Exhibit 99.7



|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 progress in adapting RAIT to the current market environment. We are positioning RAIT for future growth in the area of 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 over
time;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 value of our assets over
time; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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

We generated net income allocable to common shares of $31.3 million, or $0.41 per common share-diluted, during the three-months ended
March 31, 2010, primarily by the following:



| |  |  | Gains on debt extinguishments. During the three-months ended March 31, 2010, we repurchased $54.5 million of our convertible notes and $3.0
million of our CDO notes payable for total consideration of $35.7 million. The consideration was comprised of: cash of $6.9 million, the issuance of a $22.0 million convertible senior note and 3.2 million common shares. These transactions
generated $19.8 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 three-months ended March 31, 2010 was $17.4 million. While we recorded
additional provision for losses during the three-months ended March 31, 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 three months ended March 31, 2010, the net change in fair value of financial
instruments increased net income by $16.4 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 quarter of 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expect to continue to focus our efforts on enhancing our commercial real estate loan portfolio and our investments in real estate,
which are our primary investment portfolios. Although 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 three-months ended March 31, 2010, we converted four loans, comprised of six properties, into direct ownership. We expect to engage in ongoing workout activity
with respect to our commercial real estate loans that may result in the conversion of the property 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.

As
described below under Securitizations, in April 2010 we sold or delegated our collateral management rights and responsibilities relating to eight unconsolidated Taberna securitizations. While this transaction reduced our assets under
management from $10.0 billion at March 31, 2010 to $4.1 billion, it also generated $16.5 million of cash and is consistent with our strategy of focusing on our commercial real estate portfolio. The transaction generated a $9.3 million in gain
on sale of asset.



1



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Set forth below are
key statistics relating to our business through March 31, 2010 (dollars in thousands):



|                                               |  |                                            |           |   |                  |   |            |                   |  |   |              |   |  |               |            |   |  |   |            |  
|---------------------------------------------- |  | ------------------------------------------ | --------- | - | ---------------- | - | ---------- | ----------------- |  | - | ------------ | - |  | ------------- | ---------- | - |  | - | ---------- | -
|                                               |  | As of or For the Three-Month Periods Ended |          
|                                               |  | March 31,2010                              |           |   | December 31,2009 |   |            | September 30,2009 |  |   | June 30,2009 |   |  | March 31,2009 |           
|Financial Statistics:                          |  |                                            |           |   |                  |   |            |                   |  |   |              |   |  |               |            |   |  |   |            |  
|Recourse debt maturing within 1-year           |  | $                                          | 10,905    |   |                  | $ | 24,390     |                   |  | $ | 49,494       |   |  | $             | 49,494     |   |  | $ | 54,161     |  
|Assets under management (a)                    |  | $                                          | 9,911,824 |   |                  | $ | 10,126,853 |                   |  | $ | 10,374,491   |   |  | $             | 13,878,962 |   |  | $ | 13,922,257 |  
|Debt to equity                                 |  |                                            | 2.8x      |   |                  |   | 3.0x       |                   |  |   | 3.3x         |   |  |               | 7.4x       |   |  |   | 6.0x       |  
|Total revenue                                  |  | $                                          | 42,689    |   |                  | $ | 38,475     |                   |  | $ | 41,425       |   |  | $             | 57,831     |   |  | $ | 59,779     |  
|Earnings per share, diluted                    |  | $                                          | 0.41      |   |                  | $ | 0.24       |                   |  | $ | (0.38        | ) |  | $             | (4.43      | ) |  | $ | (2.22      | )
|                                               |  |                                            |           |   |                 
|Commercial Real Estate (CRE) Loan Portfolio: |  |                                            |           |   |                  |   |            |                   |  |   |              |   |  |               |            |   |  |   |            |  
|Reported CRE Loansunpaid principal            |  | $                                          | 1,417,393 |   |                  | $ | 1,473,700  |                   |  | $ | 1,582,065    |   |  | $             | 1,653,837  |   |  | $ | 1,859,143  |  
|Non-accrual loansunpaid principal             |  | $                                          | 132,978   |   |                  | $ | 171,372    |                   |  | $ | 246,029      |   |  | $             | 171,809    |   |  | $ | 177,233    |  
|Non-accrual loans as a % of reported loans     |  |                                            | 9.4       | % |                  |   | 11.6       | %                 |  |   | 15.6         | % |  |               | 10.4       | % |  |   | 9.5        | %
|Reserve for losses                             |  | $                                          | 76,823    |   |                  | $ | 86,609     |                   |  | $ | 85,620       |   |  | $             | 108,842    |   |  | $ | 126,229    |  
|Reserves as a % of non-accrual loans           |  |                                            | 57.8      | % |                  |   | 50.5       | %                 |  |   | 34.8         | % |  |               | 63.4       | % |  |   | 71.2       | %
|Provision for losses                           |  | $                                          | 17,350    |   |                  | $ | 22,500     |                   |  | $ | 18,467       |   |  | $             | 27,548     |   |  | $ | 61,565     |  
|                                               |  |                                            |           |   |                 
|CRE Property Portfolio:                        |  |                                            |           |   |                  |   |            |                   |  |   |              |   |  |               |            |   |  |   |            |  
|Reported investments in real estate            |  | $                                          | 795,952   |   |                  | $ | 738,235    |                   |  | $ | 645,484      |   |  | $             | 604,619    |   |  | $ | 501,459    |  
|Number of properties owned                     |  |                                            | 46        |   |                  |   | 39         |                   |  |   | 34           |   |  |               | 30         |   |  |   | 24         |  
|Multifamily units owned                        |  |                                            | 7,893     |   |                  |   | 6,967      |                   |  |   | 6,367        |   |  |               | 5,550      |   |  |   | 4,249      |  
|Office square feet owned                       |  |                                            | 1,550,401 |   |                  |   | 1,350,177  |                   |  |   | 1,035,435    |   |  |               | 1,035,435  |   |  |   | 1,035,435  |  
|Retail square feet owned                       |  |                                            | 1,069,652 |   |                  |   | 1,069,643  |                   |  |   | 1,095,452    |   |  |               | 639,791    |   |  |   | 639,791    |  
|Average physical occupancy                     |  |                                            | 70.8      | % |                  |   | 69.8       | %                 |  |   | 73.1         | % |  |               | 75.8       | % |  |   | 73.3       | %



