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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                             to


Commission file number: 333-146211

CAPMARK FINANCIAL GROUP INC.(Exact name of registrant as specified in its charter)

Nevada(State or other jurisdiction of
incorporation or organization)

91-1902188(I.R.S. Employer
Identification No.)411 Borel Avenue, Suite 320
San Mateo, California(Address of principal executive offices)

94402(Zip Code)(650) 572-6600(Registrant's telephone number, including area code)Not applicable(Former name, former address and former fiscal year, if changed since last report)


Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a smaller reporting company)

Smaller reporting company o


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

As of October 31, 2008, 431,399,894 shares of the Registrant's common stock, par value of $.001 per share, were outstanding.



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Table of Contents



CAPMARK FINANCIAL GROUP INC.  Table of Contents



PagePART IFINANCIAL INFORMATIONItem 1.

Financial Statements

2Item 2.

Management's Discussion and Analysis of Financial
Condition and Results of Operations

44Item 3.

Quantitative and Qualitative Disclosures about
Market Risk

85Item 4T.

Controls and Procedures

89PART IIOTHER INFORMATIONItem 1.

Legal Proceedings

90Item 1A.

Risk Factors

90Item 2.

Unregistered Sales of Equity Securities and Use
of Proceeds

90Item 3.

Defaults Upon Senior Securities

91Item 4.

Submission of Matters to a Vote of Security
Holders

91Item 5.

Other Information

91Item 6.

Exhibits

91Signatures

93Exhibit Index

94


1

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Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

CAPMARK FINANCIAL GROUP INC.    Condensed Consolidated Balance Sheet (unaudited)    (in thousands, except share amounts)

September 30,
2008

December 31,
2007AssetsCash, cash equivalents and restricted cash

$
1,767,572

$
1,436,752Accounts and other receivables


402,931


470,669Investment securities:Trading


153,986


185,692Available for sale


910,413


949,682Loans held for sale


5,003,315


7,783,769Loans held for investment, net of allowance for loan losses of $69.4 million and $28.8 million as of September 30, 2008 and December 31,
2007


8,048,169


6,891,714Real estate investments


1,788,442


1,748,555Equity investments


1,744,062


1,984,140Mortgage servicing rights


827,812


890,550Current taxes receivable


174,231


201,916Deferred tax assets


233,645


32,029Goodwill and other intangible assets, net


171,772


182,549Other assets


483,690


506,379Total assets

$
21,710,040

$
23,264,396Liabilities and Stockholders' EquityLiabilities:Short-term borrowings

$
2,601,211

$
3,832,637Collateralized borrowings in securitization trusts


232,714


260,524Other long-term borrowings


8,306,961


8,047,162Deposit liabilities


5,970,452


5,552,607Real estate syndication proceeds and related liabilities


1,307,921


1,563,151Accounts payable and other liabilities


745,196


1,069,068Total liabilities


19,164,455


20,325,149Commitments and Contingent Liabilities





Minority Interest


266,125


330,196Mezzanine Equity


94,251


102,418Stockholders' Equity:Preferred stock, $.001 par value; 100,000,000 shares authorized; none issued and outstanding as of September 30, 2008 and December 31,
2007





Common stock, $.001 par value; 650,000,000 shares authorized; 412,900,181 shares issued and outstanding as of September 30, 2008 and 412,898,576 shares
issued and outstanding as of December 31, 2007


413


413Capital paid in excess of par value


2,063,772


2,050,361Retained earnings


117,258


418,876Accumulated other comprehensive income, net of tax:Net unrealized (loss) gain on investment securities and derivative instruments


(14,112
)

17,536Net foreign currency translation adjustment


17,878


19,447Total accumulated other comprehensive income, net of tax


3,766


36,983Total stockholders' equity


2,185,209


2,506,633Total liabilities and stockholders' equity

$
21,710,040

$
23,264,396


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

2

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CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Operations (unaudited)        (in thousands, except per share data)

Three
months ended
September 30,
2008

Three
months ended
September 30,
2007Net Interest IncomeInterest income

$
227,861

$
329,137Interest expense


188,360


247,034Net interest income


39,501


82,103Provision for loan losses


39,643


11,721Net interest income after provision for loan losses


(142
)

70,382Noninterest IncomeNet (losses) gains:Net (losses) on loans


(123,726
)

(85,751
)Net (losses) gains on investments and real estate


(63,332
)

4,453Other gains, net


46,165


15,934Mortgage servicing fees


42,157


51,164Placement fees


15,293


15,356Investment banking fees and syndication income


52,276


47,637Asset management fees


18,666


19,810Trust fees


34,164


55,059Other fees


4,385


12,106Equity in (loss) income of joint ventures and partnerships


(13,892
)

(8,454
)Net real estate investment and other income


27,019


29,133Total noninterest income


39,175


156,447Net revenue


39,033


226,829Noninterest ExpenseCompensation and benefits


77,066


112,793Amortization of mortgage servicing rights


34,528


33,545Occupancy and equipment


10,356


23,868Professional fees


25,523


28,491Other expenses


26,479


22,850Total noninterest expense


173,952


221,547(Loss) income before minority interest and income tax (benefit) provision


(134,919
)

5,282Minority interest income


14,580


29,569(Loss) income before income tax (benefit) provision


(120,339
)

34,851Income tax (benefit) provision


(30,890
)

8,270Net (Loss) Income

$
(89,449
)
$
26,581Basic net (loss) income per share:Net (loss) income per share

$
(0.21
)
$
0.06Weighted average shares outstanding


431,562


433,875Diluted net (loss) income per share:Net (loss) income per share

$
(0.21
)
$
0.06Weighted average shares outstanding


431,562


434,222


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

3

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CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Operations (unaudited)        (in thousands, except per share data)

Nine
months ended
September 30, 2008

Nine
months ended
September 30, 2007Net Interest IncomeInterest income

$
741,676

$
907,829Interest expense


588,495


667,178Net interest income


153,181


240,651Provision for loan losses


57,662


23,431Net interest income after provision for loan losses


95,519


217,220Noninterest IncomeNet (losses) gains:Net (losses) on loans


(523,110
)

(18,809
)Net (losses) gains on investments and real estate


(92,328
)

55,929Other gains, net


112,982


78,112Mortgage servicing fees


142,429


155,315Placement fees


50,765


56,731Investment banking fees and syndication income


81,203


79,488Asset management fees


57,881


85,888Trust fees


100,878


142,358Other fees


9,858


43,938Equity in (loss) income of joint ventures and partnerships


(51,950
)

87,705Net real estate investment and other income


73,358


77,364Total noninterest income


(38,034
)

844,019Net revenue


57,485


1,061,239Noninterest ExpenseCompensation and benefits


243,127


321,305Amortization of mortgage servicing rights


103,896


95,875Occupancy and equipment


53,139


67,877Professional fees


85,687


71,157Other expenses


96,648


90,321Total noninterest expense


582,497


646,535(Loss) income before minority interest and income tax (benefit) provision


(525,012
)

414,704Minority interest income


54,255


44,375(Loss) income before income tax (benefit) provision


(470,757
)

459,079Income tax (benefit) provision


(179,938
)

167,564Net (Loss) Income

$
(290,819
)
$
291,515Basic net (loss) income per share:Net (loss) income per share

$
(0.67
)
$
0.67Weighted average shares outstanding


432,253


432,959Diluted net (loss) income per share:Net (loss) income per share

$
(0.67
)
$
0.67Weighted average shares outstanding


432,253


433,076


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

4

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CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Changes in Stockholders' Equity (unaudited)        (in thousands)

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007Common StockBalance at beginning of period

$
413

$
413Balance at end of period


413


413Capital Paid in Excess of Par ValueBalance at beginning of period


2,050,361


2,034,875Additional shares issued


9


509Stock-based compensation expense


13,685


12,528Other


(283
)

(309
)Balance at end of period


2,063,772


2,047,603Retained EarningsBalance at beginning of period


418,876


144,144Cumulative effect of adopting FASB Interpretation No. 48





(9,535
)Cumulative effect of adopting Statement of Financial Accounting Standards No. 159


(9,805
)

Net (loss) income


(290,819
)

291,515Other


(994
)

2,564Balance at end of period


117,258


428,688Accumulated Other Comprehensive Income, Net of TaxBalance at beginning of period


36,983


49,793Net unrealized loss on investment securities and derivative instruments


(31,648
)

(1,836
)Net foreign currency translation adjustment


(1,569
)

874Balance at end of period


3,766


48,831Total Stockholders' Equity

$
2,185,209

$
2,525,535Comprehensive (Loss) IncomeNet (loss) income

$
(290,819
)
$
291,515Other comprehensive loss


(33,217
)

(962
)Comprehensive (loss) income

$
(324,036
)
$
290,553


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

5

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CAPMARK FINANCIAL GROUP INC.        Condensed Consolidated Statement of Cash Flows (unaudited)        (in thousands)

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007Operating ActivitiesNet cash provided by (used in) operating activities

$
2,148,814

$
(3,271,246
)Investing ActivitiesNet decrease (increase) in restricted cash


65,355


(129,057
)Proceeds from sales of investment securities classified as available for sale


13,918


513,098Repayments of investment securities classified as available for sale


90,668


233,138Purchases of investment securities classified as available for sale


(110,342
)

(458,195
)Repayments of loans held for investment


1,191,270


2,014,135Origination/purchase of loans held for investment


(2,374,954
)

(1,761,741
)Proceeds from sales of real estate investments


128,128


230,224Purchases of real estate investments


(144,217
)

(661,604
)Net purchases of property and equipment


(5,004
)

(7,393
)Proceeds from sales of/capital distributions from equity investments


117,147


552,320Purchases of equity investments


(166,472
)

(837,646
)Purchases of mortgage servicing rights


(12,520
)

(92,000
)Sales of mortgage servicing rights





43,213Other investing activities, net


(2,048
)

(1,504
)Net cash used in investing activities


(1,209,071
)

(363,012
)Financing ActivitiesNet (decrease) increase in short-term borrowings


(1,093,637
)

1,361,059Proceeds from issuance of collateralized borrowings in securitization trusts





47,608Repayments of collateralized borrowings in securitization trusts


(5,425
)

(1,275,535
)Proceeds from issuance of other long-term borrowings


892,601


3,944,670Repayments of other long-term borrowings


(812,097
)

(3,539,164
)Net increase in deposit liabilities


414,840


3,897,355Real estate syndication proceeds received


37,543


217,656Minority interest proceeds


9,819


103,999(Repurchases of)/proceeds from issuance of mezzanine equity and additional common shares


(9,435
)

2,031Other financing activities, net


14,951


11,002Net cash (used in) provided by financing activities


(550,840
)

4,770,681Effect of Foreign Exchange Rates on Cash


7,271


13,511Net Increase in Cash and Cash Equivalents


396,174


1,149,934Cash and Cash Equivalents, Beginning of Period(1)


1,204,477


325,804Cash and Cash Equivalents, End of Period(1)

$
1,600,651

$
1,475,738Supplemental Disclosures of Cash Flow Information:Income taxes (refunded) paid

$
(63,531
)
$
285,339Interest paid


611,118


507,682


---

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

6

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CAPMARK FINANCIAL GROUP INC.        Notes to Condensed Consolidated Financial Statements (unaudited)

1. Organization and Operations

Capmark Financial Group Inc. ("Capmark") is a diversified company that provides a broad range of financial services to investors in commercial real estate-related assets. Capmark
has three core businesses: lending and mortgage banking, investments and funds management, and servicing. Capmark operates in North America, Europe and Asia. As used herein, the term "Company" refers
to Capmark and its subsidiaries as a consolidated group, except where it is clear that the term means only Capmark.

Prior
to March 23, 2006, the Company was an indirect wholly-owned subsidiary of GMAC LLC, formerly known as General Motors Acceptance Corporation ("GMAC"). On
March 23, 2006, an investor entity owned by affiliates of Kohlberg Kravis Roberts & Co. L.P., Five Mile Capital Partners LLC, Goldman Sachs Capital Partners and Dune
Capital Management LP (collectively, the "Sponsors") acquired a controlling equity stake in the Company from a subsidiary of GMAC. In connection with the acquisition, the percentage ownership
interests of both the Sponsors and GMAC were reduced proportionately by the sale of common stock to certain employees of the Company who acquired an initial aggregate equity interest of approximately
four percent. As a result of subsequent sales of common stock to those and additional employees and certain non-employee directors (collectively, the "Management Stockholders"), less
repurchases of common stock from those employees no longer with the Company, the Sponsors own a majority interest of approximately 75 percent, the Management Stockholders own an equity interest
of approximately four percent and a subsidiary of GMAC owns an equity interest of approximately 21 percent as of September 30, 2008. The aforementioned changes in ownership will be
referred to as the "Sponsor Transactions" in these notes to the condensed consolidated financial statements.

2. Risks and Uncertainties

The Company's primary business risks include: credit risk, liquidity risk, interest rate and other market risks, and operational risk and, other than as updated below, are more fully
described in Note 2 to the Company's 2007 audited consolidated financial statements included in the Company's prospectus filed with the Securities Exchange Commission ("SEC") on July 15,
2008 in accordance with Rule 424(b)(3) of the Securities Act of 1933, as amended, which is accessible on the SEC's website atwww.sec.gov.
Management of these risks affects both the level and stability of the Company's earnings. An update on liquidity risk is described below:

The
Company's ability to access the capital markets and other sources of secured and unsecured funding, which is critical to the Company's ability to do business, has been and could
continue to be adversely affected by recent events in the global markets and in the economy. Global market and economic conditions have been, and continue to be, disrupted and volatile to an
unprecedented extent. The Company's cost and availability of funding have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Due to widespread concerns
about the stability of the markets and the strength of counterparties, many lenders have reduced and, in some cases, ceased to provide funding to borrowers. Further or prolonged disruptions in the
global markets and economy may adversely affect the Company's liquidity and financial condition. For additional information on factors that may affect the Company's liquidity and financial condition,
see the information provided under the heading "Risk Factors" in our prospectus filed with the SEC on July 15, 2008 in accordance with Rule 424(b)(3) of the Securities Act of 1933, as
amended.

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CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") for interim financial reporting. Accordingly, these interim financial statements do not include all of the information and footnote disclosures
required for annual financial reporting. Therefore, these interim financial statements should be read in conjunction with the Company's 2007 audited consolidated financial statements. The preparation
of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities and the reported amounts of revenue and expense. The Company's estimates and assumptions are affected by risks and uncertainties, including those associated with credit exposure and
interest rate and market spread volatility. Management uses available information in developing estimates and assumptions. Future changes in credit and market trends and conditions may occur which
could cause actual results to differ materially from the estimates used in preparing the accompanying condensed consolidated financial statements.

The
Company consolidates all wholly-owned and majority-owned subsidiaries that it controls. In certain cases, economic ownership interests and control do not strictly align and there are
other specific consolidation criteria that must be applied under GAAP, and in those cases the Company follows the accounting policies more fully disclosed in Note 3 to its 2007 audited
consolidated financial statements. All material intercompany accounts and transactions have been eliminated in consolidation.

In
the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial
position of the Company as of September 30, 2008, the results of its operations for the three and nine months ended September 30, 2008 and 2007 and its cash flows for the nine months
ended September 30, 2008 and
2007. The Company's results for any interim period are not necessarily indicative of results for a full year or any other interim period.



In February 2007, the Company sold a majority of its affordable housing debt platform to an unaffiliated buyer for approximately
$500 million in cash and the buyer also assumed approximately $700 million of related financing obligations. The Company recognized a pre-tax gain on sale of approximately
$65.3 million and reported the gain as a component of other gains, net in the condensed consolidated statement of operations. At the time of the transaction, the Company retained approximately
$300 million of investment securities associated with the affordable housing debt platform that were not included in the sale. The earnings and cash flows of the entire affordable housing debt
platform are fully consolidated in the condensed consolidated statement of operations and the condensed consolidated statement of cash flows for the nine months ended September 30, 2007. The
affordable housing debt platform was not classified as a discontinued operation because its operations and cash flows could not be clearly distinguished from the rest of the Company. The affordable
housing debt platform was included in the North American Affordable Housing business segment. See Note 20 for segment information.

8

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CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Significant Accounting Policies (Continued)

Significant Accounting Policies and Recently Issued Accounting Standards

The Company's significant accounting policies are disclosed in Note 3 to its 2007 audited consolidated financial statements.
There have been no significant changes to the Company's significant accounting policies, except that on January 1, 2008, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 157, "Fair Value Measurements," or "SFAS No. 157," and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment
of FASB Statement No. 115," or "SFAS No. 159," as more fully discussed below and in Note 14 to these condensed consolidated financial statements.



The Company adopted SFAS No. 157 on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value measurements. The statement does not require new fair value measurements, but is applied to the extent that other accounting
pronouncements require or permit fair value measurements. The statement emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market
participants would use in pricing an asset or liability. Companies are required to disclose the extent to which fair value is used to measure assets and liabilities, the inputs used to develop the
measurements, and the effect of certain of the measurements on earnings (or changes in net assets) for the period. Adoption of this statement did not have a material impact on the method in which the
Company determines fair value but did require additional disclosures as discussed in Note 14.

The
Company also adopted SFAS No. 159 on January 1, 2008. SFAS No. 159 permits an entity to irrevocably elect fair value for the initial and subsequent measurement
of certain financial assets and financial liabilities on an instrument-by-instrument basis. Subsequent changes in fair value of these instruments are recognized in earnings
when they occur. SFAS No. 159 required that the difference between the carrying value and the fair value of financial assets and financial liabilities for which the fair value option was
elected be recorded as an adjustment to beginning retained earnings in the period of adoption. Effective January 1, 2008, the Company elected fair value accounting for certain loan assets and
deposit liabilities not previously carried at fair value. The after-tax cumulative effect from electing the fair value option for the selected financial instruments decreased retained
earnings by $9.8 million on January 1, 2008. See Note 14 for additional information.



Recently issued accounting standards that may have an impact on the Company's consolidated financial statements are more fully
disclosed in Note 3 to the Company's 2007 audited consolidated financial statements. The following standards have been issued subsequent to the release of the Company's 2007 audited
consolidated financial statements.

In
February 2008, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. FAS 157-2, "Effective date of FASB Statement
No. 157," or "FSP FAS 157-2." This FSP delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those
fiscal years. FSP FAS 157-2 became effective upon issuance and was adopted by the Company.

9

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CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Significant Accounting Policies (Continued)

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133," or "SFAS
No. 161." SFAS No. 161 changes disclosure requirements about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption
permitted. Management is currently evaluating the potential impact of SFAS No. 161 on the disclosures included in the Company's consolidated financial statements.

In
April 2008, the FASB issued FSP No. FAS 142-3, "Determination of the Useful Life of Intangible Assets," or "FSP FAS 142-3." This FSP amends the
factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset under SFAS No. 142, "Goodwill and Other
Intangible Assets." The FSP affects entities with recognized intangible assets and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. This new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in
business combinations and asset acquisitions. The adoption of FSP FAS 142-3 is not expected to have a material impact on the Company's consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," or "SFAS No. 162," which, when effective, identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS
No. 162 is effective November 15, 2008, which is 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The adoption of SFAS No. 162 is not expected to have a material impact on the Company's consolidated
financial statements.

In
June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities," or "FSP EITF 03-6-1." This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and
therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, "Earnings per Share," or "SFAS
No. 128." This FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of
securities in calculating earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within
those years. All prior-period earnings per share data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to
conform to the provisions of this FSP. Early application is not permitted. The adoption of FSP EITF 03-6-1 is not expected to have a material impact on the Company's
consolidated financial statements.

In
September 2008, the FASB issued FSP No. 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161," or "FSP

10

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CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

3. Basis of Presentation and Significant Accounting Policies (Continued)

FAS 133-1
and FIN 45-4." FSP FAS 133-1 and FIN 45-4 amends FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or "SFAS No. 133," to require certain disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. FSP
FAS 133-1 and FIN 45-4 also amends FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others," or "FIN 45," to require additional disclosure about the current status of the payment/performance risk of a guarantee. The provisions of the FSP that
amend SFAS No. 133 and FIN 45 are effective for reporting periods ending after November 15, 2008. The FSP also clarifies that, as noted above, SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating the potential impact of FSP FAS 133-1
and FIN 45-4 on the disclosures included in the Company's consolidated financial statements.

In
October 2008, the FASB issued FSP No. FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active," or "FSP
FAS 157-3." FSP FAS 157-3 applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance
with SFAS No. 157. The FSP clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value
of a financial asset when the market for that financial asset is not active. The FSP became effective upon issuance. The Company has considered this guidance in measuring the fair value of its assets
and liabilities in these condensed consolidated financial statements.

4. Investment Securities

Investment securities include: commercial mortgage-backed securities ("CMBS"); asset-backed securities ("ABS"); collateralized debt obligations ("CDOs"), which may be collateralized by
CMBS, ABS, unsecured real estate investment trust debt and other real estate related investments; tax-exempt securities; certain Japanese bonds ("TMK securities"); mortgage-backed
securities issued by Ginnie Mae, Fannie Mae and Freddie Mac (government sponsored enterprise or "GSE securities"); U.S. Treasury securities; and other investment securities.

The
following table summarizes the Company's investment securities classified as available for sale as of September 30, 2008, by security type (in thousands):

Amortized
cost

Unrealized
gains

Unrealized
losses

Fair
valueBeneficial interests in CMBS, ABS and CDOs

$
89,213

$
6,813

$
(9,713
)
$
86,313Tax-exempt securities


270,624


224


(14,947
)

255,901TMK securities


323,869


19


(5,070
)

318,818GSE securities


236,577


21


(7,599
)

228,999U.S. Treasury and other securities


20,737


24


(379
)

20,382Total

$
941,020

$
7,101

$
(37,708
)
$
910,413


11

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

4. Investment Securities (Continued)

The
following table summarizes the Company's investment securities classified as available for sale as of December 31, 2007, by security type (in thousands):

Amortized
cost

Unrealized
gains

Unrealized
losses

Fair
valueBeneficial interests in CMBS, ABS and CDOs

$
104,252

$
16,265

$
(2,646
)
$
117,871Tax-exempt securities


247,395


3,162


(58
)

250,499TMK securities


311,827


821


(486
)

312,162GSE securities


235,138


1,404


(417
)

236,125U.S. Treasury and other securities


32,346


679





33,025Total

$
930,958

$
22,331

$
(3,607
)
$
949,682


The
following table summarizes the gross realized gains and losses recognized by the Company on sales of investment securities classified as available for sale and the related proceeds
received on such sales (in thousands):

Three
months ended
September 30, 2008

Three
months ended
September 30, 2007

Nine
months ended
September 30, 2008

Nine
months ended
September 30, 2007Gains recognized

$


$
1,297

$
624

$
22,418Losses recognized





(6,416
)

(9
)

(6,416
)Net (losses) gains

$


$
(5,119
)
$
615

$
16,002Proceeds received

$


$
159,829

$
13,918

$
215,427


The
gains and losses were recorded as a component of net (losses) gains on investments and real estate in the condensed consolidated statement of operations. The proceeds received for
the three and nine months ended September 30, 2007 do not include the transfer of investment securities in connection with the Company's sale of a majority of its affordable housing debt
platform in February 2007.

On
a quarterly basis, the Company evaluates unrealized losses to identify those impairments that would be considered other-than-temporary. The Company's
evaluation includes a credit analysis of its investment securities based on the preparation of cash flow projections and relevant market information. Impairments considered
other-than-temporary typically result from a decline in the projected cash flows due to increased loss projections and the Company's determination that the impairments will not
otherwise be recovered. As a result of the Company's evaluation, and its conclusion that the fair value of certain investment securities was less than the amortized cost of those securities, the
Company recognized charges for declines in value in certain investment securities classified as available for sale, primarily consisting of beneficial interests in CMBS, ABS and CDOs. These charges
totaled $0.9 million and $5.5 million for the three months ended September 30, 2008 and 2007, respectively, and $9.5 million and $9.6 million for the nine months
ended September 30, 2008 and 2007, respectively, and are reported as a component of net losses on investments and real estate in the condensed consolidated statement of operations.

12

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

4. Investment Securities (Continued)

In
addition to the other-than-temporary impairment charges referred to above, and in light of difficult market conditions, including significant liquidity
constraints in the CMBS, ABS and CDO markets, the Company has determined that the fair value of some of its investment securities had declined below amortized cost and has reflected the corresponding
unrealized losses on those securities in the tables below. Based on its quarterly evaluation process, the Company concluded that the unrealized losses in the tables below were temporary declines in
fair value due to unfavorable market conditions and were not reflective of credit deterioration. In determining that the carrying values are fully recoverable over the expected holding periods, the
Company performed credit analyses in relation to these investment securities and has considered the risks and uncertainties regarding future declines in fair value as well as the potential effects
that declines in fair value would have on the Company's liquidity. The Company has the intent and believes it has the ability to hold these securities until they recover in value and that (after
giving effect to the impairment charges referred to above) the Company will fully realize the remaining amortized cost of the investment securities. Therefore, the Company concluded that the
unrealized losses reflected in the tables below were not considered other-than-temporary.

