description                                  |  | UnpaidPrincipalBalance |           |  | CarryingAmount |   |           | Weighted-AverageInterest Rate |  |  | Contractual Maturity |  
|Recourse indebtedness:                       |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Convertible senior notes (1)                 |  | $                      | 143,613   |  |                | $ | 143,447   |                               |  |  | 6.9                  | % |  |  | Apr. 2027               | 
|Secured credit facilities                    |  |                        | 38,736    |  |                |   | 38,736    |                               |  |  | 4.7                  | % |  |  | Feb. 2011 to Dec. 2011  | 
|Senior secured notes                         |  |                        | 63,950    |  |                |   | 63,950    |                               |  |  | 11.7                 | % |  |  | Apr. 2014               | 
|Loans payable on real estate                 |  |                        | 22,432    |  |                |   | 22,432    |                               |  |  | 5.5                  | % |  |  | Apr. 2012 to Sept. 2012 | 
|Junior subordinated notes, at fair value (2) |  |                        | 38,052    |  |                |   | 4,422     |                               |  |  | 9.2                  | % |  |  | Oct. 2015 to Mar. 2035  | 
|Junior subordinated notes, at amortized cost |  |                        | 25,100    |  |                |   | 25,100    |                               |  |  | 7.7                  | % |  |  | Apr. 2037               | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total recourse indebtedness                  |  |                        | 331,883   |  |                |   | 298,087   |                               |  |  | 7.8                  | % |  |  |                         | 
|Non-recourse indebtedness:                   |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|CDO notes payable, at amortized cost (3)(4)  |  |                        | 1,370,250 |  |                |   | 1,370,250 |                               |  |  | 0.7                  | % |  |  | 2045 to 2046            | 
|CDO notes payable, at fair value (2)(3)(5)   |  |                        | 1,172,505 |  |                |   | 147,473   |                               |  |  | 1.0                  | % |  |  | 2037 to 2038            | 
|Loans payable on real estate                 |  |                        | 63,375    |  |                |   | 63,375    |                               |  |  | 5.8                  | % |  |  | Nov. 2010 to Aug. 2016  | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total non-recourse indebtedness              |  |                        | 2,606,130 |  |                |   | 1,581,098 |                               |  |  | 1.0                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total indebtedness                           |  | $                      | 2,938,013 |  |                | $ | 1,879,185 |                               |  |  | 1.8                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 



|(1) | Our convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(2) | Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.
|--- | -----------------------------------------------------------------------------------------

|(3) | Excludes CDO notes payable purchased by us which are eliminated in consolidation.
|--- | ---------------------------------------------------------------------------------

|(4) | Collateralized by $1.8 billion principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by
separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Collateralized by $1.3 billion principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value
of these investments as of September 30, 2010 was $896.1 million. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our
creditors.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the
loans payable on real estate that are guaranteed by RAIT or RAIT Partnership. As indicated in the table above, our consolidated financial statements include recourse indebtedness of $298.1 million as of September 30, 2010. Non-recourse
indebtedness consists of indebtedness of consolidated VIEs (such as CDOs and other securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each
consolidated VIE have no recourse to our general credit.

The current status or activity in our financing arrangements
occurring as of or during the nine-month period ended September 30, 2010 is as follows:

Recourse Indebtedness

Convertible senior notes. During the nine-month period ended September 30, 2010, we repurchased $102.8 million in
aggregate principal amount of our 6.875% Convertible Senior Notes due 2027, or the convertible senior notes, for a total consideration of $72.6 million. The purchase price consisted of $12.4 million in cash, the issuance of 18.2 million common
shares, and the issuance of a $22.0 million 10.0% Senior Secured Convertible Note due April 2014, or the senior secured convertible note. See Senior Secured Convertible Note below. As a result of these transactions, we recorded gains on
extinguishment of debt of $30.0 million, net of deferred financing costs and unamortized discounts that were written off.

Secured credit facilities.As of September 30, 2010, we have borrowed an aggregate amount of $38.7 million under three
secured credit facilities, each with a different bank. All of our secured credit facilities are secured by designated commercial mortgages and mezzanine loans. As of September 30, 2010, the first secured credit facility had an unpaid
principal balance of $20.6 million which is payable in December 2011 under the current terms of this facility. As of September 30, 2010, the second secured credit facility had an unpaid principal balance of $16.2 million which is payable
in October 2011 under the current terms of this facility. As of September 30, 2010, the third secured credit facility had an unpaid principal balance of $2.0 million. We are amortizing this balance with monthly principal repayments of
$0.5 million which will result in the full repayment of this credit facility by February 2011.