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

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.
| | - |  | -----------------------------------------------------------------



2



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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 March 31, 2010 (dollars in thousands):



|                           |  |            |           |  |                        |  |      |                     |  |  |                       |  |  |  |     | 
|-------------------------- |  | ---------- | --------- |  | ---------------------- |  | ---- | ------------------- |  |  | --------------------- |  |  |  | --- | 
|                           |  | Book Value |           |  | Weighted-AverageCoupon |  |      | Range of Maturities |  |  | Numberof Loans        | 
|Commercial mortgages       |  | $          | 765,290   |  |                        |  | 6.8  | %                   |  |  | May 2010 to Mar. 2016 |  |  |  | 47  | 
|Mezzanine loans            |  |            | 424,013   |  |                        |  | 9.4  | %                   |  |  | May 2010 to Nov. 2038 |  |  |  | 122 | 
|Other loans                |  |            | 124,448   |  |                        |  | 5.2  | %                   |  |  | May 2010 to Oct. 2016 |  |  |  | 11  | 
|Preferred equity interests |  |            | 92,331    |  |                        |  | 10.9 | %                   |  |  | May 2010 to Sep. 2021 |  |  |  | 23  | 
|                           |  |            |           |  |                        |  |      |                     |  |  |                       |  |  |  |     | 
|Total                      |  | $          | 1,406,082 |  |                        |  | 7.7  | %                   |  |  |                       |  |  |  | 203 | 
|                           |  |            |           |  |                        |  |      |                     |  |  |                       |  |  |  |     | 

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.

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 March 31, 2010:

LOGO





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

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 investment. 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 2010, we acquired $41.3 million of real estate investments upon conversion of $52.1 million of commercial real estate
loans, usually subject to retaining the existing financing provided by our two CRE loan securitizations. As of March 31, 2010, we owned 7,893 multifamily units, 1,550,401 square feet of office space and 1,069,652 square feet of retail space.
The average occupancy of our portfolio of 46 properties is 70.8% as of March 31, 2010.



3



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The table below
describes certain characteristics of our investments in real estate as of March 31, 2010 (dollars in thousands, except average effective rent):



|                                        |  |                               |         |  |                     |  |       |                         |  |  |                     |  |  |                           |    |  |  |   |       | 
|--------------------------------------- |  | ----------------------------- | ------- |  | ------------------- |  | ----- | ----------------------- |  |  | ------------------- |  |  | ------------------------- | -- |  |  | - | ----- | 
|                                        |  | Investments in RealEstate (a) |         |  | % of TotalPortfolio |  |       | Units/Square Feet/Acres |  |  | Number ofProperties |  |  | Average EffectiveRent (b) |   
|Multi-family real estate properties (c) |  | $                             | 530,770 |  |                     |  | 66.7  | %                       |  |  | 7,893               |  |  |                           | 32 |  |  | $ | 717   | 
|Office real estate properties (d)       |  |                               | 207,663 |  |                     |  | 26.1  | %                       |  |  | 1,350,247           |  |  |                           | 9  |  |  |   | 19.31 | 
|Retail real estate properties (d)       |  |                               | 35,311  |  |                     |  | 4.4   | %                       |  |  | 1,069,652           |  |  |                           | 2  |  |  |   | 11.89 | 
|Parcels of land                         |  |                               | 22,208  |  |                     |  | 2.8   | %                       |  |  | 7.3                 |  |  |                           | 3  |  |  |   |      | 
|                                        |  |                               |         |  |                     |  |       |                         |  |  |                     |  |  |                           |    |  |  |   |       | 
|Total                                   |  | $                             | 795,952 |  |                     |  | 100.0 | %                       |  |  |                     |  |  |                           | 46 |  |  |   |       | 
|                                        |  |                               |         |  |                     |  |       |                         |  |  |                     |  |  |                           |    |  |  |   |       | 