The
following table summarizes the fair value and gross unrealized losses of the Company's investment securities classified as available for sale, aggregated by length of time that
individual securities have been in a continuous unrealized loss position, as of September 30, 2008 (in thousands):

Less than 12 months

12 months or more

TotalFair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
lossesBeneficial interests in CMBS, ABS and CDOs

$
17,549

$
(5,814
)
$
13,674

$
(3,899
)
$
31,223

$
(9,713
)Tax-exempt securities


210,136


(14,737
)

1,627


(210
)

211,763


(14,947
)TMK securities


199,343


(3,706
)

56,688


(1,364
)

256,031


(5,070
)GSE securities


135,434


(3,810
)

91,964


(3,789
)

227,398


(7,599
)U.S. Treasury and other securities


15,582


(312
)

1,033


(67
)

16,615


(379
)Total

$
578,044

$
(28,379
)
$
164,986

$
(9,329
)
$
743,030

$
(37,708
)


The
following table summarizes the fair value and gross unrealized losses of the Company's investment securities classified as available for sale, aggregated by length of time that
individual securities have been in a continuous unrealized loss position, as of December 31, 2007 (in thousands):

Less than 12 months

12 months or more

TotalFair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
lossesBeneficial interests in CMBS, ABS and CDOs

$
33,955

$
(1,518
)
$
20,120

$
(1,128
)
$
54,075

$
(2,646
)Tax-exempt securities








1,991


(58
)

1,991


(58
)TMK securities


87,086


(194
)

89,748


(292
)

176,834


(486
)GSE securities


49,319


(72
)

96,851


(345
)

146,170


(417
)Total

$
170,360

$
(1,784
)
$
208,710

$
(1,823
)
$
379,070

$
(3,607
)


13

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

5. Loans Held for Sale

The following table summarizes the Company's loans held for sale as of September 30, 2008 and December 31, 2007, by loan type, carried at fair value as of
September 30, 2008 and at the lower of amortized cost or fair value as of December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Floating rate mortgage loans

$
3,963,040

$
6,653,675Fixed rate mortgage loans


1,019,524


1,118,042Construction loans


20,751


12,052Total

$
5,003,315

$
7,783,769


In
connection with the Company's adoption of SFAS No. 159, the Company's loans held for sale are accounted for at fair value as of September 30, 2008. Approximately
$26.8 million of loans held for sale in the Philippines continue to be accounted for at the lower of amortized cost or fair value as of September 30, 2008 due to the highly specialized
nature of the underlying loan agreements, which do not readily lend themselves to reliable fair value estimation.

The
Company periodically reviews its loan portfolio to determine whether any changes in classification should be made between "held for sale" and "held for investment." The Company
classifies a loan as "held for investment" when it intends to hold the loan for the foreseeable future or until maturity or payoff. The Company defines "foreseeable future" based upon what it believes
to be reasonable under the circumstances, including events and conditions that the Company can reasonably anticipate. The Company considers many factors in determining what is the "foreseeable future"
including: its financial condition and liquidity positions; its anticipated capital requirements; its business strategy and operating plans; the current and expected economic environment and market
conditions; and the nature and type of loans, including expected durations. The consideration of many of these factors requires the Company to make forward-looking evaluations for a period of time not
less than twelve months. Beyond the twelve-month period, the Company is less confident in its ability to predict all future events. If the Company is aware of any specific events which are likely to
occur beyond the twelve-month period but prior to a loan's maturity or payoff, the Company considers such events in its evaluation. Based upon its analysis of the factors and all other relevant
information, the Company determines whether the loan should be classified as "held for sale" or "held for investment." No loans were transferred from "held for sale" to "held for investment" during
the three and nine months ended September 30, 2008. During the three months ended September 30, 2007, approximately $2.3 billion of loans were transferred from "held for sale" to
"held for investment" at the lower of amortized cost or fair value. The amortized cost basis of such loans exceeded estimated fair value by approximately $28.3 million.

14

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

6. Loans Held for Investment

The following table summarizes the Company's loans held for investment as of September 30, 2008 and December 31, 2007, by loan type (in thousands):

September 30,
2008

December 31,
2007Floating rate mortgage loans

$
5,848,959

$
5,172,955Fixed rate mortgage loans


728,872


579,909Construction loans


1,230,909


809,234Acquired non-performing loans


308,786


358,368Total


8,117,526


6,920,466Allowance for loan losses


(69,357
)

(28,752
)Net

$
8,048,169

$
6,891,714


The
"Total" amounts set forth in the table above are equal to the unpaid principal balance of the loans less the amount of any market valuation adjustments taken on any loans that were
previously classified as held for sale and other discounts to carrying value. The aggregate amount of such adjustments/discounts for all loans held for investment was $80.2 million and
$106.6 million as of September 30, 2008 and December 31, 2007, respectively.

The
Company's allowance for loan losses is established, monitored and maintained on the basis of past loan experience, the current composition of the portfolio, historical credit
migration, property type diversification, default, loss severity, industry loss experience, economic conditions and trends, and other relevant factors.

The
following table summarizes activity related to the Company's allowance for loan losses (in thousands):

Three
months ended
September 30,
2008

Three
months ended
September 30,
2007

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007Balance at beginning of period

$
37,817

$
69,521

$
28,752

$
61,715Provision for loan losses


39,643


11,721


57,662


23,431Loans charged off


(7,955
)

(5,316
)

(14,123
)

(10,726
)Foreign currency translation adjustment


(148
)

2,915


102


3,677Transfers and other





154


(3,036
)

898Balance at end of period

$
69,357

$
78,995

$
69,357

$
78,995


The
decline in the allowance for loan losses subsequent to September 30, 2007 was primarily due to the charge-off of a fully-reserved loan in the fourth quarter of
2007.

15

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

6. Loans Held for Investment (Continued)

The
following table summarizes information about loans originated by the Company that are held for investment and have specifically been identified as being impaired as of
September 30, 2008 and December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Impaired loans with an allowance for loan losses

$
145,772

$
56,761Impaired loans without an allowance for loan losses


31,793


44,474Total impaired loans


177,565


101,235Allowance for loan losses on impaired loans


(33,460
)

(6,919
)Net impaired loans

$
144,105

$
94,316


The
allowance for loan losses on impaired loans is included in the Company's overall allowance for loan losses. The Company does not recognize interest income on impaired loans.

As
discussed in Note 3 to its 2007 audited consolidated financial statements, the Company purchased non-performing loans at significant discounts to the loans' unpaid
principal balance, principally in Asia. At the time of acquisition, these loans evidenced credit quality deterioration and the probability that not all contractual payments would be collected. The
Company established an allowance for loan losses on acquired non-performing loans of $3.7 million as of September 30, 2008. In addition, charges for impairments of acquired
non-performing loans totaled $7.9 million and $5.4 million for the three months ended September 30, 2008 and 2007, respectively, and $14.1 million and
$9.4 million for the nine months ended September 30, 2008 and 2007, respectively.

7. Real Estate Investments

Real estate investments include real estate held for investment, held for sale and acquired through foreclosure. The Company's accounting policy with respect to real estate investments
is discussed in Note 3 to its 2007 audited consolidated financial statements. The following table summarizes the Company's real estate investments as of September 30, 2008 and
December 31, 2007, by classification (in thousands):

September 30,
2008

December 31,
2007Held for investment, net of depreciation

$
1,368,559

$
1,606,730Held for sale


309,350


67,292Acquired through foreclosure


110,533


74,533Total

$
1,788,442

$
1,748,555


During
the three months ended September 30, 2008 approximately $247.3 million of real estate held for investment in the Company's Asian Operations business segment was
reclassified as held for sale reflecting management's intention to sell these investments within the next twelve months as part of its previously disclosed efforts to reduce loan and investment
portfolios in that region.

16

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

8. Equity Investments

The following table summarizes the Company's equity investments as of September 30, 2008 and December 31, 2007, by investment type (in thousands):

September 30, 2008

December 31, 2007Amount

Percent of
portfolio

Amount

Percent of
portfolioInvestments in affordable housing partnerships in the United States

$
741,570


43
%
$
942,176


48
%Investments in real estate equity investment funds in the United States


431,740


25


491,941


25Investments in real estate projects, joint ventures and real estate equity investment funds in Europe


152,542


9


162,487


8Investments in other real estate ventures in the United States


162,182


9


154,062


8Investments in non-performing commercial loan and real estate joint ventures, principally in Asia


134,739


8


148,239


7Investments in CMBS and debt investment funds, with collateral principally in the United States


60,938


3


66,095


3Other(1)


60,351


3


19,140


1Total

$
1,744,062


100
%
$
1,984,140


100
%


---

Note:

9. Mortgage Servicing Rights

The following table summarizes activity related to the Company's mortgage servicing rights (in thousands):

Three
months ended
September 30,
2008

Three
months ended
September 30,
2007

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007Balance at beginning of period

$
850,056

$
880,085

$
890,550

$
829,011Additions


12,407


26,492


41,430


142,117Amortization


(34,528
)

(33,545
)

(103,896
)

(95,875
)Other


(123
)

(189
)

(272
)

(2,410
)Balance at end of period

$
827,812

$
872,843

$
827,812

$
872,843


Based
on the Company's quarterly impairment analyses, the Company did not have a valuation allowance related to mortgage servicing rights in any period presented.

17

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

10. Goodwill and Other Intangible Assets

The Company recorded scheduled amortization expense on its other intangible assets of $3.4 million and $2.7 million for the three months ended September 30, 2008 and
2007, respectively, and $10.0 million and $12.7 million for the nine months ended September 30, 2008 and 2007, respectively. Amortization expense on other intangible assets is
reported as a component of other expenses in the condensed consolidated statement of operations.

The
Company recorded goodwill impairment of $0.7 million for the nine months ended September 30, 2008 in connection with the sale of significant interests in 39 loans in
its European Operations business segment, and $0.4 million for the nine months ended September 30, 2007 in connection with exiting its tender option bond program. Goodwill impairment is
reported as a component of other expenses in the condensed consolidated statement of operations.

11. Short-term and Long-term Borrowings

The following table summarizes the Company's outstanding borrowings as of September 30, 2008 and December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Short-term borrowings

$
2,601,211

$
3,832,637Collateralized borrowings in securitization trusts


232,714


260,524Other long-term borrowings


8,306,961


8,047,162Total

$
11,140,886

$
12,140,323


Included
in other long-term borrowings are approximately $1.1 billion and $1.7 billion of indebtedness as of September 30, 2008 and December 31,
2007, respectively, associated with the Company's bridge loan due in March 2009. In the second quarter of 2008, the Company repaid $600.0 million of outstanding indebtedness under the bridge
loan agreement. Subsequent to the end of the third quarter, in response to volatile conditions in the credit markets, the Company drew down substantially all of the remaining funds available under its
$2.75 billion revolving credit facility. The Company also paid down $300.0 million of its bridge loan, with the remaining outstanding principal balance of approximately
$800.0 million due in March 2009.

In
the second quarter of 2008, the Company repurchased and retired $100.0 million of its outstanding floating rate senior notes due 2010 as authorized by its board of directors.
The notes were purchased at a discount to the outstanding principal amount resulting in a gain of $14.3 million, net of unamortized issuance costs. The gain is reported as a component of other
gains, net in the condensed consolidated statement of operations for the nine months ended September 30, 2008. The Company's outstanding senior notes are included in other long-term
borrowings in the above table.

18

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

11. Short-term and Long-term Borrowings (Continued)

The
following table summarizes the carrying value of the Company's assets that are pledged as collateral for the payment of related secured borrowings as of September 30, 2008 and
December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Loans held for sale

$
1,826,021

$
2,648,612Loans held for investment


4,721,166


1,435,105Investment securities classified as trading


51,954


57,074Investment securities classified as available for sale


208,453


239,195Real estate investments


818,843


555,934Other


76,870


8,477Total assets pledged as collateral

$
7,703,307

$
4,944,397Related secured borrowings

$
2,493,373

$
3,081,723


The
increase in assets pledged as collateral from December 31, 2007 was primarily due to the increased secured borrowings by Capmark Bank ("Capmark Bank US"), a wholly-owned
subsidiary of the Company, from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of Seattle, as required under the terms of their borrowing programs. The following table
bifurcates total assets, the carrying value of assets pledged as collateral (substantially consisting of loans) and related secured borrowings for Capmark Bank US and for the rest of the Company as of
September 30, 2008 and December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Capmark Bank US:Total assets

$
8,594,882

$
7,341,108Total assets pledged as collateral


5,804,415


1,297,678Related secured borrowings


1,226,503


550,000Non-Capmark Bank US:Total assets


13,115,158


15,923,288Total assets pledged as collateral


1,898,892


3,646,719Related secured borrowings


1,266,870


2,531,723


The
amounts shown above for Non-Capmark Bank US include total assets pledged as collateral related to the consolidation of certain LIHTC partnerships and assets
collateralized in securitization trusts, in the aggregate, of $518.7 million and $701.0 million as of September 30, 2008 and December 31, 2007, respectively, and related
secured borrowings in the aggregate of $440.2 million and $596.4 million as of September 30, 2008 and December 31, 2007, respectively.

19

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

12. Deposit Liabilities

The following table summarizes the Company's deposit liabilities as of September 30, 2008 and December 31, 2007, by deposit type, primarily carried at fair value as of
September 30, 2008 and at amortized cost as of December 31, 2007 (in thousands):

September 30,
2008

December 31,
2007Brokered certificates of deposit

$
5,920,452

$
5,545,976Other


50,000


6,631Total

$
5,970,452

$
5,552,607


Since
the adoption of SFAS No. 159, the Company has elected to account for all brokered certificates of deposit ("Brokered CDs") at fair value. Beginning October 1, 2008,
the Company expects to account for newly issued Brokered CDs with original maturities greater than one year at amortized cost. The Company expects to continue to account for Brokered CDs issued with
original maturities of one year or less at fair value.

As
of September 30, 2008, $50.0 million of eligible escrow funds held in trust by the Company's U.S. servicing operations were placed on deposit with Capmark Bank US in a
money market deposit account.

The
deposits of Capmark Bank US are primarily interest-bearing and insured by the Federal Deposit Insurance Corporation ("FDIC"), subject to current insurance program limits.

13. Income Taxes

The Company recognized approximately $4.2 million and $3.9 million of gross interest and penalties for the three months ended September 30, 2008 and 2007,
respectively, and $13.5 million and $11.9 million of gross interest and penalties for the nine months ended September 30, 2008 and 2007, respectively. The Company accrued
approximately $63.2 million and $49.7 million for the payment of interest and penalties as of September 30, 2008 and December 31, 2007, respectively.

The
Company operates in multiple tax jurisdictions, both within and outside the United States. Accordingly, the Company is, from time to time, under examination in certain tax
jurisdictions and remains subject to examination until the statute of limitations expires for the respective tax jurisdiction. Within specific countries, the Company may be subject to audit by various
tax authorities, or subsidiaries operating within the country may be subject to different expiration dates regarding the
statute of limitations. The following table summarizes the tax years that remain subject to examination in the Company's major tax jurisdictions as of September 30, 2008:

United StatesFederal

2001 and forwardUnited StatesIndividual States

1994 and forwardJapan

2001 and forwardIreland

2003 and forwardCanada

2005 and forwardTaiwan

2006 and forward


20

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

13. Income Taxes (Continued)

Based
upon the expiration of statutes of limitations and/or conclusion of tax examinations in several jurisdictions, management believes it is reasonably possible that the total amount
of previously unrecognized tax benefits as of September 30, 2008 may decrease by up to $36.6 million within the next 12 months.

The
Internal Revenue Service ("IRS") has a policy to examine the income tax returns of large corporate taxpayers, including General Motors Corporation ("GM") and its subsidiaries. Prior
to the Sponsor Transactions, the Company was included in the GM-controlled tax group, which is currently under IRS examination for tax years 2001 through the Sponsor Transactions date.
Subsequent to the Sponsor Transactions, the Company may be audited by federal, state, foreign and local tax authorities. Management believes that an adequate provision for contingencies related to all
income taxes and interest as of September 30, 2008 has been established in accordance with FIN 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109." Pursuant to the legal agreements entered into in connection with the Sponsor Transactions, GMAC has agreed to indemnify the Company for any and all taxes with respect to the
Company and its subsidiaries relating to pre-closing tax periods to the extent the aggregate of such taxes exceed a specified amount. Under these agreements, the Company has agreed to
indemnify GMAC for any and all tax liabilities of the Company and its subsidiaries related to pre-closing tax periods in an amount not to exceed the specified amount, which specified
amount has been accrued in the Company's consolidated financial statements.

14. Fair Value of Financial Instruments

SFAS No. 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value,
and enhances disclosure requirements for fair value measurements. The Company accounts for a significant portion of its financial instruments at fair value or considers fair value in their
measurement.

Fair Value Hierarchy

In accordance with SFAS No. 157, the Company categorizes its financial instruments, based on the priority of the inputs to the
valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the
categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

As
required by SFAS No. 157, financial assets and financial liabilities recorded on the consolidated balance sheet are categorized based on the inputs to the valuation techniques
as follows:

Level 1financial
assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the
Company has the ability to access, as well as certain U.S. Treasury securities that are highly liquid and are actively traded.

Level 2financial
assets and financial liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either
directly or indirectly for
substantially the full term of the asset or liability. Level 2 inputs include the following:



21

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)



Level 3financial
assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow ("DCF")
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Determination of Fair Value

Under SFAS No. 157, the Company determines fair value based on the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company's policy to maximize the use of observable inputs and minimize the use of
unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy as described above. For assets and liabilities where there exists limited or no observable
market data, fair value measurements are based primarily upon management's own estimates, and are calculated based upon the Company's pricing policy, the economic and competitive environment, the
characteristics of the asset or liability and other such factors. Therefore, the fair value amounts may not be realized in an actual sale or immediate settlement of the asset or liability.

Following
is a description of the valuation methodologies used for financial instruments measured at fair value on a recurring basis, including those accounted for at fair value prior to
the adoption of SFAS No. 159, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Investment securities classified as trading and available for sale are carried at fair value. Where quoted prices are available in an
active market for identical instruments, investment securities are classified within Level 1 of the valuation hierarchy. Level 1 investment securities include highly liquid U.S. Treasury
securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
Examples of instruments which would generally be classified within Level 2 of the valuation hierarchy include certain CMBS, ABS, CDOs and GSE securities. In cases where there is limited
activity or less transparency around inputs to the valuation, investment securities are classified within Level 3 of the valuation hierarchy. Investment securities classified within
Level 3 include certain residual interests in securitizations and CDOs, and other less liquid investment securities.

22

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

Loans Held for Sale

In connection with the adoption of SFAS No. 159, the Company elected to account for its loans held for sale at fair value. This
allows the offsetting of the changes in fair value of the loans and the derivative instruments used to economically hedge such loans without the administrative burden of complying with the stringent
requirements for hedge accounting under SFAS No. 133. The fair values of the Company's loans held for sale are generally determined using a pricing model based on current market information
obtained from external sources, including updated securitization spreads where appropriate, interest rates, whole loan spreads for each property type based on loan-to-cost
ratios of collateral and other factors, and bids or indications provided by market participants on specific loans that are actively marketed for sale. In addition, the impact of potential extensions,
interest-rate floors and unfunded commitments on the Company's floating rate loan portfolio are taken into consideration when determining the fair value for each loan. The Company also
considers changes in borrowers' credit status and the fair value of collateral in estimating the fair value of certain loans. Although the Company bases its loan valuations on observable inputs to the
extent possible, the valuations are estimates. Changes in market conditions, borrower credit-worthiness and collateral values between the dates of management's estimates and the dates of disposition
of the loans can have a significant impact on the amounts ultimately realized upon disposition. Due to significant use of unobservable pricing inputs, the majority of the Company's loans held for sale
as of September 30, 2008 are classified within Level 3 of the valuation hierarchy.

As
of September 30, 2008, loans held for sale for which the fair value option was elected had an aggregate fair value of $5.0 billion and an aggregate unpaid principal
balance of $5.4 billion. Interest income on these loans continues to be recorded as a component of interest income in the consolidated statement of operations. Net realized and unrealized
losses of $119.3 million and $520.5 million resulting from the changes in fair value of loans held for sale for which the fair value option was elected were recorded during the three and
nine months ended September 30, 2008, respectively, and reported as a component of net (losses) on loans in the condensed consolidated statement of operations. In connection with the adoption
of SFAS No. 159, the Company no longer defers recognition of placement fees and direct loan origination costs with respect to its loans held for sale because such loans are carried at fair
value. Previously, placement fees and direct loan origination costs were deferred as part of the carrying amount of the loans and recognized as a component of the net gain or loss on sale of such
loans.

Equity Investments

Substantially all of the Company's equity investments are accounted for under the equity method. The Company did not elect the fair
value option under SFAS No. 159 for its equity investments. The Company may elect the fair value option for certain new equity investments on an instrument-by-instrument
basis going forward. When such investments are made, the Company will consider facts and circumstances available to estimate the fair value of such equity investments and employ DCF models. In
arriving at the fair value, the Company will obtain observable market data, including data on the underlying investments that highlights competitive market conditions affecting occupancy projections,
current rental rates and growth prospects, current expense rates, capital improvement needs and certain market pricing parameters of similar quality properties. In addition, the Company will consider
access to and need for capital, qualitative assessments of the viability of the investees, evaluation of available financial statements of the investees and prospects for their future.

23

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

When
appropriate, the changes in the fair value of these investments will be reported as a component of equity in income (loss) of joint ventures and partnerships in the consolidated statement of
operations.

Mortgage Servicing Rights

Mortgage servicing rights ("MSRs") are carried at the lower of amortized cost or fair value. MSRs do not trade in an active, open
market with readily observable prices. While sales of MSRs do occur, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the Company estimates the fair
value of MSRs using DCF models that calculate the present value of estimated future net servicing income. These models consider and incorporate portfolio characteristics, contractually specified
servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. The Company periodically reassesses and adjusts the
underlying inputs and assumptions used in the models to reflect observable market conditions and assumptions that a market participant would consider in valuing an MSR asset.

Derivative Instruments

Derivative instruments are carried at fair value. Exchange-traded derivative instruments that are valued using quoted market prices are
classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of the Company's derivative instruments are
valued using internally developed models that use readily observable market parameters and are classified within Level 2 of the valuation hierarchy. Such derivatives include basic interest rate
swaps and options and credit default swaps. Derivatives that are valued based upon models with significant unobservable market parameters are classified within Level 3 of the valuation
hierarchy. Such derivatives may include unfunded fixed-rate loan commitments.

Deposit LiabilitiesBrokered CDs

Since the adoption of SFAS No. 159, the Company has elected to account for all Brokered CDs at fair value. Beginning
October 1, 2008, the Company expects to account for newly issued Brokered CDs with original maturities greater than one year at amortized cost. The Company expects to continue to account for
Brokered CDs issued with original maturities of one year or less at fair value. To estimate the fair value of Brokered CDs, cash flows are evaluated taking into consideration any embedded derivative
features and then discounted using the appropriate market rates for the applicable maturities. Brokered CDs are classified within Level 2 of the valuation hierarchy because the valuation inputs
are primarily based on readily observable pricing information.

The
fair value option for Brokered CDs allows the offsetting of the changes in fair value of the Brokered CDs and the derivative instruments used to economically hedge such deposits
without the administrative burden of complying with the stringent requirements for hedge accounting under SFAS No. 133. Interest expense on these Brokered CDs continues to be recorded as a
component of interest expense in the consolidated statement of operations. Net losses of $1.9 million and net gains of $9.4 million resulting from the changes in fair value of these
deposits were recorded during the three and nine months ended September 30, 2008, respectively, and reported as a component of other gains, net in the condensed consolidated statement of
operations. In connection with the adoption of SFAS No. 159, the Company no longer defers recognition of issuance costs with respect to its Brokered CDs

24

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

because
such deposits are carried at fair value. Previously, issuance costs were deferred and recognized as a component of interest expense over the term of such deposits. Beginning October 1,
2008, the Company expects to account for newly issued Brokered CDs with original maturities greater than one
year at amortized cost. Related issuance costs for such long-term Brokered CDs will be deferred and recognized as a component of interest expense over the term of such deposits.

The
following table summarizes the financial assets and financial liabilities measured at fair value on a recurring basis, including financial instruments for which the Company has
elected the fair value option (in thousands):

Description

Quoted Prices In
Active Markets For
Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Counterparty
and Cash
Collateral
Netting

Balance as of
September 30,
2008Assets:Investment securities:Trading

$


$
56,404

$
97,582

$


$
153,986Available for sale


9,016


265,357


636,040





910,413Loans held for sale(1)





521,918


4,454,567





4,976,485Derivative assets


1,839


166,932





(45,524
)

123,247Total assets

$
10,855

$
1,010,611

$
5,188,189

$
(45,524
)
$
6,164,131Liabilities:Deposit liabilitiesBrokered CDs

$


$
5,920,452

$


$


$
5,920,452Derivative liabilities


19,440


36,162


2,399


(13,990
)

44,011Total liabilities

$
19,440

$
5,956,614

$
2,399

$
(13,990
)
$
5,964,463


---

Note:

With
respect to the Company's loans held for sale for which the fair value option has been elected, the aggregate fair value of loans that were 90 days or more past due totaled
$66.3 million of which the aggregate unpaid principal balance of such loans exceeded fair value by $11.4 million; and the aggregate fair value of loans in nonaccrual status totaled
$121.1 million of which the aggregate unpaid principal balance of such loans exceeded fair value by $67.9 million.