43



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Senior secured
convertible note.On March 25, 2010, pursuant to a securities exchange agreement, we acquired from a noteholder $47.0 million aggregate principal amount of our convertible senior notes for a total consideration of $31.2 million. The
purchase price consisted of (a) our issuance of the $22.0 million senior secured convertible note, (b) 1.5 million common shares issued, and (c) $6.0 million in cash. The senior secured convertible note is convertible into our common
shares at the option of the holder. The conversion price is $3.50 per common share and the senior secured convertible note may be converted at any time during its term. We also paid $1.4 million of accrued and unpaid interest on the convertible
notes through March 25, 2010. The holder of the senior secured convertible note converted $1.1 million principal amount of the senior secured convertible note into 0.3 million common shares effective May 5, 2010.

The senior secured convertible note bears interest at a rate of 10.0% per year. Interest accrues from March 25, 2010 and will
be payable quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, beginning July 15, 2010. The senior secured convertible note matures on April 20, 2014 unless previously prepaid in
accordance with its terms prior to such date. The senior secured convertible note is fully and unconditionally guaranteed by two wholly-owned subsidiaries of RAIT, or the guarantors: RAIT Asset Holdings III Member, LLC, or RAHM3, and RAIT Asset
Holdings III, LLC, or RAH3. RAHM3 is the sole member of RAH3 and has pledged the equity of RAH3 to secure its guarantee. RAH3s assets consist of certain CDO notes payable issued by RAITs consolidated securitization, RAIT Preferred
Funding II, LTD.

The maturity date of the senior secured convertible note may be accelerated upon the occurrence of specified
customary events of default, the satisfaction of any related notice provisions and the failure to remedy such event of default, where applicable. These events of default include: RAITs failure to pay any amount of principal or interest on the
senior secured convertible note when due; the failure of RAIT or any guarantor to perform any obligation on its or their part in any transaction document; and events of bankruptcy, insolvency or reorganization affecting RAIT or any guarantor.

Junior subordinated notes, at fair value.On October 25, 2010, pursuant to a securities exchange
agreement, we exchanged $18.7 million in aggregate principal amount of the junior subordinated notes with an interest rate of 8.7% for $18.7 million of junior subordinated notes with a reduced interest rate and provided $5.0 million of our
convertible senior notes as collateral for the new junior subordinated notes. The new junior subordinated notes have a fixed rate of interest of 0.5% through March 30, 2015, thereafter with a floating rate of three-month LIBOR plus 400 basis
points, with such floating rate not to exceed 7.0%. The maturity date remains the same at March 30, 2035. At issuance, we elected to record these junior subordinated notes at fair value under FASB ASC Topic 825, with all subsequent changes in
fair value recorded in earnings.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost.CDO notes payable at amortized cost represent notes issued by consolidated CDO
entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various
classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their interest coverage and overcollateralization triggers, or OC Triggers, tests as of September 30, 2010.

During the nine-month period ended September 30, 2010, we repurchased, from the market, a total of $26.5 million in
aggregate principal amount of CDO notes payable issued by RAIT II. The aggregate purchase price was $4.8 million and we recorded a gain on extinguishment of debt of $21.3 million, net of deferred financing costs that were written off.

CDO notes payable, at fair value.Both of our Taberna consolidated CDOs are failing OC Trigger tests which cause a change
to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC Trigger test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity
distributions, or in some cases interest payments on our retained CDO notes payable, to be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC Trigger test failures are due to defaulted collateral
assets and credit risk securities. During the nine-month period ended September 30, 2010, $12.6 million of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO notes
payable.

Equity Financing.

Preferred Shares

On January 26, 2010, our board of trustees
declared first quarter 2010 cash dividends of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends
were paid on March 31, 2010 to holders of record on March 1, 2010 and totaled $3.4 million.



44



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On April 22,
2010, our board of trustees declared second quarter 2010 cash dividends of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C
Preferred Shares. The dividends were paid on June 30, 2010 to holders of record on June 1, 2010 and totaled $3.4 million.

On July 27, 2010, our board of trustees declared third quarter 2010 cash dividends of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred
Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on September 30, 2010 to holders of record on September 1, 2010 and totaled $3.4 million.