|(a) | Investments in real estate include $75.2 million of assets held for sale as of March 31, 2010.
|--- | ----------------------------------------------------------------------------------------------

|(b) | Based on operating performance for the three-month period ended March 31, 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.

The charts below describe the property types and the
geographic breakdown of our investments in real estate as of March 31, 2010:

LOGO





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

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 March 31, 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.



4



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The table below
describes our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of March 31, 2010 (dollars in thousands):



|                     |  |                     |         |  |           |  |       |                        |  |  |                                                      |   |  |                                        |       |   |  |  |      |   
|-------------------- |  | ------------------- | ------- |  | --------- |  | ----- | ---------------------- |  |  | ---------------------------------------------------- | - |  | -------------------------------------- | ----- | - |  |  | ---- | --
|                     |  |                     |         |  |           |  |       |                        |  |  | Issuer Statistics                                    |  
|Industry Sector      |  | EstimatedFair Value |         |  | % ofTotal |  |       | Weighted-AverageCoupon |  |  | Weighted AverageRatio of Debt to TotalCapitalization |   |  | Weighted AverageInterest CoverageRatio |      
|Commercial Mortgage  |  | $                   | 99,951  |  |           |  | 20.1  | %                      |  |  | 4.3                                                  | % |  |                                        | 69.8  | % |  |  | 1.6  | x 
|Office               |  |                     | 133,398 |  |           |  | 26.9  | %                      |  |  | 7.8                                                  | % |  |                                        | 60.3  | % |  |  | 1.2  | x 
|Residential Mortgage |  |                     | 38,386  |  |           |  | 7.7   | %                      |  |  | 2.5                                                  | % |  |                                        | 99.0  | % |  |  | 4.7  | x 
|Specialty Finance    |  |                     | 65,909  |  |           |  | 13.3  | %                      |  |  | 4.9                                                  | % |  |                                        | 109.4 | % |  |  | 3.3  | x 
|Homebuilders         |  |                     | 55,136  |  |           |  | 11.1  | %                      |  |  | 7.8                                                  | % |  |                                        | 1.9   | % |  |  | (0.1 | )x
|Retail               |  |                     | 54,313  |  |           |  | 10.9  | %                      |  |  | 3.9                                                  | % |  |                                        | 120.2 | % |  |  | 1.3  | x 
|Hospitality          |  |                     | 25,216  |  |           |  | 5.1   | %                      |  |  | 6.3                                                  | % |  |                                        | 139.5 | % |  |  | (0.8 | )x
|Storage              |  |                     | 23,772  |  |           |  | 4.8   | %                      |  |  | 8.0                                                  | % |  |                                        | 60.3  | % |  |  | 3.8  | x 
|                     |  |                     |         |  |           |  |       |                        |  |  |                                                      |   |  |                                        |       |   |  |  |      |   
|Total                |  | $                   | 496,081 |  |           |  | 100.0 | %                      |  |  | 5.3                                                  | % |  |                                        | 73.0  | % |  |  | 1.8  | x 
|                     |  |                     |         |  |           |  |       |                        |  |  |                                                      |   |  |                                        |       |   |  |  |      |   

The chart below describes the equity capitalization of our investment in TruPS and subordinated debentures
as included in our consolidated financial statements as of March 31, 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 by one or more nationally-recognized rating agencies, as well as both unrated and non-investment grade loans and securities.



5



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The table and the
chart below describe certain characteristics of our real estate-related debt securities as of March 31, 2010 (dollars in thousands):



|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 
|------------------------------- |  | ------------------- | ------- |  | ---------------------- |  | --- | -------------------------------- |  |  | ---------- |  |  | - | ------- | 
|Investment Description          |  | EstimatedFair Value |         |  | Weighted-AverageCoupon |  |     | Weighted-AverageYears toMaturity |  |  | Book Value | 
|Unsecured REIT note receivables |  | $                   | 58,344  |  |                        |  | 6.6 | %                                |  |  | 7.5        |  |  | $ | 61,000  | 
|CMBS receivables                |  |                     | 65,322  |  |                        |  | 6.0 | %                                |  |  | 33.8       |  |  |   | 158,868 | 
|Other securities                |  |                     | 30,231  |  |                        |  | 3.0 | %                                |  |  | 31.4       |  |  |   | 125,887 | 
|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 
|Total                           |  | $                   | 153,897 |  |                        |  | 5.0 | %                                |  |  | 28.4       |  |  | $ | 345,755 | 
|                                |  |                     |         |  |                        |  |     |                                  |  |  |            |  |  |   |         | 

LOGO





|(a) | S&P Ratings as of March 31, 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.