25

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

The following table summarizes the changes in fair value of the Company's Level 3 financial assets and financial liabilities measured at fair value on a recurring basis for the
three months ended September 30, 2008 (in thousands):

Investment
Securities
Trading

Investment
Securities
Available
for Sale

Loans Held
for Sale

Net
Derivatives

TotalEnding balance as of June 30, 2008

$
102,566

$
650,951

$
5,034,261

$
297

$
5,788,075Purchases, issuances, sales and settlements


(164
)

(6,063
)

(387,962
)




(394,189
)Total net realized/unrealized (losses) gains:Included in earnings


(4,351
)

(1,257
)

(132,009
)

(2,696
)

(140,313
)Included in other comprehensive income


(469
)

(15,395
)

(43,712
)




(59,576
)Net transfers in to/(out of) Level 3





7,804


(16,011
)




(8,207
)Ending balance as of September 30, 2008

$
97,582

$
636,040

$
4,454,567

$
(2,399
)
$
5,185,790The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized (losses) gains relating to assets still
held as of September 30, 2008

$
(3,610
)
$
(503
)
$
(112,073
)
$
(2,697
)
$
(118,883
)


The
following table summarizes the changes in fair value of the Company's Level 3 financial assets and financial liabilities measured at fair value on a recurring basis for the
nine months ended September 30, 2008 (in thousands):

Investment
Securities
Trading

Investment
Securities
Available
for Sale

Loans Held
for Sale

Net
Derivatives

TotalEnding balance as of December 31, 2007

$
126,878

$
675,254

$
7,508,926

$
3,567

$
8,314,625Transition adjustment








1,911





1,911Beginning balance as of January 1, 2008


126,878


675,254


7,510,837


3,567


8,316,536Purchases, issuances, sales and settlements


(1,859
)

(17,620
)

(2,723,635
)




(2,743,114
)Total net realized/unrealized (losses) gains:Included in earnings


(27,500
)

(9,315
)

(524,377
)

(5,785
)

(566,977
)Included in other comprehensive income


63


(20,083
)

153,386





133,366Net transfers in to/(out of) Level 3





7,804


38,356


(181
)

45,979Ending balance as of September 30, 2008

$
97,582

$
636,040

$
4,454,567

$
(2,399
)
$
5,185,790The amount of total (losses) gains for the period included in earnings attributable to the change in unrealized (losses) gains relating to assets still
held as of September 30, 2008

$
(24,504
)
$
(4,032
)
$
(325,093
)
$
(1,893
)
$
(355,522
)


The
tables above summarize the changes in fair value for all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during
the three and nine months

26

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

14. Fair Value of Financial Instruments (Continued)

ended
September 30, 2008. Level 3 financial assets presented in the tables include investment securities classified as trading and available for sale, loans held for sale, and net
derivatives. These instruments were valued using pricing models and DCF models that incorporate assumptions, which in management's judgment, reflect the assumptions a marketplace participant would
use.

Certain
financial assets are measured at fair value on a nonrecurring basis. The carrying value of certain impaired loans held for investment is primarily based on the appraised value of
the underlying collateral less estimated selling costs. The following table presents the changes in carrying value of those assets measured at fair value on a nonrecurring basis, for which impairment
was recognized for the three and nine months ended September 30, 2008 (in thousands):

Quoted Prices In
Active Markets
For Identical
Assets/Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Balance
as of
September 30,
2008

Total (losses)
for the three
months ended
September 30,
2008

Total (losses)
for the nine
months ended
September 30,
2008Loans held for investment

$


$


$
28,835

$
28,835

$
(17,573
)
$
(26,782
)


During
the three months ended September 30, 2008, loans held for investment with a carrying amount of $46.4 million were written down to their fair value of
$30.4 million, less costs to sell of $1.6 million (or $28.8 million), resulting in a loss of $17.6 million. During the nine months ended September 30, 2008, loans
held for investment with a carrying amount of $55.6 million were written down to their fair value of $30.4 million, less costs to sell of $1.6 million (or $28.8 million),
resulting in a loss of $26.8 million. These losses were recorded as an increase to the allowance for loan losses.

SFAS
No. 159 requires that the difference between the carrying value of the financial instrument before the election of the fair value option and the fair value of the instrument
be recorded as an adjustment to beginning retained earnings in the period of adoption. The following table summarizes the impact of adopting the fair value option on January 1, 2008. Amounts
shown represent the carrying value of the affected financial instruments before and after the change in accounting resulting from the adoption of SFAS No. 159 (in thousands):

Description

Carrying Value of
Instrument as of
December 31,
2007

Cumulative Effect
Adjustment
Gain or (Loss)

Carrying Value of
Instrument as of
January 1,
2008 After
Adoption of
SFAS No. 159Loans held for sale(1)

$
7,744,180

$
1,911

$
7,746,091Deposit liabilities(2)


5,540,850


(17,506
)

5,558,356Pre-tax cumulative effect of adopting the fair value option





(15,595
)Benefit for deferred income taxes





5,790After-tax cumulative effect of adopting the fair value option




$
(9,805
)


---

Notes:

27

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

15. Derivative Instruments

The Company primarily uses derivative instruments in connection with its risk management activities. The Company's primary objective in utilizing these derivative instruments is to
minimize market risk volatility associated with interest rate and foreign currency risks related to the Company's assets and liabilities. Minimizing this volatility enables the Company to mitigate the
impact of market risk on earnings.

The
derivative instruments that the Company uses include swaps, caps, forwards, options, swaptions, spread locks, loan commitments and treasury-related derivative instruments, and may be
exchange-traded or contracted in the over-the-counter market.

In
contemplation of the adoption of SFAS No. 159, the Company discontinued fair value hedge accounting for its pools of fixed rate loans held for sale in late 2007. Also in 2007,
the Company terminated its interest rate swaps (cash flow hedges) associated with a portion of the escrow funds maintained and managed by Escrow Bank USA ("Escrow Bank"), a wholly-owned subsidiary of
the Company.

16. Stock-Based Compensation

In connection with the Sponsor Transactions, the Company implemented a stock option award program which provides Management Stockholders with the option to purchase shares of common
stock at a specified price, once certain time-based and performance-based vesting conditions are met. These stock options are generally granted on five-year graded vesting
schedules with certain requisite service conditions. The options expire ten years after the grant date. Certain of these stock options become vested if the Company achieves specific annual performance
targets.

The
following table summarizes stock option activity and related information for the nine months ended September 30, 2008 (number of options in thousands):

Nine months ended
September 30, 2008Number
of Options

Weighted
average exercise
price per shareOptions outstanding as of the beginning of the period


44,731

$
5.04Options granted


421


6.09Options exercised





Options forfeited


(4,670
)

5.07Options cancelled


(836
)

5.01Options expired





Options outstanding as of the end of the period


39,646

$
5.04Options exercisable as of the end of the period


15,693

$
5.01


Time-based
options relating to 8.4 million shares of common stock vested during the nine months ended September 30, 2008, of which time-based
options relating to 8.0 million shares were exercisable as of September 30, 2008.

There
were 11.4 million and 6.5 million shares available for future grants of options as of September 30, 2008 and December 31, 2007, respectively.

28

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

16. Stock-Based Compensation (Continued)

The
weighted average grant-date fair value of options granted during the nine months ended September 30, 2008 was $1.96. The fair value of the option awards was
measured as of the grant date and estimated through a Black-Scholes option-pricing model. Because the Company's common stock is not traded publicly, certain assumptions were determined using
appropriate industry sector benchmarks.

The
Company recorded $2.5 million (net of tax benefit of $0.7 million) and $2.4 million (net of tax benefit of $1.1 million) in compensation expense
associated with the vesting of time-based options for the three months ended September 30, 2008 and 2007, respectively, and $8.5 million (net of tax benefit of
$5.2 million) and $8.0 million (net of tax benefit of $4.5 million) for the nine months ended September 30, 2008 and 2007, respectively. No compensation expense has been
recognized in 2008 or 2007 for performance-based options because the performance criteria have not been met. There was $31.0 million of unrecognized compensation expense related to
non-vested option awards as of September 30, 2008, including performance-based option awards. This cost is expected to be recognized over a weighted average period of
2.3 years.

17. Guarantees

In the ordinary course of business, the Company issues various guarantees. The Company's outstanding guarantees as of September 30, 2008 and December 31, 2007 consisted of
the following (in thousands):

September 30, 2008

December 31, 2007Maximum
liability

Carrying value
of liability

Maximum
liability

Carrying value
of liabilityAgency/construction lending guarantees

$
281,325

$
1,159

$
407,738

$
2,089Agency loans sold with recourse


683,776


19,109


543,462


13,917Other third party guarantees


272,113





272,771


Total

$
1,237,214

$
20,268

$
1,223,971

$
16,006


18. Commitments and Contingent Liabilities

The Company holds variable interests in syndicated affordable housing partnerships where the Company provides unaffiliated investors with a guaranteed yield on their investment. These
partnerships are reflected in the Company's consolidated financial statements under the financing method in accordance with SFAS No. 66, "Accounting for Sales of Real Estate." As of
September 30, 2008, the Company's maximum exposure to loss under the yield guarantees was approximately $1.7 billion. This maximum exposure is extinguished over the lives of the
guaranteed syndicated
affordable housing partnerships as annual tax benefits are delivered to investors. The Company's estimate of actual loss under these yield guarantees, as of September 30, 2008, was
$299.2 million and is reported as a component of real estate syndication proceeds and related liabilities in the condensed consolidated balance sheet.

The
Company is subject to potential liability under laws and government regulations, and various claims and legal actions that are pending or may be asserted against it. As of
September 30, 2008, after consultation with counsel, it is the opinion of management that potential liability arising from pending

29

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

18. Commitments and Contingent Liabilities (Continued)

litigation
is not expected to have a material adverse effect on the Company's consolidated financial statements.

19. Related Party Transactions

The Company has entered into a number of related party transactions in conjunction with its business as more fully discussed in Note 23 to its 2007 audited consolidated financial
statements. A number of these transactions arose in connection with the Sponsor Transactions, such as the annual management fees paid to the Sponsors and GMAC; transaction fees paid to certain members
of the Sponsors related to the issuance of debt, including the Company's senior credit facility and bridge loan; and interest paid to GMAC in connection with the Company's junior subordinated
debentures. The Company's related party transactions also include the following transactions, made in the ordinary course of business, with entities that may be owned or sponsored by either members or
affiliates of the Sponsors or by entities affiliated with our directors: commercial mortgage loans, purchases and sales of real estate-related investments, and derivative transactions. Related party
transactions also include debt financing arrangements with equity method investees; servicing of dealership loans owned by an affiliate of GMAC; sale of businesses to and facility leasing arrangements
with former employees; and certain expense reimbursements made to the Chief Executive Officer. The financial impacts related to these transactions have been properly reflected in the Company's
condensed consolidated financial
statements. The Company has not entered into any additional material related party transactions for the nine months ended September 30, 2008.

20. Segment Information

The operating results for the Company's six reportable business segments have been determined in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This standard is based on a management approach, which requires presentation of business segments based upon a company's organization and internal reporting of operating results
to the company's chief operating decision maker. The Company's chief operating decision maker is its Chief Executive Officer. The accounting policies of the Company's business segments are the same as
those described in Note 3, except that disaggregated results have been prepared using a management approach, which is substantially consistent with the basis and manner in which management
internally disaggregates financial information for the purpose of assisting in the operating-decision process. Material intersegment transactions have been eliminated in consolidation.

The
Company's business segments are managed and organized based on geography and the type of business conducted. The Company has six reportable business segments: North American Lending
and Mortgage Banking, North American Investments and Funds Management, North American Servicing, Asian Operations, European Operations and North American Affordable Housing.

30

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

20. Segment Information (Continued)

The following table summarizes the financial results for the Company's reportable business segments for the three months ended September 30, 2008 (in thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American
Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
Other

ConsolidatedNet interest income

$
81,935

$
(834
)
$
(3,596
)
$
4,110

$
5,735

$
919

$
(48,768
)
$
39,501Noninterest income


(38,022
)

(1,518
)

76,712


(44,694
)

(6,848
)

30,886


22,659


39,175Total revenue


43,913


(2,352
)

73,116


(40,584
)

(1,113
)

31,805


(26,109
)

78,676Provision for loan losses


28,030








11,745


(644
)




512


39,643Net revenue


15,883


(2,352
)

73,116


(52,329
)

(469
)

31,805


(26,621
)

39,033Noninterest expense


47,610


7,651


48,293


18,981


6,035


9,291


36,091


173,952(Loss) income before minority interest and income taxes


(31,727
)

(10,003
)

24,823


(71,310
)

(6,504
)

22,514


(62,712
)

(134,919
)Minority interest income (expense)


12,201


(165
)




2,428








116


14,580(Loss) income before income taxes

$
(19,526
)
$
(10,168
)
$
24,823

$
(68,882
)
$
(6,504
)
$
22,514

$
(62,596
)
$
(120,339
)Total assets at end of period

$
12,566,619

$
1,007,135

$
879,456

$
2,742,197

$
752,795

$
1,014,875

$
2,746,963

$
21,710,040


The following table summarizes the financial results for the Company's reportable business segments for the three months ended
September 30, 2007 (in thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American
Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
Other

ConsolidatedNet interest income

$
81,780

$
(165
)
$
(235
)
$
15,595

$
7,308

$
(1,850
)
$
(20,330
)
$
82,103Noninterest income


377


42,059


101,179


36,294


(9,916
)

4,304


(17,850
)

156,447Total revenue


82,157


41,894


100,944


51,889


(2,608
)

2,454


(38,180
)

238,550Provision for loan losses


12,012


(294
)




4,679


(139
)

(4,001
)

(536
)

11,721Net revenue


70,145


42,188


100,944


47,210


(2,469
)

6,455


(37,644
)

226,829Noninterest expense


91,392


21,203


51,566


11,886


9,840


10,391


25,269


221,547(Loss) income before minority interest and income taxes


(21,247
)

20,985


49,378


35,324


(12,309
)

(3,936
)

(62,913
)

5,282Minority interest income (expense)


6,034


7,353





(548
)







16,730


29,569(Loss) income before income taxes

$
(15,213
)
$
28,338

$
49,378

$
34,776

$
(12,309
)
$
(3,936
)
$
(46,183
)
$
34,851Total assets at end of period

$
13,446,513

$
1,300,475

$
863,005

$
2,497,114

$
3,481,948

$
1,134,692

$
2,693,204

$
25,416,951


31

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

20. Segment Information (Continued)

The following table summarizes the financial results for the Company's business segments for the nine months ended September 30, 2008 (in
thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American
Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
Other

ConsolidatedNet interest income

$
244,789

$
471

$
(11,378
)
$
13,606

$
16,280

$
1,721

$
(112,308
)
$
153,181Noninterest income


(67,896
)

(11,588
)

231,833


(27,765
)

(286,403
)

31,599


92,186


(38,034
)Total revenue


176,893


(11,117
)

220,455


(14,159
)

(270,123
)

33,320


(20,122
)

115,147Provision for loan losses


41,041








17,129


(1,277
)




769


57,662Net revenue


135,852


(11,117
)

220,455


(31,288
)

(268,846
)

33,320


(20,891
)

57,485Noninterest expense


143,171


28,074


145,943


68,657


28,933


27,706


140,013


582,497(Loss) income before minority interest and income taxes


(7,319
)

(39,191
)

74,512


(99,945
)

(297,779
)

5,614


(160,904
)

(525,012
)Minority interest income (expense)


26,821


8,509





(1,119
)







20,044


54,255Income (loss) before income taxes

$
19,502

$
(30,682
)
$
74,512

$
(101,064
)
$
(297,779
)
$
5,614

$
(140,860
)
$
(470,757
)Total assets at end of period

$
12,566,619

$
1,007,135

$
879,456

$
2,742,197

$
752,795

$
1,014,875

$
2,746,963

$
21,710,040


The following table summarizes the financial results for the Company's business segments for the nine months ended September 30, 2007 (in
thousands):

SegmentsNorth
American
Lending and
Mortgage
Banking

North
American
Investments
and Funds
Management

North
American
Servicing

Asian
Operations

European
Operations

North
American
Affordable
Housing

Corporate &
Other

ConsolidatedNet interest income

$
201,679

$
6,279

$
(7,951
)
$
41,953

$
26,310

$
(3,497
)
$
(24,122
)
$
240,651Noninterest income


187,080


215,237


308,278


118,211


76,616


54,625


(116,028
)

844,019Total revenue


388,759


221,516


300,327


160,164


102,926


51,128


(140,150
)

1,084,670Provision for loan losses


12,116


245


(87
)

9,031


(1,698
)

(2,440
)

6,264


23,431Net revenue


376,643


221,271


300,414


151,133


104,624


53,568


(146,414
)

1,061,239Noninterest expense


238,987


70,045


156,603


58,696


40,516


33,577


48,111


646,535Income (loss) before minority interest and income taxes


137,656


151,226


143,811


92,437


64,108


19,991


(194,525
)

414,704Minority interest income (expense)


16,180


(5,875
)




(3,626
)







37,696


44,375Income (loss) before income taxes

$
153,836

$
145,351

$
143,811

$
88,811

$
64,108

$
19,991

$
(156,829
)
$
459,079Total assets at end of period

$
13,446,513

$
1,300,475

$
863,005

$
2,497,114

$
3,481,948

$
1,134,692

$
2,693,204

$
25,416,951


32

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

21. Regulatory Matters

Certain subsidiaries of the Company are subject to GSE and the Department of Housing and Urban Development minimum net worth requirements. Failure to meet minimum the net worth
requirements can result in the initiation of certain actions by these entities that, if undertaken, could have a material adverse effect on the Company's consolidated financial statements. The Company
believes it was in compliance with these minimum net worth requirements as of September 30, 2008.

Fannie
Mae has established certain eligibility requirements that Capmark Finance Inc., a wholly-owned subsidiary of the Company, must comply with as a condition of being a Fannie
Mae DUS servicer and seller. Capmark Finance Inc. is exempt from complying with certain of these eligibility requirements for so long as we maintain an "Investment Grade Credit
Rating," which means that our senior long-term unsecured debt rating is (i) BBB- or higher from S&P; or (ii) Baa3 or above from Moody's Investors Service or
(iii) BBB- or above from Fitch Ratings (with the lowest rating prevailing if there is a split among the rating agencies). As of September 30, 2008, the Company maintained an
Investment Grade Credit Rating with all three rating agencies.

Capmark
Bank US and Escrow Bank must maintain minimum regulatory capital ratios to qualify as "well capitalized" under the capital rules of the FDIC. In addition, both banks have agreed
with the FDIC to maintain a Tier 1 leverage ratio of not less than 8.0%. In June 2008, Escrow Bank ceased its trust operations and the trust customers of Escrow Bank appointed Capmark Bank US
as their new trustee. Following the cessation of trust operations, Escrow Bank no longer has any daily operations and has requested permission from the FDIC to terminate its deposit insurance. Until
such request is granted, Escrow Bank remains subject to the FDIC capital rules. The following table summarizes the U.S. banks' regulatory capital ratios as of September 30, 2008 and
December 31, 2007:

September 30, 2008

December 31, 2007Ratios to qualify as
"Well-Capitalized"

Capmark
Bank US

Escrow
Bank

Capmark
Bank US

Escrow
BankLeverage


5.0
%

11.1
%

92.8
%

11.6
%

61.9
%Tier 1 risk-based


6.0
%

11.2
%

488.4
%

12.4
%

387.5
%Total risk-based


10.0
%

13.6
%

488.4
%

14.8
%

387.5
%


Capmark
Bank Europe, a wholly-owned subsidiary of the Company, is required to comply with various laws, rules and regulations in Ireland. These requirements, among others, require
Capmark Bank Europe to maintain certain capital adequacy and liquidity ratios calculated in accordance with applicable laws and related accounting standards in Ireland. In July 2008, Capmark Bank
Europe notified the Irish banking regulatory authority that, in connection with the Company's decision to end proprietary lending in Europe, Capmark Bank Europe is commencing cessation of its banking
operations. In connection with the wind-down of banking activities, Capmark Bank Europe will voluntarily surrender its banking license once it has repaid all of its deposits and unwound or
transferred to a third party all of the obligations under which it is required to hold a banking license. The Company expects that the process of winding down Capmark Bank Europe's banking activities
will be completed and the banking license will be relinquished prior to December 31, 2008. Until it relinquishes its license, Capmark Bank Europe is required to comply with the capital adequacy
and liquidity ratios described above.

33

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

21. Regulatory Matters (Continued)

The
following table summarizes Capmark Bank Europe's regulatory capital adequacy and liquidity ratios as of September 30, 2008 and December 31, 2007:

Ratio
minimum

September 30,
2008

December 31,
2007Capital adequacy


15
%

45
%

64
%Liquidity


100
%

125
%

113
%


Capmark
Securities Inc., a wholly-owned subsidiary of the Company, is subject to the SEC's minimum net capital requirements. Capmark Securities Inc.'s net capital
requirement was $250,000 as of September 30, 2008 and December 31, 2007. Capmark Securities Inc.'s net capital totaled $17.2 million and $21.3 million as of
September 30, 2008 and December 31, 2007, respectively.

22. Earnings per Share

The tables below demonstrate how the Company has computed basic and diluted earnings per share. The denominator in each of the tables below includes shares of common stock issued and
sold to employees and non-employee directors, which are reported as mezzanine equity in the condensed consolidated balance sheet.

Three
months ended
September 30,
2008

Three
months ended
September 30,
2007

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007(In thousands, except per share amounts)Basic earnings per shareNumerator:Net (loss) income

$
(89,449
)
$
26,581

$
(290,819
)
$
291,515Denominator:Weighted average shares outstanding


431,562


433,875


432,253


432,959Basic (loss) income per share

$
(0.21
)
$
0.06

$
(0.67
)
$
0.67




Three
months ended
September 30,
2008

Three
months ended
September 30,
2007

Nine
months ended
September 30,
2008

Nine
months ended
September 30,
2007(In thousands, except per share amounts)Diluted earnings per shareNumerator:Net (loss) income

$
(89,449
)
$
26,581

$
(290,819
)
$
291,515Denominator:Weighted average shares outstanding


431,562


433,875


432,253


432,959Effect of dilutive securities





347





117Weighted average shares outstanding


431,562


434,222


432,253


433,076Diluted (loss) income per share

$
(0.21
)
$
0.06

$
(0.67
)
$
0.67


The
calculation of diluted earnings per share for the three and nine months ended September 30, 2008 and 2007 excludes 31.2 million and 22.4 million, respectively,
anti-dilutive stock options with time-based vesting conditions. Additionally, the calculation of diluted earnings per share for the three

34

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

22. Earnings per Share (Continued)

and
nine months ended September 30, 2008 and 2007 excludes 8.4 million and 11.2 million, respectively, stock options with performance-based vesting conditions because the
performance conditions had not been achieved at the end of the reporting period.

23. Subsequent Events

On October 8, 2008, Fitch Ratings downgraded the Company's long-term senior unsecured debt rating to BBB- from BBB and revised its rating outlook to
negative from stable. On October 15, 2008, Moody's Investors Service affirmed the Company's long-term senior unsecured debt rating of Baa3 and revised its rating outlook to negative
from stable.

24. Supplemental Financial Information

Certain wholly-owned subsidiaries of the Company have guaranteed the Company's borrowings under its senior unsecured credit facilities. The guarantees are full and unconditional, joint
and several. The following supplemental financial information presents the condensed consolidating balance sheet, statement of operations and statement of cash flows for the parent company, the
guarantor subsidiaries and the non-guarantor subsidiaries.