On October 28, 2010, our board of trustees declared fourth quarter 2010 cash dividends of $0.484375 per share on our 7.75% Series A
Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends will be paid on December 31, 2010 to holders of record on December 1, 2010.

Common Shares

Share Repurchases:

On January 26, 2010, the compensation
committee approved a cash payment to the Boards eight non-management trustees intended to constitute a portion of their respective 2010 annual non-management trustee compensation. The cash payment was subject to terms and conditions set forth
in a letter agreement, or the letter agreement, between each of the non-management trustees and RAIT. The terms and conditions included a requirement that each trustee use a portion of the cash payment to purchase RAITs common shares in
purchases that, individually and in the aggregate with all purchases made by all the other non-management trustees pursuant to their respective letter agreements, complied with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as
amended. The aggregate amount required to be used by all of the non-management trustees to purchase common shares was $0.2 million and was used to purchase 0.2 million common shares, in the aggregate, in March 2010.

Equity Compensation:

On January 26, 2010, the compensation committee awarded 1.5 million phantom units, valued at $1.9 million using our closing stock price of $1.27 on that date, to our executive officers. Half of
these awards vested immediately and the remainder vests in one year from the date of grant. On January 26, 2010, the compensation committee awarded 0.5 million phantom units, valued at $0.6 million using our closing stock price of $1.27 on
that date, to our non-executive officer employees. These awards generally vest over three-year periods.

During the nine-month
period ended September 30, 2010, 0.1 million phantom unit awards were redeemed for common shares. These phantom units were fully vested at the time of redemption.

Share Issuances:

During the nine-month period ended
September 30, 2010, we issued 18.9 million common shares, along with cash and the issuance of a senior secured convertible note, to repurchase $102.8 million of our convertible notes.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We implemented an amended and restated dividend reinvestment and share purchase plan, or DRSPP, effective as of March 13, 2008,
pursuant to which we have registered and reserved for issuance, in the aggregate, 18.8 million common shares. During the nine-month period ended September 30, 2010, we issued a total of 1.9 million common shares pursuant to the DRSPP
at a weighted-average price of $2.29 per share and we received $4.4 million of proceeds. As of September 30, 2010, 11.7 million common shares, in aggregate, remain available for issuance under the DRSPP.

Standby Equity Distribution Agreement (SEDA):

On January 13, 2010, we entered into a standby equity distribution agreement, or the SEDA, with YA Global Master SPV Ltd., or YA Global, which is managed by Yorkville Advisors, LLC, whereby YA Global
agreed to purchase up to $50.0 million, or the commitment amount, worth of newly issued RAIT common shares upon notices given by us, subject to the terms and conditions of the SEDA. The number of common shares issued or issuable pursuant to the
SEDA, in the aggregate, cannot exceed 12.5 million common shares. The SEDA terminates automatically on the earlier of January 13, 2012 or the date YA Global has purchased $50.0 million worth of common shares under the SEDA. During the
period from the effective date of the SEDA through September 30, 2010, 1.2 million common shares were issued pursuant to this arrangement at a weighted average price of $2.17 and we received $2.5 million of proceeds. As of
September 30, 2010, 11.3 million common shares, in the aggregate, remain available for issuance under the SEDA.

Capital on Demand Sales Agreement:

On August 6, 2010, we entered into a Capital on Demand Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue
and sell up to 17.5 million of our common shares from



45



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time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. During the period from the effective date of the COD sales
agreement through September 30, 2010, 0.5 million common shares were issued pursuant to this arrangement at a weighted average price of $1.57 and we received $0.9 million of proceeds. In October 2010, 1.6 million common shares were
issued pursuant to the COD sales agreement at a weighted average price of $1.74 and we received $2.8 million of proceeds. After reflecting the common shares issued in October 2010, 15.4 million common shares, in the aggregate, remain available
for issuance under the COD sales agreement.

Off-Balance Sheet Arrangements and Commitments

Not applicable.

Critical
Accounting Estimates and Policies

Our Annual Report on Form 10-K for the year ended December 31, 2009 contains a
discussion of our critical accounting policies. On January 1, 2010 we adopted several new accounting pronouncements and revised our accounting policies as described below. See Note 2 in our unaudited consolidated financial statements as of
September 30, 2010. Management discusses our critical accounting policies and managements judgments and estimates with our Audit Committee.