A CDO is a securitization structure in which multiple classes of debt and equity are issued by a special purpose entity to finance a portfolio of assets. Cash flow from the portfolio of assets is used to
repay the CDO liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of AAA through BBB and therefore can be issued at yields that are lower than the average yield
of the securities backing the CDO. The debt tranches are typically rated based on portfolio quality, diversification and structural subordination. The equity securities issued by the CDO are the first loss piece of the capital structure,
but they are entitled to all residual amounts available for payment after the obligations to the debt holders have been satisfied. Unlike typical securitization structures, the underlying assets in our CDO pool may be sold or repaid, subject to
certain limitations, without a corresponding pay-down of the CDO debt, provided the proceeds are reinvested in qualifying assets.

CDO Management. During the quarter ended March 31, 2010 and through April 20, 2010, we served as the collateral manager for all 13 CDO securitizations we sponsored with varying
amounts of retained or residual interests held by us. In general, during this period, we received senior asset management fees, based on the amount of collateral assets, as a priority ahead of debt service payments. On April 21, 2010, we sold
or delegated our collateral management rights and responsibilities relating to eight unconsolidated Taberna securitizations to an affiliate of Fortress Investment Group, LLC, or Fortress, for $16.5 million. These securitizations were comprised of
Taberna II, Taberna III, Taberna IV, Taberna V, Taberna VI, Taberna VII, Taberna Europe I, and Taberna Europe II. Subsequent to the transaction with Fortress in April, we receive collateral management fees only for Taberna I, Taberna VIII, Taberna
IX, RAIT I and RAIT II.



6



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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 and our lower-rated debt or 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, the following CDO securitizations were not passing their required interest coverage or OC
Triggers and we received only senior asset management fees and interest on certain of the more senior-rated debt owned by us related to these CDO transactions: Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V, Taberna VI, Taberna VII,
Taberna VIII, Taberna IX, Taberna Europe I and Taberna Europe II. In addition, events of default existed in Taberna II, Taberna III, Taberna IV and Taberna VI. An event of default in a CDO may be cause for our removal as collateral manager of that
CDO in limited circumstances where an event of default is caused by a breach or default of the collateral manager. 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.

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):



| |  |  | Taberna VIIITaberna VIII has $674.0 million of total collateral, of which $85.1 million is defaulted. The current overcollateralization
(O/C) test is failing at 91.3% 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 $704.5 million of total collateral, of which $154.1 million is defaulted. The current O/C test is failing at
81.4% 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | RAIT IRAIT I has $1.0 billion of total collateral, of which $64.3 million is defaulted. The current O/C test is passing at 120.1% with an
O/C trigger of 116.2%. We have invested $223.5 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 senior collateral management fees.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | RAIT IIRAIT II has $815.1 million of total collateral, of which $20.0 million is defaulted. The current O/C test is passing at 114.9% with
an O/C trigger of 111.7%. We have invested $233.7 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 senior collateral management
fees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. We may also own common shares, or the non-economic residual interest, in certain of the entities above.

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 represents 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 March 31, 2010 and December 31, 2009 (dollars in thousands):



|                                     |  |                                         |           |  |                                            |   |            | 
|------------------------------------ |  | --------------------------------------- | --------- |  | ------------------------------------------ | - | ---------- | 
|                                     |  | Assets UnderManagement atMarch 31, 2010 |           |  | Assets UnderManagement atDecember 31, 2009 |  
|Commercial real estate portfolio (1) |  | $                                       | 2,063,076 |  |                                            | $ | 2,084,685  | 
|European portfolio (2)               |  |                                         | 1,763,310 |  |                                            |   | 1,878,601  | 
|U.S. TruPS portfolio (3)             |  |                                         | 6,084,750 |  |                                            |   | 6,162,790  | 
|Other investments                    |  |                                         | 687       |  |                                            |   | 777        | 
|                                     |  |                                         |           |  |                                            |   |            | 
|Total (4)                            |  | $                                       | 9,911,824 |  |                                            | $ | 10,126,853 | 
|                                     |  |                                         |           |  |                                            |   |            | 



7



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|(1) | As of March 31, 2010 and December 31, 2008, our commercial real estate portfolio was comprised of $1.2 billion and $1.2 billion, respectively, of assets
collateralizing RAIT I and RAIT II, $796.0 million and $738.2 million, respectively, of investments in real estate and $82.9 million and $106.6 million, respectively, of commercial mortgages, mezzanine loans and preferred equity interests that were
not securitized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our European portfolio is comprised of assets collateralizing Taberna Europe I and Taberna Europe II.
|--- | -----------------------------------------------------------------------------------------------------

|(3) | Our U.S. TruPS portfolio is 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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. 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. 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 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 meet RAITs annual distribution requirements. 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.