35

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Balance Sheet  September 30, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedAssetsCash, cash equivalents and restricted cash

$
949,505

$
21,967

$
796,100

$


$
1,767,572Investment securitiestrading





115,590


38,396





153,986Investment securitiesavailable for sale





366,831


628,611


(85,029
)

910,413Loans held for sale





1,630,837


3,351,368


21,110


5,003,315Loans held for investment





1,142,720


7,364,793


(459,344
)

8,048,169Real estate investments





148


1,788,817


(523
)

1,788,442Equity investments


41,079


318,342


1,414,999


(30,358
)

1,744,062Other assets


6,385,395


1,425,937


2,233,981


(7,751,232
)

2,294,081Investment in subsidiaries


2,818,874


261,563





(3,080,437
)

Total assets

$
10,194,853

$
5,283,935

$
17,617,065

$
(11,385,813
)
$
21,710,040Liabilities and Stockholders' EquityLiabilities:Short-term borrowings

$
1,205,208

$
320,904

$
1,175,128

$
(100,029
)
$
2,601,211Long-term borrowings


6,331,937


209,946


2,239,294


(241,502
)

8,539,675Deposit liabilities








5,970,452





5,970,452Real estate syndication proceeds and related liabilities








1,307,921





1,307,921Other liabilities


378,248


3,297,943


4,955,500


(7,886,495
)

745,196Total liabilities


7,915,393


3,828,793


15,648,295


(8,228,026
)

19,164,455Commitments and Contingent Liabilities














Minority Interest





102,930


187,863


(24,668
)

266,125Mezzanine Equity


94,251











94,251Stockholders' Equity:Preferred stock














Common stock


413


786


140,318


(141,104
)

413Other stockholders' equity


2,184,796


1,351,426


1,640,589


(2,992,015
)

2,184,796Total stockholders' equity


2,185,209


1,352,212


1,780,907


(3,133,119
)

2,185,209Total liabilities and stockholders' equity

$
10,194,853

$
5,283,935

$
17,617,065

$
(11,385,813
)
$
21,710,040


36

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Balance Sheet  December 31, 2007  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedAssetsCash, cash equivalents and restricted cash

$
7,421

$
213,661

$
1,215,670

$


$
1,436,752Investment securitiestrading


21,300


98,603


65,789





185,692Investment securitiesavailable for sale





373,590


635,358


(59,266
)

949,682Loans held for sale





2,453,401


5,582,228


(251,860
)

7,783,769Loans held for investment





981,655


6,123,644


(213,585
)

6,891,714Real estate investments








1,748,555





1,748,555Equity investments


47,443


369,589


1,584,782


(17,674
)

1,984,140Other assets


8,040,133


1,505,763


2,039,532


(9,301,336
)

2,284,092Investment in subsidiaries


3,007,950


210,375





(3,218,325
)

Total assets

$
11,124,247

$
6,206,637

$
18,995,558

$
(13,062,046
)
$
23,264,396Liabilities and Stockholders' Equity Liabilities:Short-term borrowings

$
408,197

$
842,032

$
2,679,563

$
(97,155
)
$
3,832,637Long-term borrowings


7,035,619





1,467,185


(195,118
)

8,307,686Deposit liabilities








5,554,607


(2,000
)

5,552,607Real estate syndication proceeds and related liabilities








1,563,151





1,563,151Other liabilities


1,071,380


3,801,712


5,653,202


(9,457,226
)

1,069,068Total liabilities


8,515,196


4,643,744


16,917,708


(9,751,499
)

20,325,149Commitments and Contingent Liabilities














Minority Interest





113,357


230,437


(13,598
)

330,196Mezzanine Equity


102,418











102,418Stockholders' Equity:Preferred stock














Common stock


413


786


124,206


(124,992
)

413Other stockholders' equity


2,506,220


1,448,750


1,723,207


(3,171,957
)

2,506,220Total stockholders' equity


2,506,633


1,449,536


1,847,413


(3,296,949
)

2,506,633Total liabilities and stockholders' equity

$
11,124,247

$
6,206,637

$
18,995,558

$
(13,062,046
)
$
23,264,396


37

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Three months ended September 30, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
54,197

$
78,173

$
177,765

$
(82,274
)
$
277,861Interest expense


70,130


58,219


140,907


(80,896
)

188,360Net interest income


(15,933
)

19,954


36,858


(1,378
)

39,501Provision for loan losses





8,411


39,373


(8,141
)

39,643Net interest income after provision for loan losses


(15,933
)

11,543


(2,515
)

6,763


(142
)Noninterest IncomeNet (losses) gains


27,128


(67,716
)

(98,036
)

(2,269
)

(140,893
)Fee and investment income


1,236


83,775


104,278


(9,221
)

180,068Total noninterest income


28,364


16,059


6,242


(11,490
)

39,175Net revenue


12,431


27,602


3,727


(4,727
)

39,033Noninterest ExpenseCompensation and benefits


(12
)

54,686


22,392





77,066Other expenses


8,279


67,317


34,994


(13,704
)

96,886Total noninterest expense


8,267


122,003


57,386


(13,704
)

173,952Income (loss) before minority interest and income taxes


4,164


(94,401
)

(53,659
)

8,977


(134,919
)Minority interest income





12,223


2,064


293


14,580Income (loss) before income taxes


4,164


(82,178
)

(51,595
)

9,270


(120,339
)Income taxes


12,389


(29,307
)

(23,619
)

9,647


(30,890
)(Loss) before equity in net (losses) of subsidiaries


(8,225
)

(52,871
)

(27,976
)

(377
)

(89,449
)Equity in net (losses) of subsidiaries


(81,224
)

(12,372
)




93,596


Net (Loss)

$
(89,449
)
$
(65,243
)
$
(27,976
)
$
93,219

$
(89,449
)


38

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Three months ended September 30, 2007  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
106,635

$
99,519

$
217,249

$
(94,266
)
$
329,137Interest expense


121,803


56,387


153,994


(85,150
)

247,034Net interest income


(15,168
)

43,132


63,255


(9,116
)

82,103Provision for loan losses





3,659


9,195


(1,133
)

11,721Net interest income after provision for loan losses


(15,168
)

39,473


54,060


(7,983
)

70,382Noninterest IncomeNet (losses)


(18,251
)

(6,264
)

(40,073
)

(776
)

(65,364
)Fee and investment income


1,920


96,913


41,262


81,716


221,811Total noninterest income


(16,331
)

90,649


1,189


80,940


156,447Net revenue


(31,499
)

130,122


55,249


72,957


226,829Noninterest ExpenseCompensation and benefits





89,689


22,993


111


112,793Other expenses


6,920


39,688


(7,247
)

69,393


108,754Total noninterest expense


6,920


129,377


15,746


69,504


221,547(Loss) income before minority interest and income taxes


(38,419
)

745


39,503


3,453


5,282Minority interest income





1,738


20,391


7,440


29,569(Loss) income before income taxes


(38,419
)

2,483


59,894


10,893


34,851Income taxes


(13,978
)

1,533


10,796


9,919


8,270(Loss) income before equity in net earnings of subsidiaries


(24,441
)

950


49,098


974


26,581Equity in net earnings of subsidiaries


51,022


40,005





(91,027
)

Net Income

$
26,581

$
40,955

$
49,098

$
(90,053
)
$
26,581


39

---



Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Nine months ended September 30, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
191,878

$
270,700

$
557,549

$
(278,451
)
$
741,676Interest expense


243,667


185,759


436,079


(277,010
)

588,495Net interest income


(51,789
)

84,941


121,470


(1,441
)

153,181Provision for loan losses





2,158


66,230


(10,726
)

57,662Net interest income after provision for loan losses


(51,789
)

82,783


55,240


9,285


95,519Noninterest IncomeNet (losses)


(267,897
)

(87,420
)

(144,723
)

(2,416
)

(502,456
)Fee and investment income


2,457


222,841


242,255


(3,131
)

464,422Total noninterest income


(265,440
)

135,421


97,532


(5,547
)

(38,034
)Net revenue


(317,229
)

218,204


152,772


3,738


57,485Noninterest ExpenseCompensation and benefits


(52
)

170,733


72,446





243,127Other expenses


29,705


205,338


103,244


1,083


339,370Total noninterest expense


29,653


376,071


175,690


1,083


582,497(Loss) before minority interest and income taxes


(346,882
)

(157,867
)

(22,918
)

2,655


(525,012
)Minority interest income





27,016


27,390


(151
)

54,255(Loss) income before income taxes


(346,882
)

(130,851
)

4,472


2,504


(470,757
)Income taxes


(136,928
)

(49,134
)

(9,921
)

16,045


(179,938
)(Loss) income before equity in net (losses) of subsidiaries


(209,954
)

(81,717
)

14,393


(13,541
)

(290,819
)Equity in net (losses) of subsidiaries


(80,865
)

(58,967
)




139,832


Net (Loss) Income

$
(290,819
)
$
(140,684
)
$
14,393

$
126,291

$
(290,819
)


40

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Operations  Nine months ended September 30, 2007  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedNet Interest IncomeInterest income

$
323,725

$
396,405

$
620,976

$
(433,277
)
$
907,829Interest expense


339,885


298,801


455,927


(427,435
)

667,178Net interest income


(16,160
)

97,604


165,049


(5,842
)

240,651Provision for loan losses





3,966


19,367


98


23,431Net interest income after provision for loan losses


(16,160
)

93,638


145,682


(5,940
)

217,220Noninterest IncomeNet (losses) gains


(34,912
)

99,656


37,040


13,448


115,232Fee and investment income


29,388


361,354


346,980


(8,935
)

728,787Total noninterest income


(5,524
)

461,010


384,020


4,513


844,019Net revenue


(21,684
)

554,648


529,702


(1,427
)

1,061,239Noninterest ExpenseCompensation and benefits


(137
)

229,481


92,061


(100
)

321,305Other expenses


21,122


207,039


125,257


(28,188
)

325,230Total noninterest expense


20,985


436,520


217,318


(28,288
)

646,535(Loss) income before minority interest and income taxes


(42,669
)

118,128


312,384


26,861


414,704Minority interest income





1,738


22,113


20,524


44,375(Loss) income before income taxes


(42,669
)

119,866


334,497


47,385


459,079Income taxes


(15,574
)

44,570


110,695


27,873


167,564(Loss) income before equity in net earnings of subsidiaries


(27,095
)

75,296


223,802


19,512


291,515Equity in net earnings of subsidiaries


318,610


73,763





(392,373
)

Net Income

$
291,515

$
149,059

$
223,802

$
(372,861
)
$
291,515


41

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Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows  Nine months ended September 30, 2008  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedOperating ActivitiesNet cash provided by operating activities

$
879,944

$
305,817

$
1,125,889

$
(162,836
)
$
2,148,814Investing ActivitiesNet (increase) decrease in restricted cash





(473
)

65,828





65,355Net (increase) decrease in investment securitiesavailable for sale





(27,389
)

3,636


17,997


(5,756
)Net (increase) in mortgage loans held for investment





(183,140
)

(1,224,775
)

224,231


(1,183,684
)Net decrease (increase) in real estate investments





5,656


(20,719
)

(1,026
)

(16,089
)Net decrease (increase) in equity investments


3,579


16,015


(54,314
)

(14,605
)

(49,325
)Other investing activities, net





(15,654
)

(3,765
)

(153
)

(19,572
)Net cash provided by (used in) investing activities


3,579


(204,985
)

(1,234,109
)

226,444


(1,209,071
)Financing ActivitiesNet increase (decrease) in short-term borrowings


792,123


(295,718
)

(1,532,795
)

(57,247
)

(1,093,637
)Net (decrease) increase in long-term borrowings


(700,333
)

21,397


749,373


4,642


75,079Net increase in deposit liabilities








412,840


2,000


414,840Real estate syndication proceeds received








37,543





37,543Other financing activities, net


(33,178
)

(19,093
)

80,609


(13,003
)

15,335Net cash provided by (used in) financing activities


58,612


(293,414
)

(252,430
)

(63,608
)

(550,840
)Effect of Foreign Exchange Rates on Cash


(51
)

415


6,907





7,271Net Increase (Decrease) in Cash and Cash Equivalents


942,084


(192,167
)

(353,743
)




396,174Cash and Cash Equivalents, Beginning of Period


7,421


205,785


991,271





1,204,477Cash and Cash Equivalents, End of Period

$
949,505

$
13,618

$
637,528

$


$
1,600,651


42

---





Table of Contents

CAPMARK FINANCIAL GROUP INC.

Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)

24. Supplemental Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows  Nine months ended September 30, 2007  (in thousands)

Parent

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminations

ConsolidatedOperating ActivitiesNet cash (used in) provided by operating activities

$
(470,403
)
$
348,674

$
(3,588,832
)
$
(439,315
)
$
(3,271,246
)Investing ActivitiesNet decrease (increase) in restricted cash





21,555


(150,612
)




(129,057
)Net decrease (increase) in investment securitiesavailable for sale


31,331


(323,374
)

708,699


(128,615
)

288,041Net decrease in mortgage loans held for investment





82,001


56,973


113,420


252,394Net decrease (increase) in real estate investments





52,010


(481,620
)

(1,770
)

(431,380
)Net decrease (increase) in equity investments


43,042


(173,844
)

(240,543
)

86,019


(285,326
)Other investing activities, net


(3,155
)

(67,777
)

13,644


(396
)

(57,684
)Net cash provided by (used in) investing activities


71,218


(409,429
)

(93,459
)

68,658


(363,012
)Financing ActivitiesNet increase in short-term borrowings


184,896


463,725


860,063


(147,625
)

1,361,059Net increase (decrease) in long-term borrowings


490,153


(740,995
)

(190,835
)

(380,744
)

(822,421
)Net increase in deposit liabilities








3,772,356


124,999


3,897,355Real estate syndication proceeds received








217,656





217,656Other financing activities, net


(162,277
)

339,363


(80,579
)

20,525


117,032Net cash provided by financing activities


512,772


62,093


4,578,661


(382,845
)

4,770,681Effect of Foreign Exchange Rates on Cash


3,025


(2,832
)

13,318





13,511Net Increase (Decrease) in Cash and Cash Equivalents


116,612


(1,494
)

909,688


125,128


1,149,934Cash and Cash Equivalents, Beginning of Period


125,228


6,765


318,939


(125,128
)

325,804Cash and Cash Equivalents, End of Period

$
241,840

$
5,271

$
1,228,627

$


$
1,475,738


43

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Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

As used herein, the terms "we," "us" and "our" refer to Capmark and its subsidiaries as a consolidated group, except where it is clear
that the term means only Capmark.

Our
"Management's Discussion and Analysis of Financial Condition and Results of Operations" is organized as follows:



Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify
these statements by our use of forward-looking words such as "may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe," "predict," "potential," "project," "intend," "could" or
similar expressions. In particular, statements regarding our plans, strategies, prospects and expectations regarding our business are forward-looking statements. These statements are based on
management's current expectations and beliefs but are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking
statements. These risks and uncertainties include, among others, adverse changes in debt and capital markets conditions, which may adversely impact our access to capital on acceptable terms or the
value or salability of our real estate related investments; interest rate and credit spread fluctuations; adverse changes in commercial real estate markets; changes in general economic and business
conditions, which will, among other things, affect the amounts we may earn on our products and services and the availability and credit worthiness of our customers; changes in applicable laws and

44

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Table of Contents

regulations;
risks posed by our competition; currency risks and other risks associated with international markets. In addition, other risks and uncertainties that could cause our actual results to be
materially different from our expectations include the risks and uncertainties set forth under "Risk Factors" in our prospectus filed with the SEC in accordance with Rule 424(b)(3) of the
Securities Act on July 15, 2008 and in Item 1A of Part II hereof.

Such
forward-looking statements are made only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our expectations with regard thereto or changes in events, conditions, or circumstances on which any such statement is based.

Overview

We are a leading commercial real estate finance company that operates in North America, Asia and Europe in three core business lines:
lending and mortgage banking; investments and funds management; and servicing. As commercial real estate finance specialists, we provide our borrowers, investors and other customers with a broad range
of commercial real estate financial products and services, which we strive to tailor to our customers' particular needs. As of September 30, 2008, we had more than 1,900 employees located in 55
offices worldwide.

We
originated $8.2 billion and $25.2 billion in aggregate principal amount of financing during the nine months ended September 30, 2008 and 2007, respectively. Our
global primary, master and special servicing portfolio included more than 50,000 loans with an aggregate outstanding principal balance of $363.2 billion as of September 30, 2008 compared
to more than 55,000 loans with an aggregate outstanding principal balance of $371.7 billion as of December 31, 2007. Real estate related assets under management were approximately
$9.8 billion as of September 30, 2008 compared to $10.3 billion as of December 31, 2007. As of September 30, 2008, our total assets were $21.7 billion and our
stockholders' equity was $2.2 billion.

For
management reporting purposes, we conduct our lending and mortgage banking, investments and funds management, and servicing businesses through six business segments. These business
segments, which are organized based on geography and the type of business conducted, are as follows:



To
focus on allocating capital effectively and enhancing our liquidity position, we significantly reduced our Asian proprietary lending and investing activities beginning in the second
quarter of 2008. We also curtailed our European lending activities starting in the fourth quarter of 2007 and sold a large portion of our European loan portfolio in April 2008. Our efforts in Asia and
Europe are focused on managing and monetizing our existing loan and investment portfolios and managing our fee for services businesses. We have also reduced staffing levels to correspond with the
decreased level of activities in both segments.



We present the results of operations for our six business segments in accordance with SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," or "SFAS No. 131."

45

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Table of Contents

This
standard is based on a management approach, which requires presentation of our segments based upon our organization and internal reporting of results of operations.

Our
segment results have been prepared using a reporting methodology that is different from the reporting methodology used in our consolidated financial statements and, as a result, are
not directly comparable to our consolidated results. In particular:



46

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Table of Contents



The
following tables summarize financial information for each of our six business segments as of the dates and for the periods indicated. The tables also present reconciling amounts that
are included in "Corporate and Other" to reconcile management's reporting of our segment financial information to amounts included in our consolidated financial statements (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2008

2007

2008

2007Net Revenue(1):North American Lending and Mortgage Banking

$
15,883

$
70,145

$
135,852

$
376,643North American Investments and Funds Management


(2,352
)

42,188


(11,117
)

221,271North American Servicing


73,116


100,944


220,455


300,414Asian Operations


(52,329
)

47,210


(31,288
)

151,133European Operations


(469
)

(2,469
)

(268,846
)

104,624North American Affordable Housing


31,805


6,455


33,320


53,568Subtotal


65,654


264,473


78,376


1,207,653Corporate and Other:Corporate functions and immaterial businesses


(20,969
)

4,060


(13,388
)

7,347Consolidated LIHTC partnerships


3,330


(596
)

11,815


5,334Push down accounting adjustments


1,429


2,959


8,367


(20,087
)Eliminations and other adjustments


(5,711
)

(2,791
)

(16,665
)

(13,693
)Deferral of placement fees


(4,700
)

(41,276
)

(11,020
)

(125,315
)Total Corporate and Other


(26,621
)

(37,644
)

(20,891
)

(146,414
)Consolidated amount

$
39,033

$
226,829

$
57,485

$
1,061,239(Loss) Income Before Income Taxes:North American Lending and Mortgage Banking

$
(19,526
)
$
(15,213
)
$
19,502

$
153,836North American Investments and Funds Management


(10,168
)

28,338


(30,682
)

145,351North American Servicing


24,823


49,378


74,512


143,811Asian Operations


(68,882
)

34,776


(101,064
)

88,811European Operations


(6,504
)

(12,309
)

(297,779
)

64,108North American Affordable Housing


22,514


(3,936
)

5,614


19,991Subtotal


(57,743
)

81,034


(329,897
)

615,908Corporate and Other:Corporate functions and immaterial businesses


(53,258
)

(40,501
)

(123,467
)

(109,349
)Push down accounting adjustments


(9,338
)

(5,682
)

(17,393
)

(47,480
)Total Corporate and Other


(62,596
)

(46,183
)

(140,860
)

(156,829
)Consolidated amount

$
(120,339
)
$
34,851

$
(470,757
)
$
459,079


47

---



Table of Contents

September 30,
2008

December 31,
2007Total Assets:North American Lending and Mortgage Banking

$
12,566,619

$
12,159,800North American Investments and Funds Management


1,007,135


1,050,576North American Servicing


879,456


894,259Asian Operations


2,742,197


2,789,044European Operations


752,795


3,068,097North American Affordable Housing


1,014,875


1,084,783Subtotal


18,963,077


21,046,559Corporate and Other:Corporate functions and immaterial businesses(2)


1,391,866


489,093Consolidated LIHTC partnerships


1,168,457


1,508,608Push down accounting adjustments


186,640


220,136Total Corporate and Other


2,746,963


2,217,837Consolidated amount

$
21,710,040

$
23,264,396


---

Note:

Understanding Our Financial Results

As a commercial real estate finance company, our ability to generate income and cash flow is highly dependent on the volume of
financing that we originate, our ability to securitize, sell, participate or otherwise finance our loans, the value of the loans on our balance sheet, and the spreads we generate on our
interest-earning assets. In addition, our financial performance is driven by, among other things, our ability to increase the size of our servicing portfolio and the amount of real estate-related
assets under our management. The success of our origination activities impacts our level of placement fees and net interest income and impacts the amount of loans that we have available for future
sale and servicing opportunities, which in turn affects our levels of net gains or losses and fee-based income. Our ability to increase the size of our servicing portfolio, which is also
driven by the level of our origination and distribution activities as well as the volume of mortgage servicing rights that we acquire, affects the level of servicing fees that we earn and income that
we derive from escrow balances, each of which provide us with an important source of recurring income and which, in the case of special servicing, provides us with a source of counter-cyclical income
and in the case of earnings on escrow balances, tends to partially offset the negative impact on placement fees in a rising interest rate environment. Our financial results are also dependent on the
amount of assets under our management as well as on changes in the values of our real estate-related assets, which impact the levels of fee-based income and net gains or losses that we
recognize.

The
amount of financing that we arrange, the number of servicing opportunities that are presented to us, the spreads we generate on our interest-earning assets and the gains or losses we
realize on sales of our assets are subject to various factors. These factors include availability of funding sources, cost of capital, changes in the interest rate environment, CMBS spreads,
commercial real estate prices, levels of supply and demand for commercial real estate and real estate-related investments, competition in our industry and the condition of local, national and
international economies. These factors also affect our estimates of loan losses and other items affecting expected cash flows from our assets and our

48

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related
valuation of those assets. As a consequence of these factors, particularly changes in interest rates and credit spreads, activity of our business lines may be cyclical. We seek to mitigate the
effects of market and other external factors on our business by maintaining a revenue base that is diversified among business activities, real estate asset classes and geographical areas. We also seek
to take advantage of specific market opportunities, which may cause our results to fluctuate from period to period. For a discussion of the effects that recent market developments may have on our
business activities, see "Outlook and Recent Trends."

Outlook and Recent Trends

Conditions in the financial markets during the third quarter of 2008 were challenging and unprecedented. During the quarter, the
markets experienced continued widening of credit spreads, de-leveraging, and volatility, which resulted in reduced asset values. The lack of liquidity in the markets due to banks and other
lending institutions tightening lending standards and restricting access to credit worsened. Market difficulties contributed to the bankruptcy filing of Lehman Brothers Holdings Inc., the sale
of Merrill Lynch to Bank of America, the U.S. government conservatorship of Fannie Mae and Freddie Mac and the U.S. government loan to American International Group ("AIG"). The U.S. structured credit
markets have remained severely limited with respect to new issuances, including the CMBS and CDO markets which have effectively ceased. Although still near historic lows, delinquency rates on
commercial mortgage loans have increased. These rates may continue to increase as a result of adverse economic conditions, including rising unemployment and lack of available credit. The European and
Asian markets have experienced similar turmoil in their financial markets.

These
difficult market conditions have continued to negatively affect our three core businesses. The general lack of liquidity in the debt markets has increased our average cost of
capital. In response to this increase in cost of capital, we have significantly decreased our proprietary lending activities which may negatively impact the growth of our servicing portfolio. The
scarcity of liquidity in the market has also made it difficult for commercial real estate borrowers seeking replacement financing. The reduction of replacement financing decreases our
transaction-related servicing fees and increases the average duration of our loan portfolio as a result of loan extensions. The average duration of our loan portfolio may also increase as
securitizations are no longer a reliable exit strategy for our loans. The growth of our servicing portfolio may also be slowed by the lack of new CMBS issuances, decreasing our source of
counter-cyclical income. Additionally, if Fannie Mae and Freddie Mac were to reduce or
modify their lending programs, we may be unable to continue to originate and sell loans to these GSEs at current levels.

Our
real estate-related investments have also experienced the effects of the unfavorable market conditions, as we continued to recognize downward changes in fair value on our loans held
for sale and investment securities portfolios. We have also experienced increased loan loss provisions, and higher levels of nonperforming loans and foreclosed real estate in our portfolio. Our
ability to raise new real estate investment funds may be constrained by the current real estate market conditions. Our expectation is that the commercial real estate markets in which we operate will
continue to be stressed throughout the remainder of 2008 and into 2009 due to weaker economic conditions and reduced liquidity.

In
response to continued worsening conditions in the financial and credit markets, on October 29, 2008, the Federal Reserve further lowered the federal funds rate to 1.0%. The
U.S. Congress, Federal Reserve, U.S. Department of Treasury (the "Treasury") and FDIC have also taken actions designed to provide liquidity to financial institutions through various funding programs.
We are evaluating our ability to participate in these programs as further discussed in "Liquidity and Capital Resources" below. The European and Asian Central Banks have taken similar
actions with respect to interest rates and market liquidity. Notwithstanding these measures, capital markets conditions remain challenging and will continue to have an on-going impact on
our business. It remains difficult to access credit in

49

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Table of Contents

the
capital markets, which constrains our ability to originate loans and the ability of our borrowers to repay loans, among other things.

In
light of the obstacles presented in the current market environment, our current focus is on allocating capital effectively, enhancing our liquidity position, prudently managing our
expenses and enhancing our operating efficiencies. As the disruptions to the markets persist, we will continue to manage our originations, changing composition among product types to emphasize
products with better liquidity and lower funding costs, including GSE and third party originations, and commercial mortgage loans funded by Capmark Bank US. We will also continue to focus on our
recurring fee businesses, such as servicing and investments and funds management.

Results of Operations

Consolidated

The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2008 and
2007 (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2008

2007

2008

2007Net interest income

$
39,501

$
82,103

$
153,181

$
240,651Noninterest income


39,175


156,447


(38,034
)

844,019Total revenue


78,676


238,550


115,147


1,084,670Provision for loan losses


39,643


11,721


57,662


23,431Net revenue


39,033


226,829


57,485


1,061,239Noninterest expense


173,952


221,547


582,497


646,535(Loss) income before minority interest and income taxes


(134,919
)

5,282


(525,012
)

414,704Minority interest income


14,580


29,569


54,255


44,375(Loss) income before income taxes


(120,339
)

34,851


(470,757
)

459,079Income taxes


(30,890
)

8,270


(179,938
)

167,564Net (loss) income

$
(89,449
)
$
26,581

$
(290,819
)
$
291,515




We incurred a loss after income taxes of $89.4 million for the three months ended September 30, 2008 compared to income
after income taxes of $26.6 million for the three months ended September 30, 2007. The current quarter earnings were negatively impacted by continued adverse market conditions that
resulted in increased valuation losses on our loans, investments and real estate, and declines in our fee and investment income.

Net
losses, a component of noninterest income, totaled $140.9 million for the three months ended September 30, 2008 compared to net losses of $65.4 million for the
three months ended September 30, 2007. Net losses on loans totaled $123.7 million in the current period (of which $27.9 million was realized) compared to net losses on loans of
$85.8 million in the prior period (of which $9.7 million was realized) reflecting downward changes in fair value recognized on our portfolio of loans held for sale. Net losses on
investments and real estate totaled $63.4 million for the three months ended September 30, 2008, primarily due to impairment charges on real estate investments in our Asian Operations
business segment, compared to net gains of $4.5 million for the three months ended September 30, 2007. Net losses on loans, investments and real estate were partially offset by a gain of

50

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Table of Contents

$27.5 million
substantially within our North American Lending and Mortgage Banking business segment on the sale of interests in entities established to facilitate the defeasance of securitized
loans for the three months ended September 30, 2008.

Fee
and investment income totaled $180.1 million for the three months ended September 30, 2008 compared to $221.8 million for the three months ended
September 30, 2007. The decline of $41.7 million was largely due to declines in investment banking fees, trust fees, mortgage servicing fees, other fees and our income from equity
investments in joint ventures and partnerships, partially offset by an increase in structuring fees and investment syndication income. Investment banking fees declined $23.1 million due to a
significant reduction in military housing placement volume. Trust fees declined $20.9 million due to the lower interest rate environment. Mortgage servicing fees declined $9.0 million
primarily due to lower assumption fees, a component of mortgage servicing fees. Other fees declined $7.7 million due to lower transaction volume. Our income from equity investments in joint
ventures and partnerships declined $5.4 million primarily due to declines in fair value of the assets held through such joint ventures and partnerships. Structuring fees and investment
syndication income increased $27.8 million primarily due to a reduction in LIHTC loss reserves due to the repeal of legislation in the third quarter of 2008 that previously required such
reserves in connection with the affordable housing business.