Recent Accounting Pronouncements

On January 1, 2010, we
adopted accounting standards classified under FASB ASC Topic 860, Transfers and Servicing, and accounting standards classified under FASB ASC Topic 810, Consolidation. The accounting standard classified under FASB Topic 860
eliminates the concept of a QSPE, changes the requirements for derecognizing financial assets, and requires additional disclosures about transfers of financial assets, including securitization transactions and continuing involvement with transferred
financial assets. The accounting standard classified under FASB Topic 810 changes the determination of when a VIE should be consolidated. Under this standard, the determination of whether to consolidate a VIE is based on the power to direct the
activities of the VIE that most significantly impact the VIEs economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE, as well as the VIEs purpose
and design. The adoption of these standards did not have a material effect on our consolidated financial statements.

On
January 1, 2010, we adopted Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This accounting standard requires new
disclosures for significant transfers in and out of Level 1 and 2 fair value measurements and requires a description of the reasons for the transfer. This accounting standard also updates existing disclosures by providing fair value measurement
disclosures for each class of assets and liabilities and provides disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. For Level 3 fair value measurements, new
disclosures will require entities to present information separately for purchases, sales, issuances, and settlements; however, these disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The adoption of this standard did not have a material effect on our consolidated financial statements and management is currently evaluating the impact the new Level 3 fair value measurement disclosures may have on our
consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This accounting standard update is to provide additional information to assist financial statement users in assessing an entitys credit
risk exposures and evaluating the adequacy of its allowance for credit losses. Existing disclosure guidance is amended to require an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables
and its allowance for credit losses and to disclose credit quality indicators, past due information, and modifications of its financing receivables. The disclosures as of the end of a reporting period are effective for interim and annual reporting
periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Management is currently
evaluating the impact that this accounting standard update may have on our consolidated financial statements.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing our business
plan, the primary market risks to which we are exposed are interest rate risk and credit risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between our yield on invested assets and cost of
funds and, in turn, our ability to make distributions or payments to our shareholders. In the event of a significant rising interest rate environment, defaults could increase and result in losses to us which adversely affect our operating results
and liquidity. In the current global recession, defaults have increased and resulted in losses to us which have adversely affected, and we expect will continue to adversely affect, our operating results and liquidity.



46



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There have been no
material changes in Quantitative and Qualitative disclosures during the nine-month period ended September 30, 2010 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2009. Reference is made to
Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

Disclosure Controls and Procedures

We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods
specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our chief executive officer and chief financial officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the
reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three-month period ended
September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Riverside National Bank of Florida Litigation

RAIT subsidiary Taberna
Capital Management, LLC is one of fifteen defendants in a lawsuit by the Federal Deposit Insurance Corporation, as Receiver for Riverside National Bank of Florida. The lawsuit was originally commenced by Riverside on August 6, 2009 in the
Supreme Court of the State of New York, County of Kings, and subsequently discontinued without prejudice and refiled in New York County on November 13, 2009. On April 16, 2010, the Office of the Comptroller of the Currency closed Riverside
and named the FDIC as receiver and thus as successor-in-interest to Riverside as plaintiff in the action. On June 3, 2010, the defendants removed the case to the United States District Court for the Southern District of New York. The action,
now titled FDIC v. The McGraw-Hill Companies, Inc., Moodys Investors Service, Inc., Fitch, Inc., Taberna Capital Management, LLC, Cohen & Company Financial Management, LLC f/k/a Cohen Bros. Financial Management LLC, FTN Financial
Capital Markets, Keefe Bruyette & Woods, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., JPMorgan Chase & Co., J.P. Morgan Securities Inc., Citigroup Global Markets, Credit Suisse Securities (USA) LLC, ABN Amro, Inc.,
Cohen & Company, and SunTrust Robinson Humphrey, Inc., asserts claims in connection with Riversides purchase of certain CDO securities, including securities from the Taberna Preferred Funding II, IV, and V CDOs. Riverside alleges that
offering materials issued in connection with the CDOs it purchased did not adequately disclose the process by which the rating agencies rated each of the securities. Riverside also alleges, among other things, that the offering materials should have
disclosed an alleged conflict of interest of the rating agencies as well as the role that the rating agencies played in structuring each CDO. Riverside seeks damages in excess of $132 million, rescission of its purchases of the securities at issue,
an accounting of certain amounts received by the defendants together with the imposition of a constructive trust, and punitive damages of an unspecified amount.