8



---



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 periods ended March 31, 2010 and 2009 (dollars in thousands):



|                                                                                   |  |                                           |         |   |      |   |          |  
|---------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                   |  | For the Three-MonthPeriods Ended March 31 |        
|                                                                                   |  | 2010                                      |         |   | 2009 |  
|Net income (loss), as reported                                                     |  | $                                         | 34,453  |   |      | $ | (148,414 | )
|Add (deduct):                                                                      |  |                                           |         |   |      |   |          |  
|Provision for losses                                                               |  |                                           | 17,350  |   |      |   | 119,504  |  
|Charge-offs on allowance for losses                                                |  |                                           | (27,136 | ) |      |   | (65,425  | )
|Domestic TRS book-to-total taxable income differences:                             |  |                                           |         |   |      |   |          |  
|Income tax provision (benefit)                                                     |  |                                           | 47      |   |      |   | (36      | )
|Stock compensation, forfeitures and other temporary tax differences                |  |                                           | 98      |   |      |   | (1,357   | )
|Change in fair value of financial instruments, net of noncontrolling interests (1) |  |                                           | (16,437 | ) |      |   | 86,347   |  
|Amortization of intangible assets                                                  |  |                                           | 355     |   |      |   | 315      |  
|CDO investments aggregate book-to-taxable income differences (2)                   |  |                                           | (13,872 | ) |      |   | (19,119  | )
|Accretion of (premiums) discounts                                                  |  |                                           |        |   |      |   | (105     | )
|Other book to tax differences                                                      |  |                                           | 1,773   |   |      |   | 1,133    |  
|                                                                                   |  |                                           |         |   |      |   |          |  
|Total taxable income (loss)                                                        |  |                                           | (3,369  | ) |      |   | (27,157  | )
|Less: Taxable income attributable to domestic TRS entities                         |  |                                           | (1,067  | ) |      |   | (987     | )
|Plus: Dividends paid by domestic TRS entities                                      |  |                                           | 5,000   |   |      |   |         |  
|Less: Deductible preferred dividends                                               |  |                                           | (3,406  | ) |      |   | (3,406   | )
|                                                                                   |  |                                           |         |   |      |   |          |  
|Estimated REIT taxable income (loss)                                               |  | $                                         | (2,842  | ) |      | $ | (31,550  | )
|                                                                                   |  |                                           |         |   |      |   |          |  



|(1) | Change in fair value of financial instruments is reported net of allocation to noncontrolling interests of $(13,458) for the three- months ended March 31, 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results of Operations

Three-Month
Period Ended March 31, 2010 Compared to the Three-Month Period Ended March 31, 2009

Revenue

Investment interest income.Investment interest income decreased $109.8 million, or 72.6%, to $41.3 million for
the three-month period ended March 31, 2010 from $151.1 million for the three-month period ended March 31, 2009. This net decrease was primarily attributable to decreases in interest income of: $47.1 million resulting from the disposition
of the Taberna III, Taberna IV, Taberna VI and Taberna VII securitizations in June 2009 and $49.9 million resulting from the disposition of the residential mortgage portfolio in July 2009. The remaining decrease primarily resulted from $329.0
million in total principal amount of investments on non-accrual status as of March 31, 2010, 20 new properties, representing $367.4 million of investments in commercial loans, transitioned from loans to real estate owned since March 31,
2009 and the reduction in short-term LIBOR of approximately 0.9% during the three-month period ended March 31, 2010 compared to the three-month period ended March 31, 2009.

Investment interest expense.Investment interest expense decreased $79.4 million, or 77.1%, to $23.6 million for the three-month
period ended March 31, 2010 from $103.0 million for the three-month period ended March 31, 2009. This net decrease was primarily attributable to decreases in interest expense of: $25.0 million resulting from the disposition of the
Taberna III, Taberna IV, Taberna VI and Taberna VII securitizations in June 2009 and $46.3 million resulting from the disposition of the residential mortgage portfolio in July 2009. The remaining decrease is primarily attributable to repurchases of
$153.3 million of our convertible senior notes since March 31, 2009, net of additional interest cost incurred for the insurance of new debt instruments associated therewith, and the effect on our floating rate indebtedness from the reduction in
short-term LIBOR of approximately 0.9% during the three-month period ended March 31, 2010 compared to the three-month period ended March 31, 2009.

Rental income. Rental income increased $7.2 million to $16.1 million for the three-month period ended March 31, 2010 from $8.9 million for the three-month period ended March 31, 2009.
This increase was primarily attributable to 19 new properties, with direct real estate investments of $304.5 million, acquired or consolidated since March 31, 2009.