Noninterest
expense totaled $174.0 million for the three months ended September 30, 2008 compared to $221.5 million for the three months ended September 30,
2007. The decline of $47.5 million was primarily due to a $35.8 million decrease in compensation and benefits due to a lower fixed and variable compensation costs related to a reduction
in headcount and the decline in operating results, and a $13.5 million decrease in occupancy and equipment related to certain entities we consolidate under applicable accounting guidance.



We incurred a loss after income taxes of $290.8 million for the nine months ended September 30, 2008 compared to income
after income taxes of $291.5 million for the nine months ended September 30, 2007. The current year loss was attributable to net losses on loans of $523.1 million (of which
$275.5 million was realized), primarily resulting from downward changes in fair value and losses on interests in European loans that were sold in April 2008, compared to net losses on loans of
$18.8 million (which is net of realized gains totaling $15.7 million) for the nine months ended September 30, 2007.

Net
losses on investments and real estate totaled $92.4 million for the nine months ended September 30, 2008, primarily due to impairment charges on real estate investments
in our Asian Operations business segment, compared to net gains of $55.9 million for the nine months ended September 30, 2007. Net losses on loans, investments and real estate were
partially offset by gains of $38.7 million on the sale of interests in entities established to facilitate the defeasance of securitized loans substantially within our North American Lending and
Mortgage Banking business segment and a $14.3 million gain on the repurchase and retirement of $100.0 million of our outstanding floating rate senior notes for the nine months ended
September 30, 2008. The results for the nine months ended September 30, 2007 included a $65.3 million nonrecurring gain on the sale of a majority of our affordable housing debt
platform. In the aggregate, net losses totaled $502.5 million for the nine months ended September 30, 2008 compared to net gains of $115.2 million in the same period of 2007.

Fee
and investment income totaled $464.5 million for the nine months ended September 30, 2008 compared to $728.8 million for the nine months ended
September 30, 2007. The decline of $264.3 was largely due to a $139.7 million decline in our income from equity investments in joint ventures and partnerships due to adverse market
conditions in 2008. Fee and investment income also declined due to lower trust fees, lower investment banking fees, performance-based asset management fees earned in

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2007
that were not achieved in the comparable period of 2008, and reduced other fees. Trust fees declined $41.5 million due to the lower interest rate environment. Investment banking fees
declined $31.5 million due to a reduction in military housing placement volume. Other fees declined $34.1 million due to lower transaction volume. These unfavorable variances were partly
offset by a $33.3 million increase in structuring fees and investment syndication income due to a reduction in LIHTC loss reserves resulting from the repeal of legislation in the third quarter
of 2008 that previously required such reserves in connection with the affordable housing business.

Noninterest
expense totaled $582.5 million for the nine months ended September 30, 2008 compared to $646.5 million for the nine months ended September 30,
2007. The decline of $64.0 million was primarily due to a $78.2 million decrease in compensation and benefits due to lower fixed and variable
compensation costs related to a reduction in headcount and the decline in operating results, partly offset by an increase in professional fees of $14.5 million largely due to an increase in
consulting services and the deferral of direct loan origination costs in 2007 that are no longer deferred in connection with our adoption of SFAS No. 159 effective January 1, 2008.



The following table summarizes our net interest income for the three and nine months ended September 30, 2008 and 2007 (in
thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Net Interest Income

2008

2007

2008

2007Interest income

$
227,861

$
329,137

$
741,676

$
907,829Interest expense


188,360


247,034


588,495


667,178Net interest income

$
39,501

$
82,103

$
153,181

$
240,651




Net interest income totaled $39.5 million for the three months ended September 30, 2008 compared to $82.1 million
for the three months ended September 30, 2007. Net interest income totaled $153.2 million for the nine months ended September 30, 2008 compared to $240.7 million for the
nine months ended September 30, 2007. The decline was primarily due to increased spreads and fees paid on the issuance of long-term Brokered CDs at Capmark Bank US and lower
interest-earning assets. The decline in net interest income was partially offset by gains on certain interest rate hedges, which are included in noninterest income.



We earn interest income primarily from the loans that we originate and hold for sale or investment, from the accretion of income on
non-performing loans that we acquire at a discount to their face value and from the investment securities that we carry on our consolidated balance sheet. The investment securities that we
carry on our consolidated balance sheet consist of: beneficial interests in CMBS, ABS and CDOs; tax-exempt securities; certain Japanese securities, or "TMK securities;" mortgage-backed
securities issued by Ginnie Mae, Fannie Mae and Freddie Mac; U.S. Treasury and other securities; and securities that we acquire for short-term trading purposes. In connection with the sale
of a majority of our affordable housing debt platform in February 2007, we sold a significant portion of the tax-exempt housing bonds that we owned. Unrelated to the sale of a majority of
our affordable housing debt platform, we also sold $746.1 million of tax-exempt bonds related to our

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former
tender option bond program and repaid the outstanding related financing of $731.6 million in March and April 2007.

We
have both fixed and floating rate assets on our consolidated balance sheet. We hedge the interest rate risk associated with most of our fixed rate assets through the use of derivative
instruments and other risk mitigation strategies. However, because the net gains and losses associated with these derivative instruments generally are not classified as interest income, we may
experience volatility in our reported amounts of interest income and associated gains and losses on derivative instruments.

The
following table summarizes our sources of interest income for the three and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Interest Income

2008

2007

2008

2007Loans(1)

$
186,356

$
255,601

$
607,147

$
688,677Investment securities


15,770


26,719


57,164


71,924Acquired non-performing loans


6,914


14,096


21,316


42,649Assets collateralized in securitization trusts(2)


3,581


3,934


11,080


36,435Escrow balances


5,883


8,203


19,535


25,974Other


9,357


20,584


25,434


42,170Total

$
227,861

$
329,137

$
741,676

$
907,829


---

Note:



Our interest expense consists primarily of amounts we pay third parties under our debt financing arrangements including our senior
notes, interest that accrues on our deposit liabilities and interest that we are required to pay on a portion of the escrow balances with respect to which we earn trust fees or other types of income.
Interest expense relating to our deposit liabilities has grown significantly in recent years as a result of an increase in the amount of Brokered CDs at Capmark Bank US. The increase in the amount of
Brokered CDs has also resulted in an increase in fees paid at issuance. Such fees are reported as a component of interest expense in our consolidated statement of operations. For Brokered CDs carried
at fair value, such fees are expensed at issuance.

We
have both fixed and floating rate borrowings and fixed rate deposit liabilities on our consolidated balance sheet. Because our interest-earning assets are predominantly floating rate,
we generally convert our fixed rate borrowings and deposit liabilities to floating rate borrowings and deposit liabilities through the use of derivative instruments and other risk mitigation
strategies. However, because the net gains and losses associated with these derivative instruments generally are not classified as interest expense, we may experience greater variability in our
reported amounts of interest expense and associated gains and losses on derivative instruments.

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The following table summarizes our sources of interest expense for the three and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Interest Expense

2008

2007

2008

2007Long-term borrowings

$
93,345

$
131,447

$
293,559

$
372,089Short-term borrowings


21,241


29,821


86,610


86,020Deposit liabilities


70,869


79,870


191,367


177,585Collateralized borrowings in securitization trusts(1)


3,650


3,997


11,300


34,554Other(2)


(745
)

1,899


5,659


(3,070
)Total

$
188,360

$
247,034

$
588,495

$
667,178


---

Note:



Our noninterest income includes net realized and unrealized gains and losses on loans, trading derivatives, investment securities, real
estate investments and equity investments. Effective January 1, 2008, we elected to carry our loans held for sale at fair value in accordance with SFAS No. 159. Prior to
January 1, 2008, we carried our loans held for sale at the lower of cost or fair value in accordance with SFAS No. 65. If we are required to write down the value of a loan that we hold
for sale as a result of a decrease in the loan's fair value, we reduce our noninterest income by an amount equal to the write-down in the carrying value of the loan. This change in fair
value is reported as a component of net (losses) gains on loans in our consolidated statement of operations.

Historically
we generated net gains in connection with our sales of loans through securitization and syndication activities. In recent periods, market conditions have adversely affected
our ability to securitize and syndicate loans and other assets. As a result of current adverse market conditions, we have incurred realized and unrealized losses. We generally expect our level of net
gains and losses to continue to fluctuate from period to period.

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The
following table presents information concerning our net (losses) gains for the three and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Net (Losses) Gains

2008

2007

2008

2007Net (losses) on loans

$
(123,726
)
$
(85,751
)
$
(523,110
)
$
(18,809
)Net (losses) gains on investments and real estate(1)


(63,332
)

4,453


(92,328
)

55,929Other gains, net(2)


46,165


15,934


112,982


78,112Total

$
(140,893
)
$
(65,364
)
$
(502,456
)
$
115,232


---

Notes:



Net losses totaled $140.9 million for the three months ended September 30, 2008 compared to net losses of
$65.4 million for the three months ended September 30, 2007. Net losses on loans totaled $123.7 million in the current period compared to $85.8 million in the prior period
reflecting downward changes in fair value recognized on our portfolio of loans held for sale. Net losses on investments and real estate totaled $63.4 million for the three months ended
September 30, 2008, primarily due to impairment charges on real estate investments in our Asian Operations business segment, compared to net gains of $4.5 million for the three months
ended September 30, 2007. Net losses on loans, investments and real estate were partially offset by a gain of $27.5 million on the sale of interests in entities established to facilitate
the defeasance of securitized loans for the three months ended September 30, 2008.



Net losses totaled $502.5 million for the nine months ended September 30, 2008 compared to net gains of
$115.2 million for the nine months ended September 30, 2007. Net losses on loans totaled $523.1 million for the nine months ended September 30, 2008 primarily resulting
from downward changes in fair value and losses on interests in European loans that were sold in April 2008 compared to net losses on loans of $18.8 million for the nine months ended
September 30, 2007. Net losses on investments and real estate totaled $92.3 million for the nine months ended September 30, 2008, primarily due to impairment charges on real
estate investments in our Asian Operations business segment, compared to net gains of $55.9 million for the nine months ended September 30, 2007. Net losses on loans, investments and
real estate were partially offset by gains of $38.7 million on the sale of interests in entities established to facilitate the defeasance of securitized loans and a gain of $14.3 million
on the repurchase and retirement of $100.0 million of our outstanding floating rate senior notes for the nine months ended September 30, 2008. In addition, the results for the nine
months ended September 30, 2007 included a $65.3 million nonrecurring gain on the sale of a majority of our affordable housing debt platform.

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The majority of our noninterest income is fee-based income that we earn from our three core business lines. Additionally,
our noninterest income includes our allocable share of the income or loss generated by our interests in joint ventures and partnerships that we account for under the equity method, which primarily
consists of our (1) investments in affordable housing partnerships in the U.S., (2) investments in real estate equity investment funds in the U.S., (3) investments in real estate
projects, joint ventures and real estate equity investment funds in Europe, and (4) investments in non-performing commercial loan and real estate joint ventures principally in Asia.
Our noninterest income also includes real estate investment income (generally net rental income) that is generated by investments in real property that we are required to consolidate under GAAP and
includes properties located in Asia and certain properties owned by our lower-tier LIHTC partnerships.

The
following table summarizes our sources of fee and investment income for the three and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Fee and Investment Income

2008

2007

2008

2007Mortgage servicing fees

$
42,157

$
51,164

$
142,429

$
155,315Placement fees


15,293


15,356


50,765


56,731Investment banking fees(1)


8,373


31,502


19,329


50,865Structuring fees and investment syndication income(1)


43,903


16,135


61,874


28,623Asset management fees


18,666


19,810


57,881


85,888Trust fees


34,164


55,059


100,878


142,358Other fees


4,385


12,106


9,858


43,938Equity in (loss) income of joint ventures and partnerships


(13,892
)

(8,454
)

(51,950
)

87,705Net real estate investment income(2)


20,352


22,198


57,190


64,053Other(2)


6,667


6,935


16,168


13,311Total

$
180,068

$
221,811

$
464,422

$
728,787


---

Notes:



Our fee and investment income totaled $180.1 million for the three months ended September 30, 2008 compared to
$221.8 million for the three months ended September 30, 2007. The decline of $41.7 million was largely due to declines in investment banking fees, trust fees, mortgage servicing
fees, other fees and our income from equity investments in joint ventures and partnerships, partially offset by an increase in structuring fees and investment syndication income. Investment banking
fees declined $23.1 million due to a significant reduction in military housing placement volume. Trust fees declined $20.9 million due to the lower interest rate environment. Mortgage
servicing fees declined $9.0 million primarily due to lower assumption fees. Other fees declined $7.7 million due to lower transaction volume. Our income from equity investments in joint
ventures and partnerships declined $5.4 million primarily due to declines in fair value of the assets held through such joint ventures and partnerships. Structuring fees and investment
syndication income increased $27.8 million primarily due to a reduction

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in
LIHTC loss reserves due to the repeal of legislation in the third quarter of 2008 that previously required such reserves in connection with the affordable housing business.



Our fee and investment income totaled $464.4 million for the nine months ended September 30, 2008 compared to
$728.8 million for the nine months ended September 30, 2007. The $264.4 million decrease was largely due to a $139.7 million decline in our income from equity investments
in joint ventures and partnerships caused by adverse market conditions in 2008. Fee and investment income also declined due to lower trust fees, lower investment banking fees, performance-based asset
management fees earned in 2007 that were not achieved in the comparable period of 2008, and reduced other fees. Trust fees declined $41.5 million due to the lower interest rate environment.
Investment banking fees declined $31.5 million due to a reduction in military housing placement volume. Other fees declined $34.1 million due to lower transaction volume. These
unfavorable variances were partly offset by a $33.3 million increase in structuring fees and investment syndication income due to a reduction in LIHTC loss reserves due to the repeal of
legislation in the third quarter of 2008 that previously required such reserves in connection with the affordable housing business.



We maintain an allowance for loan losses on our loans held for investment in order to provide for the risk of credit losses inherent in
the loan portfolio. To recognize increases in this allowance, we record a provision for loan losses in our consolidated statement of operations. These provisions are estimates and involve judgment and
consideration of a number of factors including: our past loan experience; the current composition of the portfolio; historical credit migration; property type diversification; default; loss severity;
industry loss experience; economic conditions and trends; and other relevant factors.



Our provision for loan losses totaled $39.6 million for the three months ended September 30, 2008 compared to
$11.7 million for the three months ended September 30, 2007; and $57.7 million for the nine months ended September 30, 2008 compared to $23.4 million for the nine
months ended September 30, 2007. The increase in our provision for loan losses reflects an overall increase in our loans held for investment and an increase in impaired loans for which a
specific allowance is recorded. Our loans held for investment include total impaired loans of $177.6 million and $101.2 million as of September 30, 2008 and December 31,
2007, respectively. Our allowance for loan losses on impaired loans totaled $33.5 million and $6.9 million as of September 30, 2008 and December 31, 2007, respectively.



Our noninterest expense consists primarily of the compensation and benefits that we pay our employees; amortization charges that we
record with respect to our mortgage servicing rights; costs relating to our office space and equipment; professional fees that we pay our legal, accounting and other service providers; and other
various expenses.

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The
following table summarizes our sources of noninterest expense for the three and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,Noninterest Expense

2008

2007

2008

2007Compensation and benefits

$
77,066

$
112,793

$
243,127

$
321,305Amortization of mortgage servicing rights


34,528


33,545


103,896


95,875Occupancy and equipment


10,356


23,868


53,139


67,877Professional fees


25,523


28,491


85,687


71,157Other expenses(1)


26,479


22,850


96,648


90,321Total

$
173,952

$
221,547

$
582,497

$
646,535


---

Note:



Our noninterest expense totaled $174.0 million for the three months ended September 30, 2008 compared to
$221.5 million for the three months ended September 30, 2007. The $47.5 million decrease was primarily due to a $35.7 million decrease in compensation and benefits due to a
lower fixed and variable compensation costs related to a reduction in headcount and the decline in operating results, and a $13.5 million decrease in occupancy and equipment related to certain
entities we consolidate under applicable accounting guidance.



Our noninterest expense totaled $582.5 million for the nine months ended September 30, 2008 compared to
$646.5 million for the nine months ended September 30, 2007. The $64.0 million decrease was primarily due to a $78.2 million decrease in compensation and benefits due to
lower fixed and variable compensation costs related to a reduction in headcount and the decline in operating results, partly offset by an increase in professional fees of $14.5 million largely
due to an increase in consulting services and the deferral of direct loan origination costs in 2007 that are no longer deferred in connection with our adoption of SFAS No. 159 effective
January 1, 2008.



Our consolidated financial statements include the results of entities in which third parties own an economic interest. These entities
consist primarily of our upper-tier and lower-tier LIHTC partnerships and certain other entities and commingled funds that are consolidated under applicable accounting
guidance. The consolidation of these entities and funds in our financial statements requires us to recognize all of the revenues and all of the expenses that these entities and funds record during an
accounting period. When calculating our net income, the portion of the net income or loss of consolidated entities and funds that are attributable to minority investors in those entities and funds is
reflected as minority interest income or expense, as appropriate, in our consolidated statement of operations.



Our minority interest income totaled $14.6 million for the three months ended September 30, 2008 compared to
$29.6 million for the three months ended September 30, 2007. The $15.0 million decrease was primarily due to the disposal of certain consolidated affordable housing partnerships.

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Our minority interest income totaled $54.3 million for the nine months ended September 30, 2008 compared to $44.4 million for the nine months
ended September 30, 2007. The $9.9 million increase was primarily due an increase in the provision for loan losses and downward changes in fair value recorded in certain entities that we
consolidate and results in minority interest income equal to the third-party investors' allocation of such amounts.



We account for income taxes under the asset and liability method in accordance with SFAS No. 109, "Accounting for Income Taxes,"
or "SFAS No. 109." On January 1, 2007, we adopted FIN 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109," or
"FIN 48," which clarifies SFAS No. 109 by defining the confidence level that an income tax position must meet in order to be recognized in the financial statements. FIN 48
requires the tax effects of a position to be recognized only if it is "more-likely-than-not" to be sustained solely on its technical merits. The
"more-likely-than-not" threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax
position is not considered "more-likely-than-not" to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized.



We recorded an income tax expense benefit of $30.9 million for the three months ended September 30, 2008 compared to
income tax expense of $8.3 million for three months September 30, 2007 due to the change in pre-tax earnings between the periods.

We
recorded an income tax benefit of $179.9 million for the nine months ended September 30, 2008 compared to an income tax provision of $167.6 million for the nine
months ended September 30, 2007 due to the change in pre-tax earnings between the periods.



To reconcile our management reporting of our segment financial information to amounts included in our consolidated financial
statements, we have excluded certain items from our segment reporting and categorized them as "Corporate and Other." As previously described, our six reportable business segments do not include
certain corporate overhead expenses, certain immaterial businesses, allocation of income taxes, adjustments required by push down accounting, or any other eliminations, reclassifications or other
adjustments that are made to conform our management reporting to our consolidated financial statements.

The
loss before income taxes totaled $62.6 million for the three months ended September 30, 2008 compared to $46.2 million for the three months ended
September 30, 2007. These amounts include unallocated personnel-related expenses for corporate departments such as accounting, tax, treasury, risk management, legal, information technology,
human resources, facilities and internal audit. In addition, as described above, these amounts include the impact of push down accounting. The $16.4 million increase was primarily due to an
increase in the loss before income taxes of $12.8 million associated with corporate functions and immaterial businesses.

The
loss before income taxes totaled $140.9 million for the nine months ended September 30, 2008 compared to $156.8 million for the nine months ended
September 30, 2007. The $15.9 million decrease was due to a decrease in the loss before income taxes of $30.1 million associated with push down accounting partly offset by an
increase in the loss before income taxes of $14.1 million associated with corporate functions and immaterial businesses. The impact of push down accounting has diminished over time.

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Segments



The following table summarizes the results of operations of our North American Lending and Mortgage Banking segment for the three and
nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
81,935

$
81,780

$
244,789

$
201,679Noninterest income


(38,022
)

377


(67,896
)

187,080Total revenue


43,913


82,157


176,893


388,759Provision for loan losses


28,030


12,012


41,041


12,116Net revenue


15,883


70,145


135,852


376,643Noninterest expense


47,610


91,392


143,171


238,987(Loss) income before minority interest and income taxes


(31,727
)

(21,247
)

(7,319
)

137,656Minority interest income


12,201


6,034


26,821


16,180(Loss) income before income taxes

$
(19,526
)
$
(15,213
)
$
19,502

$
153,836




Our North American Lending and Mortgage Banking segment incurred a loss before income taxes totaled $19.5 million for the three
months ended September 30, 2008 compared to a loss before income taxes of $15.2 million for the three months ended September 30, 2007. The $4.3 million decline was driven
primarily by lower noninterest income and higher provision for loan losses, partially offset by lower noninterest expense.

Net
interest income totaled $81.9 million for the three months ended September 30, 2008 which was comparable to net interest income of $81.8 million recorded for the
three months ended September 30, 2007. Total assets as of September 30, 2008 were $12.6 billion compared to $13.4 billion as of September 30, 2007. The decline in
assets was substantially offset by an increase in our net interest income due to an $8.1 million increase in accretion income on loans held for investment that were previously classified as
held for sale and an increase in portfolio yields partially attributed to the impact of loans structured with interest rate floors that were above contractual benchmark rates.

Noninterest
income was a negative $38.0 million for the three months ended September 30, 2008 compared to a positive $0.4 million for the three months ended
September 30, 2007. The $38.4 million decrease was driven by a reduction in placement fees and investment banking fees partially offset by a reduction in net losses. Placement fees
declined $22.1 million due to a decrease in loan origination volume to $2.4 billion in the current period from $6.3 billion in the prior period. Investment banking fees declined
$22.9 million due to a decrease in military housing placement volume to $0.2 billion in the current period from $1.2 billion in the prior period. Net losses totaled
$81.7 million for the three months ended September 30, 2008 compared to net losses of $90.6 million for the three months ended September 30, 2007. The $8.9 million
decrease was driven by a gain of $25.6 million on the sale of interests in entities established to facilitate the defeasance of securitized loans offset by an increase of $9.1 million in
unrealized valuation losses on loans held for sale and an increase of $12.2 million in realized losses from the sale of loans. All other gains increased $4.6 million. All other
noninterest income decreased $2.3 million primarily due to lower exit fees, a component of other fees in our condensed consolidated statement of operations, earned on loan payoffs where Capmark
does not place the new financing, and lower equity in income of joint ventures and partnerships.

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The
provision for loan losses totaled $28.0 million for the three months ended September 30, 2008 compared to $12.0 million for the three months ended
September 30, 2007. The $16.0 million increase was primarily due to an overall increase in our loans held for investment and an increase in impaired loans for which a specific allowance
is recorded.

Noninterest
expense totaled $47.6 million for the three months ended September 30, 2008 compared to $91.4 million for the three months ended September 30,
2007. The $43.8 million decrease was primarily driven by a $30.8 million decline in compensation and benefits due to a reduction in incentive compensation related to a decline in loan
originations and operating results. All other noninterest expense decreased $13.0 million primarily due to a reduction in loan origination activities.

Minority
interest income totaled $12.2 million for the three months ended September 30, 2008 compared to $6.0 million for the three months ended September 30,
2007. The $6.2 million increase was due to an increase in minority interest income associated with certain new markets tax credit ("NMTC") partnerships that are consolidated under applicable
accounting guidance. The majority of the increase was due to a provision for loan losses in our condensed consolidated statement of operations that is allocated to the minority interest holders of
such NMTC partnerships. The increase in provision for loan losses resulted in an increase in minority interest income equal to the third-party investors' allocation of such provision.



Income before income taxes totaled $19.5 million for the nine months ended September 30, 2008 compared to
$153.8 million for the nine months ended September 30, 2007. The $134.3 million decrease was driven primarily by adverse market conditions resulting in downward changes in fair
value and increased loan loss reserves and a decrease in fee income. These negative trends are partially offset by lower noninterest expense and higher net interest income.

Net
interest income totaled $244.8 million for the nine months ended September 30, 2008 compared to $201.7 million for the nine months ended September 30,
2007. The $43.1 million increase was primarily the result of an increase in average interest-earning assets, an increase of $25.4 million in accretion income on loans held for investment
that were previously classified as held for sale, and an increase in
portfolio yields partially attributed to the impact of loans structured with interest rate floors that were above contractual benchmark rates.

Noninterest
income was a negative $67.9 million for the nine months ended September 30, 2008 compared to a positive $187.1 million for the nine months ended
September 30, 2007. The $255.0 million decrease was driven by an increase in net losses and a reduction in placement fees and investment banking fees. Net losses totaled
$184.0 million for the nine months ended September 30, 2008 compared to net losses of $46.7 million for the nine months ended September 30, 2007. The $137.3 million
increase was attributed to a $111.5 million increase in valuation losses on loans held for sale. Gains recognized from the sale of loans decreased $58.9 million due to the absence of
securitization transactions during the nine months ended September 30, 2008. All other gains increased $33.1 million primarily attributed to the gain of $36.9 million on the sale
of interests in entities established to facilitate the defeasance of securitized loans in 2008. Placement fees decreased $78.1 million due to a decrease in origination volume to
$7.8 billion in the current period from $19.9 billion in the prior period. Investment banking fees decreased $30.0 million due to a reduction in military housing placement volume
of $1.4 billion. All other noninterest income decreased $9.6 million primarily due to lower exit fees, equity in income of joint ventures and partnerships and other miscellaneous income
due to adverse market conditions.

The
provision for loan losses totaled $41.0 million for the nine months ended September 30, 2008 compared to $12.1 million for the nine months ended
September 30, 2007. The $28.9 million increase

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in
provision was primarily due to an overall increase in our loans held for investment and an increase in impaired loans for which a specific allowance is recorded.