On June 25, 2010, the federal court directed the parties to refile papers supporting and opposing the defendants motions to dismiss, which had been filed in state court but not argued or
decided. On August 20, 2010, the court granted the FDICs motion for substitution of counsel and to stay the action for 90 days, and on October 28, 2010, it granted an additional 90-day stay at the FDICs request. Defendants must
refile their motions to dismiss or answer Plaintiffs complaint by February 23, 2011. An adverse resolution of the litigation could have a material adverse effect on our financial condition and results of operations.

Routine Litigation

We
are involved from time to time in litigation on various matters, including disputes with tenants of owned properties, disputes arising out of agreements to purchase or sell properties and disputes arising out of our loan portfolio. Given the nature
of our business



47



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activities, these lawsuits are considered routine to the conduct of our business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the
litigation process and its adversarial nature, and the jury system. We do not expect that the liabilities, if any, that may ultimately result from such routine legal actions will have a material adverse effect on our consolidated financial position,
results of operations or cash flows.



|Item 1A. | Risk Factors
|-------- | ------------

There have not been any material changes from the risk factors previously disclosed in Item 1ARisk Factors in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.



|Item 5. | Other Information
|------- | -----------------



| | (1) | The disclosure below is intended to satisfy any obligation of ours to provide disclosure pursuant to clause (e) of Item 5.02- Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers of Form 8-K.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As previously reported by RAIT in a current report on Form 8-K filed on September 28, 2010 , on September 22, 2010, Betsy Z. Cohen, RAITs Chairman of the Board and a Trustee, advised the
Board of Trustees of RAIT (the Board) that she planned to retire as Chairman of the Board and as a Trustee of RAIT effective December 31, 2010. On November 4, 2010, Mrs. Cohen delivered formal written notice (the Termination
Notice) of her termination of her employment agreement with RAIT effective December 31, 2010. In connection with Mrs. Cohens planned retirement, on November 4, 2010, RAIT entered into a consulting agreement (the Consulting
Agreement) with Mrs. Cohen to be in effect from January 1, 2011 through March 31, 2011. Under the Consulting Agreement, Mrs. Cohen agreed to consult with the executive officers and Board of RAIT with respect to such matters as may be
reasonably requested by RAIT and RAIT agreed to reimburse her for all reasonable travel and other expenses incurred in the performance of her duties under the Consulting Agreement and provide her with office space and appropriate secretarial
services. The foregoing description of the Termination Notice and Consulting Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Termination Notice and Consulting Agreement filed as
Exhibits 10.7 and 10.8 hereto, respectively, and incorporated herein by reference.



| | (2) | The disclosure below is intended to satisfy any obligation of ours to provide disclosure pursuant to Item 8.01- Other Events of Form 8-K.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

RAIT Financial Trust (RAIT) is re-issuing in an updated format its historical financial statements
in connection with FASB ASC Topic 360, Property, Plant, and Equipment. During the quarter ended September 30, 2010, RAIT identified three properties as held for sale and, in compliance with this accounting standard, determined that
it should report revenue and expenses associated with these properties as discontinued operations for each period presented in its 2009 historical annual and 2010 quarterly reports (including the comparable prior periods). Under SEC requirements,
these reclassifications as discontinued operations required by this accounting standard following the identification of a property as held for sale or sold is required for previously issued annual and quarterly financial statements for each of the
three years shown in RAITs last annual report on Form 10-K and for the interim periods presented in its quarterly reports on Form 10-Q during 2010, if those financials are incorporated by reference in subsequent filings with the SEC made under
the Securities Act of 1933, as amended, even though those financial statements relate to periods prior to the date of the sale. This reclassification has no effect on RAITs reported net income.

This report on Form 10-Q updates Items 1, 2, 6, 7, and 8 of RAITs 2009 Form 10-K and Items 1 and 2 of the Quarterly Reports on Form
10-Q for the quarters ended March 31, 2010 and June 30, 2010, filed on May 7, 2010 and August 9, 2010, respectively, to reflect the properties reclassified as discontinued operations during the quarter ended September 30,
2010. No attempt has been made to update matters in the Annual Report on Form 10-K or Quarterly Reports referred to above, except to the extent expressly provided above.