9



---



Fee and other
income.Fee and other income increased $6.0 million, or 213.4%, to $8.8 million for the three-month period ended March 31, 2010 from $2.8 million for the three-month period ended March 31, 2009. We received $3.4 million of fee income
from our restructuring advisory services, $2.1 million of property management fees and reimbursement income associated with the property management activities that we acquired in May 2009 and $0.5 million of increased asset management fees resulting
from the recognition of senior collateral management fees on the Taberna securitizations that were deconsolidated in June 2009.

Expenses

Real estate operating expense.Real estate operating expense increased $4.1 million to $12.4 million for the three-month period ended March 31, 2010 from $8.3 million for the three-month
period ended March 31, 2009. This increase was primarily attributable to 19 new properties, with direct real estate investments of $304.5 million, acquired or consolidated since March 31, 2009.

Compensation expense. Compensation expense increased $2.5 million, or 42.8%, to $8.1 million for the three-month period ended
March 31, 2010 from $5.6 million for the three-month period ended March 31, 2009. This increase was primarily due to $2.0 million of compensation costs associated with the property management activities that were acquired in May 2009, the
expansion of our broker-dealer and advisory activities, and higher stock-based compensation amortization of $0.4 million resulting from the vesting of certain restricted shares and phantom units subsequent to March 31, 2009.

General and administrative expense. General and administrative expense increased $0.6 million, or 14.9%, to $4.9 million for the
three-month period ended March 31, 2010 from $4.3 million for the three-month period ended March 31, 2009. This increase is primarily due to our property management activities that we acquired in May 2009 and our broker-dealer and
advisory activities.

Provision for losses.The provision for losses relates to our investments in our residential
mortgages and commercial mortgage loan portfolios. The provision for losses decreased by $102.1 million for the three-month period ended March 31, 2010 to $17.4 million as compared to $119.5 million for the three-month period ended
March 31, 2009. This decrease was primarily attributable to $58.3 million of provision for losses related to our residential mortgage portfolio during the three-month period ended March 31, 2009 which was disposed during July 2009.
Subsequent to March 31, 2009, we have transitioned 20 loans to real estate owned properties, with direct real estate investments of $310.1 million, including one property that has been sold and one property held for sale, and realized losses of
$57.3 million when these loans were converted from impaired loans to owned real estate. While we believe we have properly 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 $2.3 million to $5.8 million for the three-month period ended March 31, 2010 from $3.5 million for the three-month period ended March 31, 2009. This increase was primarily attributable to 19 new properties, with direct
real estate investments of $304.5 million, acquired or consolidated since March 31, 2009 as well as increased depreciation of furniture and fixtures we added since March 31, 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 increased $0.1 million to $0.4 million for the three-month period ended March 31, 2010 from $0.3 million for the three-month period ended March 31,
2009. This increase resulted from the $1.6 million of intangible assets acquired from Jupiter Communities on May 1, 2009.

Other Income (Expense)

Gains (losses) on sale of assets. Gains on sale of assets were $3.9 million during the three-month period ended March 31, 2010. The gains on sale of assets are primarily attributable to the
disposition of $11.4 million in total principal amount of unsecured REIT note receivables in our CRE securitizations.

Gains on extinguishment of debt. Gains on extinguishment of debt during the three-month period ended March 31, 2010 are
attributable to the repurchase of $54.5 million in aggregate principal amount of convertible senior notes and $3.0 million in aggregate principal amount of CDO notes payable. The aggregate debt was repurchased from the market for 3,150,000 of our
common shares, issued a $22.0 million senior secured convertible note and $6.9 million of cash. As a result of these repurchases, we recorded gains on extinguishment of debt of $19.8 million.



10



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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 March 31, 2010 and 2009, the fair value adjustments we recorded were as follows (dollars in thousands):



|                                                                                             |  |                                             |         |   |                                              |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | -------------------------------------------- | - | -------- | -
|Description                                                                                  |  | For theThree-MonthPeriod EndedMarch 31,2010 |         |   | For theThree-MonthPeriod 
EndedMarch 31,2009 |  
|Change in fair value of trading securities and security-related receivables                  |  | $                                           | 47,745  |   |                                              | $ | (190,687 | )
|Change in fair value of CDO notes payable, trust preferred obligations and other liabilities |  |                                             | (13,493 | ) |                                              |   | 82,589   |  
|Change in fair value of derivatives                                                          |  |                                             | (17,815 | ) |                                              |   | 8,293    |  
|                                                                                             |  |                                             |         |   |                                              |   |          |  
|Change in fair value of financial instruments                                                |  | $                                           | 16,437  |   |                                              | $ | (99,805  | )
|                                                                                             |  |                                             |         |   |                                              |   |          |  

Discontinued operations. Income (loss) from discontinued operations increased $2.1 million to income
of $0.5 million for the three-month period ended March 31, 2010 compared to a loss of $1.6 million for the three-month period ended March 31, 2009 primarily due to the timing of properties acquired, sold or deconsolidated during the
respective periods. Additionally, we recorded a gain of $0.3 million on a property that was sold in March 2010 and a $2.1 million loss on a VIE that was deconsolidated in March 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 and has generally increased the cost of any new sources of liquidity 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 and we do
not expect to sponsor new securitizations to provide us with long-term financing for the foreseeable future. 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 generating attractive returns while preserving our capital, such as loan participations and joint venture financing arrangements.