Noninterest
expense totaled $143.2 million for the nine months ended September 30, 2008 compared to $239.0 million for the nine months ended September 30,
2007. The $95.8 million decrease was primarily driven by an $81.2 million decline in compensation and benefits due to a reduction in incentive compensation related to a decline in loan
originations and operating results. All other noninterest expense decreased $14.6 million primarily due to a reduction in loan origination activities.

Minority
interest income totaled $26.8 million for the nine months ended September 30, 2008 compared to $16.2 million for the nine months ended September 30,
2007. The $10.6 million increase was due to an increase in minority interest income associated with certain NMTC partnerships that are consolidated under applicable accounting guidance. The
majority of the increase was due to a provision for loan losses in our condensed consolidated statement of operations that is allocated to the minority interest holders of such NMTC partnerships. The
increase in provision for loan losses resulted in an increase in minority interest income equal to the third-party investors' allocation of such provision.

North American Investments and Funds Management Segment

The following table summarizes the results of operations of our North American Investments and Funds Management segment for the three
and nine months ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
(834
)
$
(165
)
$
471

$
6,279Noninterest income


(1,518
)

42,059


(11,588
)

215,237Total revenue


(2,352
)

41,894


(11,117
)

221,516Provision for loan losses





(294
)




245Net revenue


(2,352
)

42,188


(11,117
)

221,271Noninterest expense


7,651


21,203


28,074


70,045(Loss) income before minority interest and income taxes


(10,003
)

20,985


(39,191
)

151,226Minority interest income (expense)


(165
)

7,353


8,509


(5,875
)(Loss) income before income taxes

$
(10,168
)
$
28,338

$
(30,682
)
$
145,351




Our North American Investments and Funds Management segment incurred a loss before income taxes of $10.2 million for the three
months ended September 30, 2008 compared to income before income taxes of $28.3 million for the three months ended September 30, 2007. The $38.5 million decrease was
primarily driven by a reduction in income from equity investments in joint ventures and partnerships due to downward changes in fair value of investment funds in which we co-invest with
third-party investors and nonrecurring gains from asset sales in the prior year, partly offset by lower noninterest expense.

Net
interest income was a negative $0.8 million for the three months ended September 30, 2008 compared to a negative $0.2 million for the three months ended
September 30, 2007. The $0.6 million decrease was primarily due to a decline in average interest-earning assets for the three months ended September 30, 2008 compared to the prior
year.

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Noninterest
income was a negative $1.5 million for the three months ended September 30, 2008 compared to a positive $42.1 million for the three months ended
September 30, 2007. The $43.6 million decrease was primarily the result of increased net losses and lower income from equity investments in joint ventures and partnerships. Our income
from equity investments in joint ventures and partnerships include the results of certain commingled funds that we consolidate. Income from equity investments in joint ventures and partnerships,
excluding asset sales, decreased $11.3 million primarily due to declines in the market value of assets held through such joint ventures and partnerships. Gains from asset sales executed through
joint venture holdings decreased $7.4 million from the prior period due to a reduction in sales activity. Net losses incurred from downward changes in fair value of loans amounted to
$5.7 million for the three months ended September 30, 2008, reflecting continued adverse market conditions, compared to net gains of $0.2 million for the three months ended
September 30, 2007. These losses were offset by a $5.0 million nonrecurring gain in the three months ended September 30, 2008 from the principal repayment of a loan previously
charged off. Net gains on investment securities amounted to $0.3 million for the three months ended September 30, 2008 compared to net losses of $0.9 million for the three months
ended September 30, 2007. The three months ended September 30, 2007 also included nonrecurring gains of $14.0 million resulting from the sale of our former research division,
Realpoint, and the remaining property held in another division. These divisions also produced operating income of $3.1 million in the prior period. Additionally, placement fees declined
$4.6 million due to fewer real estate equity transactions upon which we earn such fees. Asset management fees declined $2.1 million due to nonrecurring fees received in the prior period
from the final close of an investment fund.

Noninterest
expense totaled $7.7 million for the three months ended September 30, 2008 compared to $21.2 million for the three months ended September 30,
2007. The $13.5 million decrease was primarily due to a reduction in incentive compensation expense of $12.0 million related to the decline in operating results and a $1.9 million
decrease in professional fees.

Minority
interest expense totaled $0.2 million for the three months ended September 30, 2008 compared to minority interest income of $7.4 million for the three
months ended September 30, 2007. The $7.6 million variance was primarily due to downward changes in fair value recognized in the prior year for certain commingled funds that we
consolidate. The downward changes in fair value resulted in minority interest income equal to the third-party investors' share of such losses.



Our North American Investments and Funds Management segment incurred a loss before income taxes of $30.7 million for the nine
months ended September 30, 2008 compared to income before income taxes of $145.4 million for the nine months ended September 30, 2007. The $176.1 million decrease was
primarily driven by a reduction in income from equity investments in joint ventures and partnerships due to downward changes in fair value of investment funds in which we co-invest with
third-party investors, losses from downward changes in fair value of investment securities and loans, and nonrecurring gains from asset sales in the prior year partly offset by lower noninterest
expense in the current year.

Net
interest income totaled $0.5 million for the nine months ended September 30, 2008 compared to $6.3 million for the nine months ended September 30, 2007.
The $5.8 million decrease was primarily due to a decrease in average interest-earning assets for the nine months ended September 30, 2008 compared to the prior year.

Noninterest
income was a negative $11.6 million for the nine months ended September 30, 2008 compared to a positive $215.2 million for the nine months ended
September 30, 2007. The $226.8 million decrease was primarily the result of increased net losses and lower income from equity investments in joint ventures and partnerships, placement
fees and asset management fees. Income

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from
equity investments in joint ventures and partnerships, excluding asset sales, decreased $100.7 million primarily due to declines in the market value of assets held through such joint
ventures and partnerships. Gains from asset sales executed through real estate joint venture holdings decreased $22.6 million from the prior period due to a reduction in sales activity. Net
losses incurred from downward changes in fair value of loans amounted to $17.3 million for the nine months ended September 30, 2008, due to continuing adverse market conditions, compared
to net gains of $0.4 million for the nine months ended September 30, 2007. The current year losses were offset by a $5.0 million nonrecurring gain in the nine months ended
September 30, 2008 from the principal repayment of a loan previously charged off. Net losses incurred from downward changes in fair value of investment securities amounted to
$4.9 million for the nine months ended September 30, 2008, due to continuing adverse market conditions, compared to net gains of $24.1 million for the nine months ended
September 30, 2007 primarily due to nonrecurring realized gains on the sale of certain CMBS investments in 2007. The nine months ended September 30, 2007 also included nonrecurring gains
of $14.0 million resulting from the sale of Realpoint, and the remaining property held in another division. These divisions also produced operating income of $7.9 million in the prior
period. Additionally, placement fees declined $23.4 million due to fewer real estate equity transactions upon which we earn such fees. Asset management fees declined $14.9 million due to
nonrecurring fees earned in 2007 related to achieving certain performance criteria, the liquidation of an investment fund and the final close of an investment fund.

Noninterest
expense totaled $28.1 million for the nine months ended September 30, 2008 compared to $70.0 million for the nine months ended September 30, 2007.
The $41.9 million decrease was primarily due to a reduction in incentive compensation expense of $40.4 million related to the decline in operating results.

Minority
interest income was $8.5 million for the nine months ended September 30, 2008 compared to minority interest expense of $5.9 million for the nine months
ended September 30, 2007. The $14.4 million variance was primarily due to downward changes in fair value recognized in 2008 on certain commingled funds that we consolidate. The downward
changes in fair value resulted in minority interest income equal to the third-party investors' share of such losses in the current year compared to income earned in the prior year that resulted in
minority interest expense equal to the third-party investors' share of such income.



The following table summarizes the results of operations of our North American Servicing segment for the three and nine months ended
September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
(3,596
)
$
(235
)
$
(11,378
)
$
(7,951
)Noninterest income


76,712


101,179


231,833


308,278Total revenue


73,116


100,944


220,455


300,327Provision for loan losses











(87
)Net revenue


73,116


100,944


220,455


300,414Noninterest expense


48,293


51,566


145,943


156,603Income before minority interest and income taxes


24,823


49,378


74,512


143,811Minority interest income











Income before income taxes

$
24,823

$
49,378

$
74,512

$
143,811


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Income before income taxes totaled $24.8 million for the three months ended September 30, 2008 compared to
$49.4 million for the three months ended September 30, 2007. The $24.6 million decrease was primarily driven by lower net interest income and noninterest income partly offset by
lower noninterest expense.

Net
interest income totaled a negative $3.6 million for the three months ended September 30, 2008 compared to a negative $0.2 million for the three months ended
September 30, 2007. The $3.4 million decrease was primarily driven by a reduction in interest rates. The segment generated lower interest income of $9.2 million on balances
maintained at third party banks. This was partially offset by $4.3 million of lower interest expense on balance sheet assets and $1.6 million of lower interest expense paid to borrowers.

Noninterest
income totaled $76.7 million for the three months ended September 30, 2008 compared to $101.2 million for the three months ended September 30,
2007. The $24.5 million decrease was driven by lower trust fees, mortgage servicing fees, and other fees. Trust fees are interest rate sensitive and
decreased $18.4 million due to the lower interest rate environment. Mortgage servicing fees decreased $5.9 million primarily as a result of lower assumption fees, which are a component
of mortgage servicing fees in our condensed consolidated statement of operations. We earn an assumption fee when an existing borrower's mortgage is assumed by a new borrower. Assumption transactions
have declined due to adverse market conditions. Other fees declined $2.3 million primarily as a result of lower defeasance fees, which are a component of other fees in our condensed
consolidated statement of operations. We earn a defeasance fee when a borrower pays off their mortgage through substitution of other collateral. Defeasance transactions have also declined due to
adverse market conditions.

Noninterest
expense totaled $48.3 million for the three months ended September 30, 2008 compared to $51.6 million for the three months ended September 30,
2007. The $3.3 million decrease was primarily driven by lower compensation and benefits.



Income before income taxes totaled $74.5 million for the nine months ended September 30, 2008 compared to
$143.8 million for the nine months ended September 30, 2007. The $69.3 million decrease was primarily driven by lower net interest income and noninterest income partly offset by
lower noninterest expense.

Net
interest income totaled a negative $11.4 million for the nine months ended September 30, 2008 compared to a negative $8.0 million for the nine months ended
September 30, 2007. The $3.4 million decrease was primarily driven by a reduction in interest rates. The servicing segment generated lower interest income of $19.8 million on
balances maintained at third party banks. This was partially offset by $9.7 million of lower interest expense on balance sheet assets and $4.8 million of lower interest expense paid to
borrowers.

Noninterest
income totaled $231.8 million for the nine months ended September 30, 2008 compared to $308.3 million for the nine months ended September 30,
2007. The $76.5 million decrease was primarily driven by lower trust fees, mortgage servicing fees, and other fees. Trust fees decreased $47.8 million due to the lower interest rate
environment. Mortgage servicing fees decreased $15.2 million primarily as a result of lower assumption fees, a lower North American servicing portfolio and a lower weighted average service fee
on the portfolio. Assumption transactions and related fees have declined due to adverse market conditions. Other fees declined $12.3 million primarily as a result of lower defeasance fees and
the absence of revenues from our former technology subsidiary, EnableUS, Inc.

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Noninterest
expense totaled $145.9 million for the nine months ended September 30, 2008 compared to $156.6 million for the nine months ended September 30,
2007. The $10.7 million decrease was primarily driven by lower compensation and benefits.



The following table summarizes the results of operations of our Asian Operations segment for the three and nine months ended
September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
4,110

$
15,595

$
13,606

$
41,953Noninterest income


(44,694
)

36,294


(27,765
)

118,211Total revenue


(40,584
)

51,889


(14,159
)

160,164Provision for loan losses


11,745


4,679


17,129


9,031Net revenue


(52,329
)

47,210


(31,288
)

151,133Noninterest expense


18,981


11,886


68,657


58,696(Loss) income before minority interest and income taxes


(71,310
)

35,324


(99,945
)

92,437Minority interest income (expense)


2,428


(548
)

(1,119
)

(3,626
)(Loss) income before income taxes

$
(68,882
)
$
34,776

$
(101,064
)
$
88,811




Our Asian Operations segment incurred a loss before income taxes of $68.9 million for the three months ended
September 30, 2008 compared to income before income taxes of $34.8 million for the three months ended September 30, 2007. The $103.7 million decrease was driven by a
reduction in net interest income and noninterest income, an increase in provision for loan losses and noninterest expense, partially offset by an increase in minority interest income.

Net
interest income totaled $4.1 million for the three months ended September 30, 2008 compared to $15.6 million for the three months ended September 30,
2007. The $11.5 million decrease was attributable to a reduction in the balance of acquired non-performing loans and an increase in real estate investments that are not
interest-earning assets. This resulted in an allocation of interest expense on debt used to purchase real estate investments with no corresponding interest income. The decrease in the portfolio of
acquired non-performing loans was driven by resolutions or sales of such loans and no acquisitions.

Noninterest
income totaled a negative $44.7 million for the three months ended September 30, 2008 compared to a positive $36.3 million for the three months ended
September 30, 2007. The $81.0 million decrease was driven primarily by net losses, lower placement fees, and lower income from equity investments in joint ventures and partnerships. Net
losses totaled $55.0 million for the three months ended September 30, 2008 compared to net gains of $19.8 million for the three months ended September 30, 2007. The
unfavorable variance of $74.8 million was due to real estate impairment charges of $53.7 million and downward changes in fair value of loans held for sale totaling $6.6 million in
2008, lower gains from acquired non-performing loans and nonrecurring opportunistic sales of certain real estate investments in 2008 compared to 2007. Placement fees decreased
$2.8 million due to lower loan originations. Our income from equity investments in joint ventures and partnerships declined $1.7 million due to certain real estate joint ventures
terminating in 2007 upon asset disposition.

The
provision for loan losses totaled $11.7 million for the three months ended September 30, 2008 compared to $4.7 million for the three months ended
September 30, 2007 due to difficult market

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conditions
for Japanese and Taiwanese real estate assets which provide the collateral for the portfolio of acquired non-performing loans.

Noninterest
expense totaled $19.0 million for the three months ended September 30, 2008 compared to $11.9 million for the three months ended September 30,
2007. The $7.1 million increase was mainly attributable to an increase of $2.9 million in loan processing fees, an increase in miscellaneous expenses of $2.5 million from certain
entities consolidated in 2008 and an increase of $1.5 million in salary expense.

Minority
interest income totaled $2.4 million for the three months ended September 30, 2008 compared to minority interest expense of $0.5 million for the three
months ended September 30, 2007 due to the impairment of certain Japanese real estate investments in 2008 that are held in a consolidated joint venture resulting in minority interest income
equal to the joint venture partner's share of the loss.



Our Asian Operations segment incurred a loss before income taxes of $101.1million for the nine months ended September 30, 2008
compared to income before income taxes of $88.8 million for the nine months ended September 30, 2007. The $189.9 million decrease was driven by a reduction in net interest income
and noninterest income, an increase in provision for loan losses and noninterest expense, partially offset by a reduction in minority interest expense.

Net
interest income totaled $13.6 million for the nine months ended September 30, 2008 compared to $42.0 million for the nine months ended September 30, 2007.
The $28.4 million decrease was attributable to a reduction in the balance of acquired non-performing loans and an increase in real estate investments that are not interest-earning
assets. This resulted in an allocation of interest expense on debt used to purchase real estate investments with no corresponding interest income. The decrease in the portfolio of acquired
non-performing loans was driven by resolutions or sales of such loans, with certain proceeds reinvested in noninterest-earning real estate investments, and fewer acquisitions of such
loans.

Noninterest
income totaled a negative $27.8 million for the nine months ended September 30, 2008 compared to a positive $118.2 million for the nine months ended
September 30, 2007. The $146.0 million decrease was driven primarily by net losses, lower asset management and disposition fees, lower income from equity investments in joint ventures
and partnerships, and lower placement fees, partially offset by miscellaneous income of $15.3 million from certain entities consolidated in 2008. Net losses totaled $72.3 million for the
three months ended September 30, 2008 compared to net gains of $59.3 million for the three months ended September 30, 2007. The unfavorable variance of $131.6 million was
due to real estate impairment charges of $88.9 million and downward changes in fair value of loans held for sale totaling $9.7 million in 2008, and higher non-recurring
opportunistic sales of certain real estate investments in 2007. Asset management and disposition fees decreased by $14.8 million due to a non-recurring disposition fee on an asset
sold in 2007. Our income from equity investments in joint ventures and partnerships declined $7.2 million due to certain real estate joint ventures terminating in 2007 upon asset disposition.
Placement fees decreased $5.3 million due to lower loan originations.

The
provision for loan losses totaled $17.1 million for the nine months ended September 30, 2008 compared to $9.0 million for the nine months ended
September 30, 2007 due to difficult market conditions for Japanese and Taiwanese real estate assets which provide the collateral for the portfolio of acquired non-performing loans.

Noninterest
expense totaled $68.7 million for the nine months ended September 30, 2008 compared to $58.7 million for the nine months ended September 30, 2007.
The $10.0 million increase was mainly attributable to higher miscellaneous expenses of $12.3 million from certain entities

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consolidated
in 2008 and an increase in professional fees of $4.2 million due to higher legal fees and audit fees caused by new regulations in Japan, partially offset by a reduction in
incentive compensation expense of $3.9 million due to a decline in operating results and lower property inspection and loan processing fees of $4.4 million due to fewer real estate
acquisitions and dispositions.

Minority
interest expense totaled $1.1 million for the nine months ended September 30, 2008 compared to $3.6 million for the nine months ended September 30,
2007 due to gains on the sale of real estate investments in 2007 that were held in a consolidated joint venture resulting in minority interest expense equal to the joint venture partner's share of the
gain in 2007.



The following table summarizes the results of operations of our European Operations segment for the three and nine months ended
September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
5,735

$
7,308

$
16,280

$
26,310Noninterest income


(6,848
)

(9,916
)

(286,403
)

76,616Total revenue


(1,113
)

(2,608
)

(270,123
)

102,926Provision for loan losses


(644
)

(139
)

(1,277
)

(1,698
)Net revenue


(469
)

(2,469
)

(268,846
)

104,624Noninterest expense


6,035


9,840


28,933


40,516(Loss) income before minority interest and income taxes


(6,504
)

(12,309
)

(297,779
)

64,108Minority interest income











(Loss) income before income taxes

$
(6,504
)
$
(12,309
)
$
(297,779
)
$
64,108




Our European Operations segment incurred a loss before income taxes of $6.5 million for the three months ended
September 30, 2008 compared to a loss before income taxes of $12.3 million for the three months ended September 30, 2007. The $5.8 million improvement was primarily due to
lower fair value charges recognized on our loan portfolio held for sale in Europe and a reduction in noninterest expense.

Net
interest income totaled $5.7 million for the three months ended September 30, 2008 compared to $7.3 million for the three months ended September 30, 2007.
The $1.6 million decrease was primarily driven by a decrease in average interest-earning assets in Europe following the sale of significant interests in 39 loans to a third-party institutional
buyer in April 2008.

Noninterest
income was a negative $6.8 million for the three months ended September 30, 2008 compared to a negative $9.9 million for the three months ended
September 30, 2007. The $3.1 million improvement was primarily due to decreased net losses, partially offset by a decrease in fee income and a decrease in equity in income of joint
ventures and partnerships. Net losses totaled $11.6 million for the three months ended September 30, 2008 compared to net losses of $18.2 million in the prior period. The decrease
in net losses of $6.6 million was primarily due to lower fair value charges recognized on our portfolio of loans held for sale during the three months ended September 30, 2008. All other
noninterest income decreased $3.5 million primarily due to decreased market activity.

Noninterest
expense totaled $6.0 million for the three months ended September 30, 2008 compared to $9.8 million for the three months ended September 30, 2007.
The $3.8 million decrease was primarily due to a reduction in professional fees related to securitization activity.

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Our European Operations segment incurred a loss before income taxes of $297.8 million for the nine months ended
September 30, 2008 compared to income before income taxes of $64.1 million for the nine months ended September 30, 2007. The $361.9 million decrease was primarily due to
significant downward changes in fair value recognized on our portfolio of loans held for sale in Europe.

Net
interest income totaled $16.3 million for the nine months ended September 30, 2008 compared to $26.3 million for the nine months ended September 30, 2007.
The $10.0 million decrease was primarily driven by a decrease in average interest-earning assets in Europe after we completed the sale of significant interests in 39 loans to a third-party
institutional buyer in April 2008.

Noninterest
income was a negative $286.4 million for the nine months ended September 30, 2008 compared to a positive $76.6 million for the nine months ended
September 30, 2007. The $363.0 million decrease was primarily due to increased net losses, a decrease in equity in income of joint ventures and partnerships, and a decrease in fee
income. Net losses totaled $297.1 million for the nine months ended September 30, 2008 compared to net losses of $11.8 million in the prior period. The current year losses were
primarily due to losses on interests in loans that were sold. In April 2008, we completed the sale of significant interests in 39 loans to a third-party institutional buyer for a total aggregate sale
price of approximately $1.8 billion. Equity in income of joint ventures and partnerships decreased $59.6 million due to operating losses incurred by the underlying joint venture
investments in 2008 while profits were recognized on the disposal of assets in 2007. There were no asset disposals and therefore no profits recognized in 2008. Placement fees decreased
$12.7 million due to a reduction in origination volume. Mortgage servicing fees decreased $2.4 million primarily as a result of nonrecurring income earned on the resolution of a
specially serviced CMBS investment in 2007.

Noninterest
expense totaled $28.9 million for the nine months ended September 30, 2008 compared to $40.5 million for the nine months ended September 30, 2007.
The $11.6 million decrease was primarily
due to a $14.0 million decline in incentive compensation related to the decline in operating results partly offset by a $1.4 million increase in employee benefits and an increase of
$0.8 million in professional fees due to transaction expenses incurred in connection with the European loan sale in April 2008 and consulting costs incurred in connection with matters related
to Capmark Bank Europe.



The following table summarizes the results of operations of our North American Affordable Housing segment for the three and nine months
ended September 30, 2008 and 2007 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,2008

2007

2008

2007Net interest income

$
919

$
(1,850
)
$
1,721

$
(3,497
)Noninterest income


30,886


4,304


31,599


54,625Total revenue


31,805


2,454


33,320


51,128Provision for loan losses





(4,001
)




(2,440
)Net revenue


31,805


6,455


33,320


53,568Noninterest expense


9,291


10,391


27,706


33,577Income (loss) before minority interest and income taxes


22,514


(3,936
)

5,614


19,991Minority interest income











Income (loss) before income taxes

$
22,514

$
(3,936
)
$
5,614

$
19,991


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Income before income taxes totaled $22.5 million for the three months ended September 30, 2008 compared to a loss before
income taxes of $3.9 million for the three months ended September 30, 2007. The $26.4 million increase was primarily attributable to an increase in noninterest income, net
interest income, and a decrease in noninterest expense partially offset by a reversal of loan loss reserves in 2007.

Net
interest income was a positive $0.9 million for the three months ended September 30, 2008 compared to a negative $1.9 million for the three months ended
September 30, 2007. The increase of $2.8 million was primarily due to decreased variable rate funding costs associated with our fixed rate investment securities and lower outstanding
balances of equity advances.

Noninterest
income totaled $30.9 million for the three months ended September 30, 2008 compared to $4.3 million for the three months ended September 30, 2007.
The $26.6 million increase was primarily due to a $29.0 million reduction in LIHTC loss reserves due to the repeal of legislation in the third quarter of 2008 that previously required
such reserves, a $7.9 million reduction in losses related to other LIHTC yield guarantees, a $2.2 million increase in net real estate investment income on properties in which we acquired
the limited partnership interests in 2008, partially offset by $5.3 million of net losses in 2008 which primarily resulted from impairments recognized on equity investments and
$6.9 million of nonrecurring gains on asset sales in 2007.

There
is no current year provision for loan losses compared to a negative $4.0 million for the three months ended September 30, 2007. The credit amount in 2007 reflects the
repayment of a loan that was originally reserved for in a prior period.

Noninterest
expense totaled $9.3 million for the three months ended September 30, 2008 compared to $10.4 million for the three months ended September 30,
2007. The $1.1 million decrease was driven primarily by a $2.2 million reduction in personnel and legal costs partially offset by an increase in operating costs on properties in which we
acquired the limited partnership interests in 2008.



Income before income taxes totaled $5.6 million for the nine months ended September 30, 2008 compared to
$20.0 million for the nine months ended September 30, 2007. The $14.4 million decrease was primarily attributable to a decrease in noninterest income, a reversal of loan loss
reserves in 2007, partially offset by an increase in net interest income and a decrease in noninterest expense.

Net
interest income was a positive $1.7 million for the nine months ended September 30, 2008 compared to a negative $3.5 million for the nine months ended
September 30, 2007. The increase of $5.2 million was primarily caused by a decrease in variable rate funding costs associated with our fixed rate investment securities, lower outstanding
balances of equity advances, and a change in composition of our investment securities portfolio subsequent to the sale of a majority of our affordable housing debt platform in February 2007.

Noninterest
income totaled $31.6 million for the nine months ended September 30, 2008 compared to $54.6 million for the nine months ended September 30, 2007.
The decrease of $23.0 million was primarily attributable to a gain of approximately $71.5 on the sale of a majority of our affordable housing debt platform million in February 2007 (partially
offset in our condensed consolidated statement of operations by the impact of push down accounting which is reflected in "Corporate and Other") and $9.6 million of nonrecurring gains on asset
sales during the nine months ended September 30, 2007, partially offset by a $29.0 million reduction in LIHTC loss reserves due to the repeal of legislation in the third quarter of 2008
that previously required such reserves, a $26.4 million reduction in losses related to other LIHTC yield guarantees and a $3.0 million increase in asset management fees.