Financial statements for the required periods, revised to reflect the reclassifications referred to above, are set forth in Exhibits 99.3 through 99.9 of this report on Form 10-Q. Disclosure for Items 1
and 2 of RAITs 2009 Form 10-K, revised to reflect such reclassifications, are set forth in Exhibits 99.1 and 99.2 of this report on Form 10-Q. The Ratio of Earnings to Fixed Charges and Preferred Share Dividends in RAITs 2009 Form 10-K,
revised to reflect the reclassifications referred to above, are set forth in Exhibit 12.1 of this Report on Form 10-Q.



|Item 6. | Exhibits
|------- | --------



|(a) | Exhibits
|--- | --------

The
exhibits filed as part of this quarterly report on Form 10-Q are identified in the exhibit index immediately following the signature page of this Report. Such Exhibit Index is incorporated herein by reference.



48



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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.



|                       |  |  |  |                                   |  |                                                                           
|---------------------- |  |  |  | --------------------------------- |  | --------------------------------------------------------------------------
|                       |  |  |  | RAIT FINANCIAL TRUST (Registrant)
|                       |  |  | 
|Date: November 5, 2010 |  |  |  | By:                               |  | /s/    Scott F. Schaeffer                                                 
|                       |  |  |  |                                   |  | Scott F. Schaeffer, Chief Executive Officer and President                 
|                       |  |  |  |                                   |  | (On behalf of the registrant and as its Principal Executive Officer)      
|                       |  |  | 
|Date: November 5, 2010 |  |  |  | By:                               |  | /s/    Jack E. Salmon                                                     
|                       |  |  |  |                                   |  | Jack E. Salmon, Chief Financial Officer and Treasurer                     
|                       |  |  |  |                                   |  | (On behalf of the registrant and as its Principal Financial Officer)      
|                       |  |  | 
|Date: November 5, 2010 |  |  |  | By:                               |  | /s/    James J. Sebra                                                     
|                       |  |  |  |                                   |  | James J. Sebra, Senior Vice President-Finance and Chief Accounting Officer
|                       |  |  |  |                                   |  | (On behalf of the registrant and as its Principal Accounting Officer)     



49



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Documents                                                                                                                                                                             
|3.1           |  | Amended and Restated Declaration of Trust. (1)                                                                                                                                                       
|              | 
|3.1.1         |  | Articles of Amendment to Amended and Restated Declaration of Trust. (2)                                                                                                                              
|              | 
|3.1.2         |  | Articles of Amendment to Amended and Restated Declaration of Trust. (3)                                                                                                                              
|              | 
|3.1.3         |  | Certificate of Correction to the Amended and Restated Declaration of Trust. (4)                                                                                                                      
|              | 
|3.1.4         |  | Articles of Amendment to Amended and Restated Declaration of Trust. (5)                                                                                                                              
|              | 
|3.1.5         |  | Articles Supplementary relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the Series A Articles Supplementary).
(6)                                     
|              | 
|3.1.6         |  | Certificate of Correction to the Series A Articles Supplementary. (6)                                                                                                                                
|              | 
|3.1.7         |  | Articles Supplementary relating to the 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (7)                                                                            
|              | 
|3.1.8         |  | Articles Supplementary relating to the 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest. (8)                                                                            
|              | 
|3.2           |  | By-laws. (9)                                                                                                                                                                                         
|              | 
|4.1           |  | Form of Certificate for Common Shares of Beneficial Interest. (5)                                                                                                                                    
|              | 
|4.2           |  | Form of Certificate for 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest. (10)                                                                                           
|              | 
|4.3           |  | Form of Certificate for 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (7)                                                                                           
|              | 
|4.4           |  | Form of Certificate for 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest. (8)                                                                                           
|              | 
|4.5           |  | Indenture dated as of April 18, 2007 among RAIT Financial Trust, as issuer, or RAIT, RAIT Partnership, L.P. and RAIT Asset Holdings, LLC, as guarantors, and Wells Fargo Bank, N.A.,
as trustee. (11)
|              | 
|4.6           |  | Registration Rights Agreement dated as of April 18, 2007 between RAIT and Bear, Stearns & Co. Inc. (11)                                                                                              
|              | 
|10.1          |  | Standby Equity Distribution Agreement dated as of January 13, 2010 by and between YA Global Master SPV Ltd. and RAIT. (12)                                                                           
|              | 
|10.2          |  | RAIT Financial Trust 2008 Incentive Award Plan Form of Unit Award to Cover Grants to Compensation Committee Officers adopted January 26, 2010. (13)                                                  
|              | 
|10.3          |  | Form of Letter Agreement between RAIT and each of its Non-Management Trustees dated as of January 26, 2010. (13)                                                                                     
|              | 
|10.4          |  | Exchange Agreement dated as of March 25, 2010 between RAIT and United Equities Commodities Company. (14)                                                                                             
|              | 
|10.5          |  | 10.0% Senior Secured Convertible Note due 2014 dated as of March 25, 2010 issued by RAIT, as payor, to United Equities Commodities Company, as payee. (14)                                           
|              | 
|10.6          |  | Capital on Demand Sales Agreement dated as of August 6, 2010 between RAIT, RAIT Partnership, L.P., a Delaware limited partnership and JonesTrading Institutional Services LLC.
(15)                  
|              | 
|10.7          |  | Termination Notice from Betsy Z. Cohen to RAIT Financial Trust dated as of November 4, 2010.                                                                                                         
|              | 
|10.8          |  | Consulting Agreement between RAIT Financial Trust and Betsy Z. Cohen dated as of November 4, 2010.                                                                                                   
|              | 
|12.1          |  | Statements regarding computation of ratios.                                                                                                                                                          
|              | 
|15.1          |  | Awareness Letter from Independent Registered Public Accounting Firm (Grant Thornton LLP).                                                                                                            
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP).                                                                                                                       
|              | 
|31.1          |  | Certification Pursuant to 13a-14 (a) under the Securities Exchange Act of 1934.                                                                                                                      
|              | 
|31.2          |  | Certification Pursuant to 13a-14 (a) under the Securities Exchange Act of 1934.                                                                                                                      
|              | 
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                    
|              | 
|32.2          |  | Certification Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                    
|              | 
|99.1          |  | 2009 Annual Report Item 1Business.                                                                                                                                                                  