We expect to continue to receive substantial cash flow from our investment portfolio. 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. 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;
| | - |  | --------------------------------------------------------



| |  |  | to repurchase our common shares; 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



11



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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 $18.5 million as of March 31, 2010;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | cash generated from operating activities, including net investment income from our investment portfolio, and fee income generated by our vertically
integrated 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 DRSPP Plan.
| | - |  | --------------------------------------------------------------------------------------------

Cash Flows

As of
March 31, 2010 and 2009, we maintained cash and cash equivalents of approximately $18.5 million and $41.0 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):



|                                                 |  |                                           |         |   |      |   |          |  
|------------------------------------------------ |  | ----------------------------------------- | ------- | - | ---- | - | -------- | -
|                                                 |  | For the Three-Month PeriodsEnded March 31 |        
|                                                 |  | 2010                                      |         |   | 2009 |  
|Cash flow from operating activities              |  | $                                         | 2,549   |   |      | $ | 28,914   |  
|Cash flow from investing activities              |  |                                           | 5,603   |   |      |   | 109,396  |  
|Cash flow from financing activities              |  |                                           | (14,646 | ) |      |   | (124,799 | )
|                                                 |  |                                           |         |   |      |   |          |  
|Net change in cash and cash equivalents          |  |                                           | (6,494  | ) |      |   | 13,511   |  
|Cash and cash equivalents at beginning of period |  |                                           | 25,034  |   |      |   | 27,463   |  
|                                                 |  |                                           |         |   |      |   |          |  
|Cash and cash equivalents at end of period       |  | $                                         | 18,540  |   |      | $ | 40,974   |  
|                                                 |  |                                           |         |   |      |   |          |  

Our principal source of cash flow is historically from our investing activities. The reduction in cash
inflow from our investing activities primarily resulted from $21.8 million in principal repayments on loans and investments during the three-month period ended March 31, 2010 as compared to $120.0 million during the three-month period ended
March 31, 2009.

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 our financing activities during the three-month period ended March 31, 2010 as compared to the three-month period ended March 31, 2009 is primarily due to a reduction in
the repayments on residential mortgage-backed securities of $0 and $96.6 million as we sold this portfolio in July 2009.

Our
assets under management have historically been financed on a long-term basis through securitizations and our rights to cash flow from these portfolios depend on the terms of the debt and equity securities we hold in these securitizations. Several of
our securitizations are currently failing several of their respective over-collateralization tests due to collateral defaults and are re-directing cash flow associated with our retained interests to repay principal on senior debt. See
Securitization Summary above.

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 during the first five years of each facility. At
March 31, 2010, these revolvers are fully utilized and have no additional capacity. We have $73.4 million of restricted cash in our two CRE securitizations to invest in commercial loans as of March 31, 2010, subject to $33.9 million of
future funding commitments and borrowing requirements.



12



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Capitalization

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements
are collateralized by assets within CDOs or mortgage securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of March 31, 2010 (dollars in thousands):