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There is no current year provision for loan losses compared to a negative $2.4 million for the nine months ended September 30, 2007. The credit
amount in 2007 reflects the repayment of a loan that was originally reserved for in a prior period, partially offset by a $1.6 million provision in 2007 related to a property acquired through
foreclosure.

Noninterest
expense totaled $27.7 million for the nine months ended September 30, 2008 compared to $33.6 million for the nine months ended September 30, 2007.
The $5.9 million decrease was driven primarily by staff reductions and an overall reduction in operating expenses due to the sale of a majority of our affordable housing debt platform in
February 2007.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with GAAP requires our management to make estimates, judgments
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of income and expense. Our management regularly
evaluates these estimates, judgments and assumptions based on available information and experience. Because the use of estimates, judgments and assumptions is inherent in the financial reporting
process, actual results may differ from these
estimates under different assumptions or conditions. Certain of our accounting policies require higher degrees of judgment and are more complex than others in their application. Our significant
accounting policies are disclosed in Note 3 to our 2007 audited consolidated financial statements. There have been no significant changes to the Company's critical accounting estimates and
significant accounting policies, except that the Company adopted SFAS No. 157 and SFAS No. 159 on January 1, 2008 as discussed below. For a discussion of our critical accounting
estimates, see the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our prospectus filed with the SEC on July 15, 2008 in
accordance with Rule 424(b)(3) of the Securities Act of 1933, as amended, which is accessible on the SEC's website atwww.sec.gov.

Many
of our critical accounting estimates depend upon estimates of fair value. Note 14 to our condensed consolidated financial statements contains a description of the valuation
methodologies that we use for financial instruments measured at fair value on a recurring basis, including those accounted for at fair value prior to the adoption of SFAS No. 159, as well as
the general classification of such instruments pursuant to the valuation hierarchy. The following paragraphs discuss our adoption of SFAS No. 157 and SFAS No. 159 and how these
statements impact our estimates of fair value.

SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The adoption of SFAS
No. 157 is discussed in Notes 3 and 14 to our condensed consolidated financial statements. The adoption of this statement did not have a material impact as to the manner in which we
determine fair value but does require additional disclosures as discussed in Note 14 to our condensed consolidated financial statements.

SFAS
No. 159 permits the Company to irrevocably elect fair value of the initial and subsequent measurement of certain financial assets and financial liabilities on an
instrument-by-instrument basis. Subsequent changes in the fair value of these instruments are recognized in earnings when they occur. SFAS No. 159 required that the
difference between the carrying value of financial assets and financial liabilities elected and the fair value of such instruments be recorded as an adjustment to beginning retained earnings in the
period of adoption. Effective January 1, 2008, the Company elected fair value accounting for certain loan assets and deposit liabilities not previously accounted for at fair value. The
after-tax cumulative effect from electing the fair value option for the selected financial instruments decreased retained earnings by $9.8 million on January 1, 2008.

In
accordance with SFAS No. 157, we categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.
The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3). If the inputs used to measure the financial

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instruments
fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

It
is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy
as described above. For assets and liabilities where there exists limited or no observable market data, fair value measurements are based primarily upon management's own estimates, and are calculated
based upon our pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. The degree to which management's judgment is necessary in
determining the fair value for assets and liabilities is directly dependent upon the availability of quoted prices in active markets. For financial instruments that have quoted market prices and
actively trade, there is minimal subjectivity in determining fair value. Market conditions often affect the availability of observable fair value inputs. As observable market prices become unavailable
or trading activity diminishes, there is a greater need for the use of valuation techniques requiring management judgment to estimate fair value.

Recent
world events have resulted in illiquid markets for many of our financial instruments, requiring us to place more reliance on management's own estimates. Continuing the trend that
began in mid-2007, the third quarter of 2008 was characterized by continued price volatility and constrained liquidity in the capital markets. During the month of September 2008, a series
of unprecedented events occurred which resulted in increased market illiquidity and downward pressure on asset pricing across various sectors. These events intensified with the bankruptcy filing of
Lehman Brothers Holdings Inc., the government conservatorship of Fannie Mae and Freddie Mac, JPMorgan's acquisition of Washington Mutual's deposits, the federal government's significant
investment in AIG, and Bank of America's acquisition of Merrill Lynch. Further pressure on pricing resulted from investor repositioning into cash or highly-liquid U.S. Government securities as mutual
fund managers were faced with unprecedented withdrawal requests and issuers of commercial paper encountered an inability to roll over maturities. Transactional activity in all but the most liquid
markets ceased over investor fears of further insolvencies.

Financial Assets

Commercial mortgage loans are highly individualized. Under normal market conditions, transactions occur directly between parties or
through seller-sponsored securitization vehicles. GSEs such as Fannie Mae and Freddie Mac also facilitate a market for securitization of individual loans as well as groups of loans. We have
historically used pricing for both direct sale transactions and securitizations (through both seller-sponsored and government-sponsored securitization vehicles) when making fair value determinations.
However, current market turmoil has contributed to a significant decline in activity. Securitization market activity has effectively ceased as concerns about the credit quality of securitized
residential mortgage loans spread to degrade the desirability of all securitization investment opportunities. GSEs continue to provide a market for the sale of loans although activity is limited.

As
a result of market conditions in the third quarter of 2008, we observed limited activity and received limited bids for specific loans that could be used in our valuation of our
portfolio of loans held for sale. However, we did incorporate market information related to new loan originations which reflects
spreads at which our loan portfolio could be refinanced. Considering their importance to the value of loans, these spreads were used as the basis for creating a pricing matrix for a portion of our
portfolio. We also leveraged our internal risk rating process to a greater extent than in previous quarters due to significantly higher emphasis on credit quality and illiquidity observed in the
financial markets. Consistent with prior quarters, any loan held for sale that was specifically identified as impaired was valued using the net realizable value of the collateral, as the evaluation of
impaired loans by potential buyers would be based to a large extent on the underlying real estate.

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The
availability of quoted prices for our U.S. Treasury investment securities were unaffected by the market turmoil due to their desirability as high-quality, highly liquid
investments. As described above, market inputs for less liquid investment securities became increasing unreliable throughout the third quarter of 2008 due to the financial markets participants' desire
for only the highest quality investments. Where we obtained inputs from third-party pricing providers to assist us in determining the fair value of investment securities, we evaluated these inputs and
considered whether the resulting fair value estimates were appropriately placed in the fair value hierarchy. The majority of our investment securities portfolio is classified within Level 3.
For these securities, cash flows were analyzed and adjusted for anticipated credit losses. The resulting projected cash flows were then discounted at a rate we believe market participants would use
given current market conditions.

As
of September 30, 2008, approximately $6.2 billion of our total assets consisted of financial instruments measured at fair value on a recurring basis, including financial
instruments for which we elected the fair value option. Approximately $1.0 billion of these financial instruments, net of counterparty and cash collateral balances, were measured using
valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 inputs. Approximately $5.2 billion of these financial instruments were measured
using model-based techniques, or Level 3 inputs, and represented approximately 84% of our total assets measured at fair value and approximately 24% of our total consolidated assets.

Financial LiabilitiesBrokered CDs

While continued market volatility and illiquidity was evident in the third quarter of 2008, the fair value methodology related to our
Brokered CDs remained unchanged. There is no impact on the value of our Brokered CDs due to credit risk because the deposits are insured by the FDIC. Also, while the dislocation of market liquidity is
evident in the marketplace, the yield curve used to discount the future cash flows related to the deposits reflects current market conditions. For these reasons, we continue to classify our Brokered
CDs as Level 2 financial instruments because the yield curve is considered a reliable observable input.

Fair Value Control Processes

Given the prevalence of fair value measurement in our financial statements, the control functions related to the valuation process are
a critical component of our business operations. We employ control processes to validate the fair value of our financial instruments, including those derived from pricing models. These control
processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, we review the
valuation approach utilized to assure it is appropriate and consistently applied and that the assumptions are reasonable. Our reviews of the pricing models' theoretical soundness and appropriateness
are performed by Company personnel with relevant expertise who are independent from the persons responsible for the lending and investment functions. The heads of our credit, market risk management
and accounting departments are responsible for the oversight and valuation control processes and policies and for reporting the results of these processes and policies to our Audit Committee.

Liquidity and Capital Resources

We require substantial amounts of capital to support our operations and growth plans. Members of our senior management, in consultation
with our board of directors, establish our overall liquidity and capital allocation strategies. A key objective of these strategies is to support the successful execution of our business strategy
while ensuring that we have sufficient ongoing liquidity throughout the business cycle to service our financial obligations as they become due. When making funding and capital allocation
determinations, members of our senior management consider business performance; the availability of, costs and benefits associated with, different funding sources; current and expected market and
general economic conditions; our balance sheet and capital structure; and our targeted

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liquidity
profile and risks relating to our funding needs. In carrying out these activities, members of our senior management monitor, evaluate and seek to control the impact that our business
activities have on our balance sheet, liquidity and capital structure, thereby helping to ensure that our operations are aligned with our liquidity and capital allocation strategies.

Our
primary uses of liquidity are for (1) the origination and purchase of loans, (2) the repayment of short-term and long-term borrowings and
related interest, (3) the purchase of real estate equity and other real estate-related investments, and (4) the funding of our operating expenses. We require short-term
liquidity to fund loans that we originate and
hold on our consolidated balance sheet pending sale, including through syndication, participation or securitization. We generally require longer-term funding to finance the loans and real
estate related investments that we hold for investment.

Our
primary sources of liquidity are (1) net cash from our operations, (2) proceeds from the repayment of loans, (3) proceeds from the issuance of
short-term and long-term borrowings/deposits and (4) proceeds from the sale of loans, real estate equity investments and other real estate-related investments. Our
principal debt financing sources are (1) committed unsecured funding provided by banks, including our senior credit facility and other bank loans; (2) secured funding facilities,
including borrowings by Capmark Bank US from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of Seattle ("FHLB Seattle"); and (3) other uncommitted funding sources,
including Brokered CDs issued by Capmark Bank US. These financing arrangements provide us with diverse sources of short-term and long-term funding and allow us to borrow
amounts on a secured and unsecured basis, in a variety of currencies and at interest rates that are fixed or floating, in the geographical locations in which we operate.

As
of September 30, 2008, we had $1.8 billion in total cash, of which $166.9 million was restricted under current regulatory and other contractual arrangements. This
represented a net increase in total cash of approximately $330.8 million from December 31, 2007. As of September 30, 2008, we had readily available cash (excludes restricted cash
and cash held by Capmark Bank US) and borrowing capacity under our revolving credit facility of $2.1 billion.

During
the nine months ended September 30, 2008, net cash provided by operating activities totaled $2.1 billion. The European loan sale in April 2008 generated
approximately $1.8 billion in cash, the proceeds of which were primarily used to repay indebtedness. The proceeds from the sale were supplemented by approximately $0.3 billion related to
the net cash provided by all other operating activities.

We
used net cash of $1.2 billion in investing activities for the nine months ended September 30, 2008, primarily for the origination of loans held for investment totaling
$2.4 billion which was offset in part by the receipt of approximately $1.2 billion from the repayment of loans held for investment. For the nine months ended September 30, 2008,
we used approximately $0.6 billion of net cash in our financing activities, in large part due to a net decrease of $1.1 billion in short-term borrowings partially offset by a
$0.4 billion increase in deposit liabilities.

In
the third quarter of 2008, we continued to take actions to maintain sufficient liquidity to support our business operations including:



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We
have a consolidated debt structure that is predominately long-term with a weighted average remaining term to maturity of approximately 32 months.

Non-Capmark
Bank US highlights include:



Capmark
Bank US highlights include:



Management
believes that the Company's current financing sources and cash flows are adequate to meet our liquidity needs for a reasonable period including the next 12 months. We
will continue to evaluate additional sources of liquidity.

Government Programs

During the third and fourth quarters of 2008, the Treasury and the FDIC initiated new programs designed to help restore liquidity to
U.S. financial institutions, including the Capital Purchase Program, the Whole Loan Purchase Program and the Temporary Liquidity Guarantee Program.

We
are evaluating our eligibility for, and the potential benefits of, participating in these programs. Based upon current guidance for these programs, Capmark Bank US and Escrow Bank are
eligible to participate in the FDIC Temporary Liquidity Guarantee Program and the Treasury Capital Purchase Program. Other than our U.S. banking subsidiaries, we are not currently eligible to
participate in these programs. The Treasury has not yet indicated when or to what extent it will use the Whole Loan Purchase Program to purchase commercial real estate loans.

These
programs are subject to numerous terms and conditions, including limitations on dividends, limitations on certain executive compensation payments, limitations on the deductibility
of certain executive compensation expenses and program related fees. The program guidelines are not complete and may be subject to further changes. For example, it is unclear how the Capital Purchase
Program will apply to privately held entities such as Capmark Bank US. The Treasury and the FDIC are expected to issue additional guidance in the coming weeks on various aspects of these programs.

We
may apply to participate in (or may elect not to opt out of) certain of these programs to the extent we are eligible and we conclude that participation would be advantageous. However,
there is no assurance that we will make any such application or election, that any application to a discretionary program would be accepted by the applicable regulatory agency or that we will obtain
any material benefits from any such programs.

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Credit Ratings

Our reliance on debt financing to fund a portion of our operations makes access to sources of short-term and
long-term unsecured financing important. The cost and availability of unsecured debt financing generally are dependent on our short-term and long-term credit
ratings. Factors that are significant to the determination of our credit ratings or that otherwise affect our ability to raise short-term and long-term financing include the
level and volatility of our earnings, our relative competitive position, our risk management policies, our access to sources of liquidity, our capital adequacy, our level of leverage, the credit
quality of our balance sheet, our ability to retain key personnel and legal, regulatory and tax developments.

The
following table presents the credit ratings and ratings outlook assigned to our unsecured indebtedness by S&P, Moody's and Fitch as of the date of this quarterly report. On
October 8, 2008, Fitch downgraded our long-term rating to BBB- from BBB and revised our outlook to negative from stable. On October 15, 2008, Moody's affirmed our
long-term rating of Baa3 and revised our outlook to negative from stable. Credit ratings are opinions of a rated entity's ability to meet its ongoing obligations. Credit ratings are not
recommendations to buy, sell or hold securities and are subject to revision or withdrawal at any time by
the assigning rating agency. Each agency's rating should be evaluated independently of any other agency's rating.

Short-Term

Long-TermRating Agency

Rating

Outlook

Rating

OutlookS&P


A3

Stable

BBB-

StableMoody's






Baa3

NegativeFitch


F3

Negative

BBB-

Negative




Liquidity in the capital markets has been constrained, increasing our cost of funds and limiting our access to the secured and
unsecured debt markets, including repurchase financing for real estate related investments and issuance of CMBS. Our ability to access additional liquidity is subject to a number of factors, including
the general availability of and rates applicable to financing transactions, lenders' and investors' resources, our financial performance, our credit rating, and our industry and market trends.

Our
ability to access the capital markets and other sources of secured and unsecured funding, which is critical to our ability to do business, has been and could continue to be adversely
affected by recent events in the global markets and in the economy. As described in "Management's Discussion and Analysis of Financial Condition and Results of OperationsOutlook and
Recent Trends," global market and economic conditions have been, and continue to be, disrupted and volatile to an unprecedented extent. Our cost and availability of funding have been and may continue
to be adversely affected by illiquid credit markets and wider credit spreads. Due to widespread concerns about the stability of the markets and the strength of counterparties, many lenders have
reduced and, in some cases, ceased to provide funding to borrowers. Further or prolonged disruptions in the global markets and economy may adversely affect our liquidity and access to the secured and
unsecured debt markets. For additional information on factors that may affect our liquidity and financial condition, see "Our
business is significantly affected by general business, economic and cyclical market conditions, particularly in the commercial real estate industry, and accordingly, our business could be harmed in
the event of an economic slowdown or recession or a market downturn or disruption" and "Developments in the debt capital markets have adversely affected and may continue to adversely affect our
results of operations and financial condition" under the heading "Risk Factors" in our prospectus filed with the SEC on July 15, 2008 in accordance with Rule 424(b)(3) of the Securities
Act of 1933, as amended.

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We
will continue to monitor conditions in the debt capital markets and to adjust the use of our various financing sources according to availability, term and cost, as well as to adjust
the level and mix of our loan originations, ownership and real estate investment activities in order to maintain sufficient liquidity in light of market conditions. If adverse conditions in the credit
markets continue or worsen, our primary sources of liquidity may be adversely affected.

We
have access to short-term and long-term funding under a number of secured and unsecured financing arrangements. These arrangements allow us to borrow funds in
U.S. dollars, pounds sterling, euro, Japanese yen, Canadian dollars, Taiwanese dollars and other currencies, depending on our financing requirements. Interest is payable under these financing
arrangements primarily at floating rates that are determined by reference to a benchmark rate, such as LIBOR or EURIBOR, and, in some cases, at fixed rates. When making determinations as to which
sources of funds to access, we generally seek to finance our assets with borrowings that are denominated in the same currency and that bear interest based on the same benchmark rates. When we are
unable to match the currency and interest rates that are applicable to our assets and liabilities, we seek to enter into derivative transactions to achieve a similar result.

Consistent
with our liquidity and capital allocation strategy, we strive to maintain diverse funding sources to provide us with a cost effective and flexible mix of funding. Brokered CDs
continue to provide a key liquidity source for Capmark Bank US. Although market conditions adversely affected the availability and cost of other funding sources throughout 2008, Capmark Bank US was
able to issue Brokered CDs to support growth in its commercial mortgage loan portfolio as the Brokered CD market remained stable and provided consistently available funding. While we do not maintain
specific target levels for Brokered CDs, we manage the level of Brokered CDs in response to changes in investor demand, prevailing funding spreads and overall economic conditions. When issuing
Brokered CDs, one of our goals is to achieve a liability maturity profile similar to that of our asset maturity profile. Based upon the increasing duration of our asset maturity profile, we have
increased our issuance of Brokered CDs ranging in maturity from two to five years. We continue to monitor shorter-term maturities should the opportunity arise to issue
shorter-term Brokered CDs for economic reasons.

General
economic conditions may affect our ability to access the Brokered CD market. We also face the risk that we may need to issue Brokered CDs at higher rates. An increase in rates
could have a negative impact on our net interest income. Capmark Bank US also has access to secured funding through FHLB Seattle and the Federal Reserve Bank of San Francisco, which subject to the
terms of the programs, may enable us to borrow up to an aggregate amount of $3.5 billion. As of September 30, 2008, we had unused capacity of $2.3 billion under these programs.
Additionally, deposits related to our servicing platform of approximately $1.1 billion are eligible for deposit at Capmark Bank US. We believe that these secured borrowing arrangements and
eligible escrow deposits provide alternative funding sources for Capmark Bank US if we are either unable to access the Brokered CD market or the overall cost of obtaining funding in this market
increases significantly.

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The
following table presents information concerning the financing arrangements and other funding sources that we had in place as of September 30, 2008 (in thousands):

Financing Arrangements and Funding Sources

Amount
Outstanding

Funding
Limit(10)

Weighted
Average
Remaining
Maturity(months)Primary long-term funding:Senior credit facilityTerm loan(1)

$
2,730,356

$
2,730,356


30Revolving credit facility(1)(2)


1,631,692


2,701,089


30Total


4,362,048


5,431,445


30Bridge loan(3)


1,133,000


1,133,000


6Senior Notes


2,529,308


2,529,308


48Total


8,024,356


9,093,753


32Secured funding(4):Repurchase agreements(5)


138,416


561,992


1Other secured funding facilitiesCapmark Bank US(6)


1,226,504


3,528,293


24Other secured funding facilitiesOther(6)


520,142


713,822


10Bank and third-party funding


139,450


139,450


60Total


2,024,512


4,943,557


21Unsecured funding:Other unsecured fundinguncommittedCapmark Bank US


187,000


227,000


Other unsecured fundinguncommittedOther


90,673


118,585


1Other bank and third party loans(6)


95,482


189,664


5Total unsecured funding


373,155


535,249


1Subtotal


10,422,023


14,572,559


29Brokered CDs(7)


5,920,452


5,920,452


19Other deposit liabilities


50,000


50,000


Total funding and bank deposit liabilities


16,392,475


20,543,011


25Consolidated debt agreements(8)Secured debt attributable to the consolidation of securitizations


232,714


232,714


N/ASecured debt attributable to the consolidation of real estate owned


28,695


28,695


N/ASecured debt attributable to the consolidation of LIHTC partnerships


207,453


207,453


N/ATotal consolidated debt agreements


468,862


468,862


N/AJunior subordinated debentures(9)


250,001


250,001


450Total borrowings and deposit liabilities

$
17,111,338

$
21,261,874


32


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Notes:

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In
addition to the outstanding funding reflected in the above table as of September 30, 2008, we had $2.2 billion of stockholders' equity and $94.3 million of common
stock classified as mezzanine equity. As of September 30, 2008, approximately $1.6 billion was outstanding under our revolving credit facility, of which approximately $1.1 billion
remained available, and we held $1.8 billion of total cash, including $512.6 million of cash held at Capmark Bank US.

Of
the total deposit liabilities reflected in the above table, $5.9 billion consisted of federally insured Brokered CDs issued by Capmark Bank US, as compared to
$5.5 billion outstanding as of December 31, 2007. Capmark Bank US may also have access to funding in the form of escrow deposits held in trust as provided by our U.S. servicing
operations. As of September 30, 2008, $50.0 million of eligible escrow funds held in trust by the Company's U.S. servicing operations were placed on deposit with Capmark Bank US. As of
September 30, 2008, the remaining amount of servicing deposits that were eligible for deposit at Capmark Bank US was $1.1 billion.

As
of September 30, 2008, we maintained a number of committed and uncommitted, secured and unsecured funding programs sponsored by a variety of lenders with an aggregate principal
amount totaling $2.4 billion as reflected in the table above. Of that amount, $1.1 billion is considered to be

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uncommitted
and/or is maturing in the near term. This compares to an aggregate principal amount totaling $3.9 billion, of which $2.3 billion was considered to be uncommitted and/or
maturing in the near term as of June 30, 2008.

Commitments and Contractual Obligations



In connection with our business activities, we enter into commitments that may give rise to future cash funding requirements. As of
September 30, 2008, these commitments consisted of commitments to originate or purchase loans or investments, commitments to fund loans and commitments to provide equity to equity method
investees. We also have commitments to sell loans. The future cash payments and receipts that were associated with these obligations as of September 30, 2008 are summarized in the table below.
Because these commitments may expire unused, the amounts shown do not necessarily reflect our actual future cash funding requirements.

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands of U.S. dollars)Commitments to originate or purchase loans

$
56,310

$


$


$


$
56,310Commitments to fund construction loans


114,807


529,012


310,901


60,861


1,015,581Commitments to fund other loans


332,162


843,414


35,067


283,733


1,494,376Commitments to purchase investments


30,958











30,958Commitments to provide equity to equity method investees


21,920


78,607





75,934


176,461Total

$
556,157

$
1,451,033

$
345,968

$
420,528

$
2,773,686Commitments to sell loans

$
488,485

$


$


$


$
488,485


As an approved multifamily seller/servicer under Fannie Mae's DUS program, we are responsible for assuming a portion of the losses
that may result from a borrower's payment default on the loans that we have sold to Fannie Mae. Our loss sharing obligations are determined based on agreed loss sharing formulas. We generally are
required to assume responsibility for the first 5% of the unpaid principal and a portion of any additional losses up to a maximum of 20% of the original principal balance. Any significant losses under
this program would have an adverse effect on our results of operations and financial condition.

The
table above reflects the future cash payments and receipts associated with commitments for the entire Company. The future cash payments and receipts solely associated with the
commitments for Capmark Bank US as of September 30, 2008 are summarized in the table below:

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands of U.S. dollars)Commitments to originate or purchase loans

$
56,310

$


$


$


$
56,310Commitments to fund construction loans


46,065


450,756


302,596


26,717


826,134Commitments to fund other loans


56,285


571,679


30,598





658,562Total

$
158,660

$
1,022,435

$
333,194

$
26,717

$
1,541,006Commitments to sell loans

$
441,525

$


$


$


$
441,525


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The future cash payments and receipts associated with the commitments for all non-bank entities as of September 30, 2008 are summarized in the
table below:

Years to MaturityType of Commitment

Less than
1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands of U.S. dollars)Commitments to fund construction loans

$
68,742

$
78,256

$
8,305

$
34,144

$
189,447Commitments to fund other loans


275,877


271,735


4,469


283,733


835,814Commitments to purchase investments


30,958











30,958Commitments to provide equity to equity method investees


21,920


78,607





75,934


176,461Total

$
397,497

$
428,598

$
12,774

$
393,811

$
1,232,680Commitments to sell loans

$
46,960

$


$


$


$
46,960




In the ordinary course of our business, we enter into contractual arrangements that may require future cash payments. As of
September 30, 2008, our contractual obligations primarily consisted of long-term borrowings and deposit liabilities, derivatives instruments, FIN 48 obligations and operating
leases. The future cash payments that were associated with these obligations as of September 30, 2008 are summarized in the table below.

Payments due by PeriodType of Obligation

Less than 1 Year

1 to 3 Years

3 to 5 Years

More than
5 Years

Total(in thousands of U.S. dollars)Borrowings and deposit liabilities(1)

$
4,770,369

$
5,831,293

$
2,959,425

$
1,875,012

$
15,436,099Derivative instruments(2)


424,041


457,121


241,408


196,988


1,319,558FIN 48 obligations(3)


64,319


148,003








212,322Operating leases and other(4)


27,140


78,095


70,445


13,542


189,222Total

$
5,285,869

$
6,514,512

$
3,271,278

$
2,085,542

$
17,157,201


---

Notes:

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Guarantees and Off-Balance Sheet Transactions



We enter into guarantees in the ordinary course of our business, including, among others, guarantees in support of some of our
securitization transactions and guarantees of payment of some of the agency and construction loans that we originate.