50



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|              |  |                                                                                                                                    
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Documents                                                                                                           
|99.2          |  | 2009 Annual Report Item 2Properties.                                                                                              
|              | 
|99.3          |  | 2009 Annual Report Item 6Selected Financial Data.                                                                                 
|              | 
|99.4          |  | 2009 Annual Report Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations.                   
|              | 
|99.5          |  | 2009 Annual Report Item 8Financial Statements and Supplementary Data.                                                             
|              | 
|99.6          |  | First Quarter 2010 Quarterly Report Item 1Financial Statements.                                                                   
|              | 
|99.7          |  | First Quarter 2010 Quarterly Report Item 2Managements Discussion and Analysis of Financial Conditions and Results of Operations. 
|              | 
|99.8          |  | Second Quarter 2010 Quarterly Report Item 1Financial Statements.                                                                  
|              | 
|99.9          |  | Second Quarter 2010 Quarterly Report Item 2Managements Discussion and Analysis of Financial Conditions and Results of Operations.



|(1) | Incorporated by reference to RAITs Registration Statement on Form S-11 (Registration No. 333-35077).
|--- | -----------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to RAITs Registration Statement on Form S-11 (Registration No. 333-53067).
|--- | -----------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to RAITs Registration Statement on Form S-2 (Registration No. 333-55518).
|--- | ----------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to RAITs Form 10-Q for the quarterly period ended March 31, 2002 (File No. 1-14760).
|--- | ---------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on December 15, 2006 (File No. 1-14760).
|--- | -----------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on March 18, 2004 (File No. 1-14760).
|--- | --------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on October 1, 2004 (File No. 1-14760).
|--- | ---------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to RAITs Form 8-A as filed with the SEC on June 29, 2007 (File No. 1-14760).
|--- | -------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on October 19, 2009 (File No. 1-14760).
|--- | ----------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on March 22, 2004 (File No. 1-14760).
|---- | --------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on April 18, 2007 (File No. 1-14760).
|---- | --------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on January 13, 2010 (File No. 1-14760).
|---- | ----------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on January 29, 2010 (File No. 1-14760).
|---- | ----------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to RAITs Form 8-K as filed with the SEC on March 25, 2010 (File No. 1-14760).
|---- | --------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to RAITs Form 10-Q for the quarterly period ended June 30, 2010 (File No. 1-14760).
|---- | --------------------------------------------------------------------------------------------------------------



51