|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|-------------------------------------------- |  | ---------------------- | --------- |  | -------------- | - | --------- | ----------------------------- |  |  | -------------------- | - |  |  | ----------------------- | 
|Description                                  |  | UnpaidPrincipalBalance |           |  | CarryingAmount |   |           | Weighted-AverageInterest Rate |  |  | Contractual Maturity |  
|Recourse indebtedness:                       |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Convertible senior notes (1)                 |  | $                      | 191,863   |  |                | $ | 191,569   |                               |  |  | 6.9                  | % |  |  | Apr. 2027               | 
|Secured credit facilities                    |  |                        | 48,203    |  |                |   | 48,203    |                               |  |  | 4.8                  | % |  |  | Feb. 2011 to Dec. 2011  | 
|Senior secured notes                         |  |                        | 65,000    |  |                |   | 65,000    |                               |  |  | 11.7                 | % |  |  | Apr. 2014               | 
|Loans payable on real estate                 |  |                        | 25,094    |  |                |   | 25,094    |                               |  |  | 5.2                  | % |  |  | Apr. 2012 to Sept. 2012 | 
|Junior subordinated notes, at fair value (2) |  |                        | 38,052    |  |                |   | 17,003    |                               |  |  | 9.2                  | % |  |  | Mar. 2015 to Mar. 2035  | 
|Junior subordinated notes, at amortized cost |  |                        | 25,100    |  |                |   | 25,100    |                               |  |  | 7.7                  | % |  |  | Apr. 2037               | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total recourse indebtedness                  |  |                        | 393,312   |  |                |   | 371,969   |                               |  |  | 7.6                  | % |  |  |                         | 
|Non-recourse indebtedness:                   |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|CDO notes payable, at amortized cost (3)(4)  |  |                        | 1,393,750 |  |                |   | 1,393,750 |                               |  |  | 0.7                  | % |  |  | 2036 to 2046            | 
|CDO notes payable, at fair value (2)(3)(5)   |  |                        | 1,182,398 |  |                |   | 157,386   |                               |  |  | 0.9                  | % |  |  | 2035 to 2038            | 
|Loans payable on real estate                 |  |                        | 73,495    |  |                |   | 73,495    |                               |  |  | 5.6                  | % |  |  | Aug. 2010 to Aug. 2016  | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total non-recourse indebtedness              |  |                        | 2,649,643 |  |                |   | 1,624,631 |                               |  |  | 0.9                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 
|Total indebtedness                           |  | $                      | 3,042,955 |  |                | $ | 1,996,600 |                               |  |  | 1.8                  | % |  |  |                         | 
|                                             |  |                        |           |  |                |   |           |                               |  |  |                      |   |  |  |                         | 



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

|(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 $1.4 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 March 31, 2010 was $873.2 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 $372.0 million as of March 31, 2010. Non-recourse indebtedness
consists of indebtedness of consolidated VIEs (i.e. 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
three-month period ended March 31, 2010 is as follows:

Recourse Indebtedness

Convertible senior notes. During the three-month period ended March 31, 2010, we repurchased $54.5 million in aggregate
principal amount of our 6.875% Convertible Senior Notes due 2027, or the convertible senior notes, for a total consideration of $35.7 million. The purchase price consisted of $6.9 million in cash, the issuance of 3.2 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 $17.1 million, net of deferred financing costs and unamortized discounts that were written off.

Secured credit facilities.As of March 31, 2010, we have borrowed an aggregate amount of $48.2 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 March 31, 2010, the first secured credit facility had an
unpaid principal balance of $21.0 million which is payable in December 2011 under the current terms of this facility. As of March 31, 2010, the second secured credit facility had an unpaid principal balance of $22.2 million. This
facility terminated in April 2010 and the unpaid principal balance is payable in April 2011. As of March 31, 2010, the third secured credit facility had an unpaid principal balance of $5.0 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.

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



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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 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.

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 OC and IC trigger tests as of March 31, 2010.

During the three-month period ended March 31, 2010, we repurchased, from the market, a total of $3.0 million in aggregate principal
amount of CDO notes payable issued by RAIT II. The aggregate purchase price was $0.3 million and we recorded a gain on extinguishment of debt of $2.7 million.

CDO notes payable, at fair value.Both of our Taberna consolidated CDOs are failing overcollateralization, or 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 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 tests failures are due to defaulted collateral assets and credit risk securities. During the three-month period
ended March 31, 2010, $2.7 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 a first quarter 2010 cash dividend 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.

On April 22, 2010, our board of trustees declared a second quarter 2010 cash dividend 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 June 30, 2010 to holders of record on
June 1, 2010.



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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 is $0.2 million.

-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, to our executive officers. Half of these awards
vested immediately and the remainder vests in one year. 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, to our non-executive officer
employees. These awards generally vest over three-year periods.

During the three-months ended March 31, 2010, 70,392
phantom unit awards were redeemed for common shares. These phantom units were fully vested at the time of redemption.

-Share Issuances

During the three-month period ended March 31, 2010, we issued 3.2 million common shares, along with cash and the issuance of a senior secured convertible note, to repurchase $54.5 million of our
convertible notes. See Capitalization above.

-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 registered and reserved for issuance 10.0 million common shares. During the three-months ended March 31, 2010, we issued a total of 0.5 million common shares pursuant to the DRSPP at a weighted-average price of
$2.11 per share and received $1.0 million of net proceeds. Effective May 7, 2010 we registered an additional 8,787,635 common shares so that, together with previously registered common shares available for issuance under the DRSPP, 12,000,000
common shares, in the aggregate, are available for issuance under the DRSPP.

-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 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. The number of common shares issued or issuable pursuant to the SEDA, in the
aggregate, cannot exceed 12.5 million common shares. As of March 31, 2010, no shares have been issued pursuant to this arrangement.

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 March 31, 2010, as set forth herein. Management
discusses our critical accounting policies and managements judgments and estimates with our Audit Committee.



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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
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 describes 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.



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