For the nine months ended September 30, 2008, we entered into one loan securitization transaction in which we sold
$34.8 million of loans to an off-balance sheet securitization trust and incurred a net loss on sale totaling $2.7 million.



The instruments governing some of our securitization transactions and other off-balance sheet transactions contain
customary provisions that require us to purchase specific assets from our securitization trusts and indemnify the issuer with respect to any material misstatement or omission with respect to
information we provide for inclusion in the applicable offering documents. In connection with certain asset sales and securitization transactions, we typically make customary representations and
warranties to the purchaser of our assets that relate to the characteristics of the assets transferred. These clauses are intended to ensure that the terms and conditions of the sales contracts are
met upon transfer of the assets. Prior to any sale or securitization transaction, we perform due diligence with respect to the assets to be included in the sale to ensure that they meet the
purchaser's requirements, as described in the representations and warranties. Due to these procedures, we believe that the potential for loss under these arrangements is remote. Accordingly, we have
not recorded a liability in our consolidated balance sheet relating to these potential obligations. The maximum potential amount of future payments that we could be required to make would be equal to
the current balances of all assets subject to these securitization or sale
activities. We do not monitor the total value of assets historically transferred to securitization vehicles or through other asset sales and, as a result, we are unable to develop an estimate of the
maximum payout under these representations and warranties. As of September 30, 2008, we had not been required to repurchase any assets under these provisions.



We participate as a lender in Fannie Mae's DUS program and other similar programs. As a condition to Fannie Mae's
delegation of responsibility for underwriting, originating and servicing of loans under the program, we assume a limited first-dollar loss position throughout the term of each loan we sell to Fannie
Mae. As of September 30, 2008, we maintain a liability for such potential losses

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in
the amount of $19.1 million. The maximum amount of loss we were exposed to under these programs was $683.8 million as of September 30, 2008.



We sponsor NMTC funds that make investments in qualifying Community Development Entities ("CDEs") that receive new markets tax credit
allocations under a federal program that is designed to increase the availability of investment capital in low-income communities. We have determined that our NMTC funds are variable
interest entities under FIN 46(R) and that we were the primary beneficiary of all but fifteen of the NMTC funds that we had sponsored as of September 30, 2008. The NMTC funds of which we
were not the primary beneficiary had total assets of $308.7 million as of September 30, 2008. Our exposure to loss relating to these NMTC funds was $198.4 million as of that date,
representing the amount of financing we have provided to the funds.



We sponsor CDOs in which we may retain a subordinated or equity interest and for which we serve as the collateral manager. When we
sponsor a CDO, we establish a bankruptcy-remote special purpose entity that purchases a portfolio of assets that may consist of
commercial mortgage loans and other real estate-related securities and issues debt and equity certificates, representing interests in the special purpose entity. Certain of the CDOs that we have
sponsored were initially structured, or have been restructured, as qualifying special purpose entities or "QSPEs" under SFAS No. 140 and, accordingly, are not consolidated in our financial
statements.

The
CDOs that we have sponsored that have not been structured as QSPEs are variable interest entities under FIN 46(R). We have determined that we were not the primary beneficiary
of any of these entities as of September 30, 2008 and, accordingly, have not consolidated them in our financial statements. These CDOs had total assets of $4.4 billion as of
September 30, 2008. Our exposure to loss relating to these CDOs was approximately $12.8 million as of that date, representing the value of our retained interests in these entities
including our indirect interests in the CDOs held through our co-investment in a sponsored investment fund.

Credit Risk Management

Credit risk represents the risk that a financial loss will result from the failure of a borrower, obligor or counterparty to perform
its obligations. We have developed and implemented formal, systematic credit risk management policies and processes for our lending activities that are designed to preserve the independence and
integrity of credit-related decisions and to ensure that credit risks are accurately assessed, properly approved, monitored and actively managed at both the transaction and portfolio levels. These
policies and processes employ specific limits on credit approval authorities, the use of a programmatic risk-rating methodology, certain concentration limitations and independent credit
risk monitoring and asset management procedures. In order to meet our credit risk management objectives, we seek to maintain a risk profile that is diverse in terms of property type, geographical
location and single asset exposure. We manage this diversification through the use of asset sales, including syndications, participations and securitizations and other risk reduction techniques.

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The following table summarizes the composition of our loans held for sale and held for investment as of September 30, 2008 and
December 31, 2007, in aggregate by property type (in thousands):

September 30, 2008

December 31, 2007Property Type

Amount

Percentage

Amount

PercentageMultifamily

$
2,947,604


22
%
$
2,828,286


19
%Office


2,643,400


20


3,052,122


21Hospitality


2,041,538


16


1,558,172


11Healthcare


1,734,315


13


1,611,729


11Retail


1,457,108


11


2,808,654


19Mixed-use and other(1)


2,296,876


18


2,845,272


19Total

$
13,120,841


100
%
$
14,704,235


100
%


---

Note:

The
above table sets forth our exposure to these property types in our loan portfolio. We maintain additional direct and indirect exposure to these property types through our interests
in funds, securities, equity investments and other non-loan exposures.



We seek to minimize the size of our exposure to losses on a single loan by using credit approval limits and by developing loan
distribution strategies before we commit to provide financing. As of September 30, 2008, we had 42 loan commitments that exceeded $50.0 million. Our aggregate commitments with respect to
these 42 loans totaled $3.2 billion, of which $2.6 billion had been funded. Two of these loans are non-performing and maintained on non-accrual status. The gross
commitment and funded amount related to these non-performing loans totaled $111.5 million as of September 30, 2008. The remaining 40 loans are performing loans.



Our originated non-performing assets consist of all of our loans that are on non-accrual status and all of our
real estate acquired through foreclosure, excluding any loans there were on non-accrual status at the time we acquired such loans for investment purposes ("acquired
non-performing loans").

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The
following table presents information concerning our originated non-performing assets as of September 30, 2008 and December 31, 2007 (in thousands):

September 30, 2008

December 31, 2007Gross principal balance

$
455,962

$
259,338Basis adjustments before allowance for loan losses(1)


(112,625
)

(50,898
)Specifically assigned allowance for loan losses


(33,460
)

(6,919
)Carrying value

$
309,877

$
201,521Carrying value as a percentage of total assets


1.4
%

0.9
%


---

Note:



We have acquired non-performing loans for investment purposes at substantial discounts to par. At the time of acquisition,
these non-performing loans evidenced credit quality deterioration and the probability that not all contractually required payments would be collected. The carrying amount of these loans
totaled $305.1 million and $358.4 million as of September 30, 2008 and December 31, 2007, respectively. We recognize an estimate of the accretable yield on these loans. The
accretable yield is limited to the excess of the estimated undiscounted principal, interest and other expected cash flows over the acquisition price of the loans.

We
seek to maximize recovery on our acquired non-performing loans. However, the time and amount of our expected cash flows from such loans are based upon a number of
assumptions that are subject to business and economic uncertainties, including the amount and timing of principal payments, collateral disposition activity and other factors. The Company established
an allowance for loan losses on acquired non-performing loans of $3.7 million as of September 30, 2008. In addition, charges for impairments of acquired
non-performing loans totaled $7.9 million and $5.4 million for the three months ended September 30, 2008 and 2007, respectively, and $14.1 million and
$9.4 million for the nine months ended September 30, 2008 and 2007, respectively.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk that a change in the level of one or more market prices, rates, indices, implied volatilities,
correlations or other market factors will result in a financial loss. The primary market risks that we face are interest rate risk, credit spread risk and foreign currency risk. These risks include
the risks that changes in prevailing interest rates, credit spreads or foreign currency exchange rates will impact the fair value of our assets and liabilities, decrease our levels of revenue or
increase our expenses. We seek to control these risks primarily through the use of interest rate and foreign currency swaps. From time to time, we may also sell U.S. Treasury securities or enter into
various other derivative instruments, including total rate of return swaps, CMBS index swaps, interest rate caps and floors, and options to purchase the foregoing instruments. We seek to further
control our exposure to fluctuations in foreign currency exchange rates by securing multi-currency funding sources that we may use when funding foreign currency denominated assets.

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We have implemented centralized risk management policies and processes that are intended to ensure that our market risk exposure is accurately measured, regularly
monitored and appropriately managed on a company-wide basis and within individual market positions. Our market risk limits are established by our market risk management department. These
limits are approved by our Asset/Liability Management Committee. Our market risk exposure is measured using a variety of quantitative and qualitative risk measures and analyses, performed either daily
or monthly, including value-at-risk measurements and sensitivity analyses. Price sensitivity metrics, portfolio valuations and correlation analyses are performed on a daily
basis, while stress testing is performed on a monthly basis using the value-at-risk methodology explained below. Value-at-risk measures the impact on
the value of existing portfolios of specified changes in market factors for all of our interest rate sensitive assets and liabilities. We also conduct a net interest income sensitivity analysis, which
estimates our net interest income sensitivity to immediate increases or decreases in interest rates of 100 and 200 basis points.

Interest Rate and CMBS Spread Risk

The predominant type of interest rate risk that we face is the risk that the value of our assets and liabilities (including the value
of our loans, debt obligations and investment portfolios) will change due to changes in interest rates, shape of the yield curve or interest rate spreads between two different financial instruments.
We are also exposed to the risk that changes in interest
rates will impact the levels of revenue that are generated by our lending, servicing and investments and funds management businesses, including trust fees that we earn on escrow balances, or give rise
to mismatches between the values of our assets and the liabilities that we incur when funding those assets. Because we have floating rate debt outstanding, changes in interest rates may impact our
debt servicing costs, which may lead to changes in the levels of net income and cash flows that we report from time to time.

As
part of our effort to manage interest rate exposure in our lending business, we also enter into forward rate lock commitments that guarantee the interest rates that will be charged on
the loans that we originate from time to time. During the guaranteed rate period, a forward rate lock commitment exposes us to the possibility that the value of the forward rate lock commitment and
related loan will decrease due to a rise in interest rates. To protect against this risk, we generally enter into a hedging transaction when we enter into a forward rate lock commitment and require
the borrower to reimburse any costs to us of unwinding the related hedge in the event that the related loan fails to close. While this risk management strategy helps protect us against risks
associated with movements in interest rates, it exposes us to the risk that a borrower will be unable to reimburse us for our costs if we are required to unwind the related hedge. To limit our
exposure to this risk, when entering into a hedging transaction for a forward rate lock commitment, we generally require a borrower to collateralize its obligations to us with cash collateral
maintained in a margin account. We monitor our exposure under forward rate commitments and related hedging transactions on a daily basis. If our collateralized coverage falls below a specified level,
we require a borrower to post additional cash collateral.

We
actively monitor our exposure to changes in CMBS spreads and, when appropriate, we may enter into CMBS total return swaps to moderate our exposure against losses associated with a
widening of CMBS spreads, although such swaps may not result in a reduction of losses in certain instances. However, by entering into the swaps, we reduce the potential to benefit from gains
associated with the narrowing of CMBS spreads. The use of CMBS total return swaps and other transactions to manage our exposure to CMBS spread risks also exposes us to the risk that our swap
counterparties will default on their obligations to us as well as the risk that our strategy may not be successful.

Foreign Currency Risk

We are exposed to market risks associated with changes in foreign currency exchange rates because we generate a portion of our revenue
and incur a portion of our expenses in currencies other than the U.S. dollar. We are also exposed to risks associated with foreign currency exchange rates because we have various assets and
liabilities that are denominated in foreign currencies, including borrowings

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under
our senior credit facility and other borrowing facilities, and because we have subsidiaries and investments in other entities with retained earnings that are denominated in foreign currencies.
As of
September 30, 2008, our foreign currency exposure consisted primarily of exposure to changes in exchange rates between the U.S. dollar and the Euro in addition to the Japanese yen. We were to a
lesser extent subject to risks associated with movements in exchange rates between the U.S. dollar and pounds sterling, Taiwanese dollars, Chinese renminbi, Canadian dollars, Mexican pesos, Indian
rupees and Filipino pesos.

To
manage foreign currency exposure in our business, we seek to finance assets that are denominated in foreign currencies with funding sources denominated in the same currency. When
assets denominated in foreign currencies are not funded with liabilities denominated in the same currencies, we actively use foreign exchange swaps and forward transactions that are designed to
mitigate the risks associated with adverse movements in the applicable foreign currency exchange rates. We similarly use foreign exchange forward contracts to manage our foreign currency exposure
related to income streams and expenses that are denominated in foreign currencies when the amount and timing of the income streams and expenses are known. To manage the effect that fluctuations in
exchange rates may have on the value of foreign currency denominated retained earnings in our subsidiaries and the entities in which we have made investments, we have developed an active hedging
policy that manages and adjusts our exposure using one-month foreign exchange swaps and forward contracts.

Derivative Counterparty Exposure

The use of derivative instruments to manage and mitigate our exposure to market risks exposes us to the risk that counterparties to
derivative transactions will fail to perform their obligations under the derivative instruments. Because obligations under our derivative instruments are determined by reference to interest rates,
foreign currency exchange rates and CMBS spreads, our exposure to a risk of loss from defaults by counterparties to our derivative transactions is impacted by movements in interest rates, foreign
currency exchange rates and to a lesser extent CMBS spreads. To manage our credit exposures to counterparties to our derivative transactions, before we enter into derivative transactions, we negotiate
and execute industry standard agreements that govern the maximum credit exposure that we will assume with respect to counterparties in derivative transactions. The typical margin threshold that has
been negotiated with our counterparties is $5.0 million. We measure our credit exposure to counterparties under our derivative instruments on a daily basis. If exposures with respect to
counterparties exceed agreed-upon thresholds, we make margin calls under which the counterparties are required to post collateral in order to bring our credit exposure to them within the
agreed-upon ranges. Our derivative counterparties were rated "single A" or better by the credit rating agencies as of September 30, 2008. To date, we have not incurred a loss as a
result of a default on performance by our derivative counterparties.

Value-at-Risk Analysis

We use a statistical methodology known as value-at-risk, which we refer to as "VaR," as one of our tools for
measuring, monitoring and reviewing our market risk exposure. VaR measures the dollar amount of potential losses in fair value from adverse movements in interest rates and credit spreads in an
ordinary market. Our VaR model uses a distribution of historical changes in key market indices or other market factors to assess the potential for future losses. Our VaR model also takes into account
correlations between risks and the potential for movements in one portfolio to offset movements in another. We measure VaR using a 95% confidence interval and an assumed one-month holding
period, meaning that we would expect to incur changes in fair value greater than those predicted by our VaR model in only one out of every 20 months. We believe that our VaR analysis captures
all of our significant market risk exposures resulting from our interest rate and credit spread sensitive positions. The following table represents the maximum, average and minimum potential VaR
losses measured for the three and nine months ended September 30, 2008 and 2007. This analysis has been presented for

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illustrative
purposes only and does not represent our current views as to future movements in interest rates and credit spreads. The table shows a greater variation in our potential VaR losses for the
three and nine months ended September 30, 2008 compared to the same periods in 2007 as a result of adverse market conditions experienced during the nine months ended September 30, 2008.
In addition, the unwinding of a mortgage escrow balance hedging strategy in 2007 further increased this disparity.

Three Months Ended
September 30,

Nine Months Ended
September 30,Value-at-Risk

2008

2007

2008

2007Maximum

$
57,785

$
48,163

$
60,868

$
48,163Average

$
53,952

$
36,148

$
54,233

$
23,651Minimum

$
51,849

$
15,724

$
45,844

$
11,963


Net Interest Income Sensitivity Analysis

While VaR measures the risk of loss due to unlikely events in an ordinary market, a sensitivity analysis measures exposure to an
isolated hypothetical movement in one or more specific market prices, rates or indices. To measure our exposure to volatility in net interest income, we perform a sensitivity analysis on a monthly
basis that considers isolated hypothetical movements in specific market rates for each currency in which we transact business. The first table reflects our sensitivity to sudden shifts in
short-term rates in all currencies in which we transact business, taking into consideration our asset and liability positions on our consolidated balance sheet and the derivative
instruments that we use to mitigate market risk as of September 30, 2008. The second table reflects our sensitivity to similar movements in U.S. interest rates on the trust fee income earned on
escrow balances as of September 30, 2008. Both tables measure the impact on net interest income over the next 12 months. These analyses have been presented for illustrative purposes only
and do not represent our current views as to future interest rate movements.

Annualized Impact on Net Interest IncomeCurrency

200 Basis Point
Decrease

100 Basis Point
Decrease

100 Basis Point
Increase

200 Basis Point
Increase(in thousands of U.S. dollars)U.S. dollars

$
7,014

$
3,507

$
(3,507
)
$
(7,014
)Japanese yen(1)


5,919


2,959


(5,919
)

(11,837
)Pounds sterling


1,906


953


(953
)

(1,906
)Euro


(8,445
)

(4,222
)

4,222


8,445Canadian dollars


(575
)

(288
)

288


575Mexican pesos


904


452


(452
)

(904
)Taiwanese dollars


820


410


(410
)

(820
)Filipino pesos


684


342


(342
)

(684
)Chinese renminbi


(157
)

(78
)

78


157Indian rupees


(20
)

(10
)

10


20All currencies

$
8,050

$
4,025

$
(6,985
)
$
(13,968
)


---

Note:

Annualized Impact on Net Interest Income200 Basis Point
Decrease

100 Basis Point
Decrease

100 Basis Point
Increase

200 Basis Point
Increase(in thousands of U.S. dollars)Escrow balances

$
(62,527
)
$
(31,264
)
$
31,264

$
62,527


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Although
we believe that the above sensitivity data measurements provide an estimate of interest rate sensitivity, there are limitations inherent in those measurements. For example, they
do not take into account potential changes in credit quality, size or composition of our asset portfolios, potential changes in our funding mix or other possible business developments. They are also
limited in that they are performed at a particular point in time and only contemplate certain movements in market rates or indices. Accordingly, we can give no assurance that our actual results would
not differ materially from the estimated outcomes of the above simulations. We are aware of the foregoing limitations on the use of sensitivity analyses for measuring and monitoring risks and,
accordingly, employ our sensitivity analysis as only one tool for identifying, measuring, monitoring, managing and reporting our exposure market risks.

Item 4T.    Controls and Procedures

Disclosure controls and procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended ("Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our
management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls
and procedures as of September 30, 2008. Based upon that evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2008, the design and operation of our disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to accomplish
their objectives.

Internal Controls over Financial Reporting

We are not yet required to report on our internal controls over financial reporting due to a transition period established by the rules
of the Securities and Exchange Commission for newly public companies. Both we and our independent registered public accounting firm, however, identified material weaknesses, as well as significant
deficiencies, with respect to our internal controls over financial reporting in connection with the audits of our consolidated financial statements for the years ended December 31, 2007 and
2006. Beginning in 2007, we have taken, and continue to take, specific actions to remediate these weaknesses and deficiencies.

As
part of our efforts to address the identified weaknesses and deficiencies, emphasis has been placed upon recruiting personnel for key financial positions. Several of these key
positions were filled during 2007 and 2008. The Company expects to continue recruiting for additional personnel during the remainder of 2008. We also initiated projects in the second half of 2007
which are ongoing and are designed to improve financial processes, information flows and controls. Additional projects are being developed to improve accounting policies designed to ensure
company-wide compliance with interpretation of accounting rules.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

The Investigation Bureau of the Ministry of Justice of Taiwan presented one of our Taiwan-based subsidiaries with a search warrant in
June 2008, authorizing a search for documents relating to a 2005 transaction involving a purchase of non-performing loan and real estate assets from Bowa Bank, a Taiwanese bank. Bowa Bank
was taken over by the Central Deposit Insurance Corporation in August 2007 as part of an insolvency proceeding. The Investigation Bureau is reviewing a number of transactions entered into by Bowa Bank
prior to its insolvency. According to the search warrant, this case relates to an investigation of potential violation of the Banking Law and the Securities and Exchange Law. An officer of this
Taiwanese subsidiary was also questioned as a witness in connection with the investigation. No criminal or civil claims have been
brought against us or any of our employees in connection with these matters. We are cooperating with the investigation.

We
may be subject to potential liability under various legal actions that are pending or that may be asserted against us in the ordinary course of business. While the outcomes of the
various pending legal actions are not certain, based on present assessments, management does not believe that they will have a material adverse effect on our business.

Item 1A.    Risk Factors

For a discussion of our potential risks and uncertainties, see the information under the heading "Risk Factors" in our prospectus filed
with the SEC on July 15, 2008 in accordance with Rule 424(b)(3) of the Securities Act of 1933, as amended, which is accessible on the SEC's website at www.sec.gov. Certain additional risks are
described below.

Our liquidity and financial condition have been and could continue to be adversely affected by current market and economic conditions.

Our ability to access the capital markets and other sources of secured and unsecured funding, which is critical to our ability to do
business, has been and could continue to be adversely affected by recent events in the global markets and in the economy. As described in "Management's Discussion and Analysis of Financial Condition
and Results of OperationsOutlook and Recent Trends," global market and economic conditions have been, and continue to be, disrupted and volatile to an unprecedented extent. Our cost and
availability of funding have been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Due to widespread concerns about the stability of the markets and the
strength of counterparties, many lenders have reduced and, in some cases, ceased to provide funding to borrowers. Further or prolonged disruptions in the global markets and economy may adversely
affect our liquidity and financial condition. For additional information on factors that may affect our liquidity and financial condition, see the information provided under the heading "Risk Factors"
in our prospectus filed with the SEC on July 15, 2008 in accordance with Rule 424(b)(3) of the Securities Act of 1933, as amended.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2008, we sold 11,558 shares of our common stock, par value $0.001 per share, or "Shares," granted
non-qualified stock options, or "Options," to purchase 11,000 additional Shares and issued 24,446 hypothetical shares, or "Hypothetical Shares," or 47,004 equity securities in the
aggregate, in the transactions described below. The Options include a combination of time-based and performance-based options having an exercise price of $5.60 per share. The
time-based options generally vest and become exercisable ratably on each of the first five anniversaries of the option grant date, except as otherwise determined by our board of directors.
The performance-based options vest and become exercisable ratably at the end of each of the five fiscal years occurring after the option

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grant
date only if we achieve certain return on equity performance targets. If a performance target is missed in any one year, but in a subsequent year the cumulative actual performance for prior
years equals or exceeds the annual performance targets for those years, all performance-based options that did not vest will vest and become exercisable, as if all prior annual targets had been met.
The Hypothetical Shares are held in separate accounts and are valued to be equal to the fair value of a share of our common stock. Hypothetical Shares are paid out at fair market value upon
termination or a change of control and may be paid in cash or current shares at our election. The Shares were sold, the Options were granted and the Hypothetical Shares were issued in the following
transactions, which were exempt from the registration requirements of the Securities Act of 1933, as amended, and, in particular pursuant to Rule 4(2). No underwriters were employed in any of
these transactions.



Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

On July 3, 2008, pursuant to Section 78.320 of the Nevada Revised Statutes, we received the written consent of our
stockholders to act by written consent in lieu of a meeting to elect William Hall, Jr. and Rajinder Singh to serve as members of our board of directors. We received the consent of our
stockholders holding 412,803,348 shares with respect to the election of the members of our board of directors.

Item 5.    Other Information

On October 29, 2008, our board of directors appointed Marcia J. Donner as Executive Vice President and Chief Administrative
Officer of our company, effective as of the date of her commencement of employment with us.

On
November 7, 2008, we entered into a Transfer Agreement with D. Steven Lin, our former Executive Vice President, Asian Operations, pursuant to which we repurchased Mr. Lin's
660,000 shares of common stock for an aggregate purchase price of $2,798,400. In addition, Mr. Lin surrendered for cancellation all of his outstanding exercisable stock options. The foregoing
summary of the Transfer Agreement is qualified in its entirety by reference to the text of the Transfer Agreement, a copy of which is attached as an exhibit hereto and which is incorporated herein by
reference.

Item 6.    Exhibits

The exhibits filed as a part of this report are as follows:

3.1

Amended and Restated Articles of Incorporation of Capmark Financial Group Inc., incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 filed on September 20,
2007.3.2

Amended and Restated By-laws of Capmark Financial Group Inc., incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed on August 13, 2008.


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10.1

Confidential Release and Waiver of Claims by and between D. Steven Lin, Capmark Financial Group Inc. and Capmark Finance Inc., incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on October 6, 2008.10.2

Transfer Agreement, made November 7, 2008, by and between Capmark Financial Group Inc. and D. Steven Lin.31.1

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a).31.2

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a).32.1

Section 1350 Certifications.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                        |  |                                                                                                 
|----------------------- |  | ------------------------------------------------------------------------------------------------
|                        |  | Capmark Financial Group Inc.                                                                    
|Date: November 10, 2008 |  | /s/ WILLIAM F. ALDINGER III                                                                     
|                        |  | Name:  William F. Aldinger III
Title:President and Chief Executive Officer                      
|Date: November 10, 2008 |  | /s/ GREGORY J. MCMANUS                                                                          
|                        |  | Name:  Gregory J. McManus
Title:Executive Vice President and
            Chief Financial Officer

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EXHIBIT INDEX

Exhibit
Numbers

Description and Method of Filing3.1

Amended and Restated Articles of Incorporation of Capmark Financial Group Inc., incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 filed on September 20,
2007.3.2

Amended and Restated By-laws of Capmark Financial Group Inc., incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed on August 13, 2008.10.1

Confidential Release and Waiver of Claims by and between D. Steven Lin, Capmark Financial Group Inc. and Capmark Finance Inc., incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on October 6, 2008.10.2

Transfer Agreement, made November 7, 2008, by and between Capmark Financial Group Inc. and D. Steven Lin.31.1

CEO Certification pursuant to Rule 13a-14(a)/15d-14(a).31.2

CFO Certification pursuant to Rule 13a-14(a)/15d-14(a).32.1

Section 1350 Certifications.


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