UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934


                         Commission File Number 1-13237

                           CENTERLINE HOLDING COMPANY
         (Exact name of Registrant as specified in its Trust Agreement)

            DELAWARE                                     13-3949418
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

 625 MADISON AVENUE, NEW YORK, NEW YORK                    10022
(Address of principal executive offices)                 (Zip Code)

                                 (212) 317-5700
               Registrant's telephone number, including area code

           Securities registered pursuant to Section 12(b) of the Act:
                          SHARES OF BENEFICIAL INTEREST

                   Name of each exchange on which registered:
                             NEW YORK STOCK EXCHANGE

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes[ ] No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer [X] Accelerated filer [ ] Non-accelerated
filer [ ]

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

The  aggregate  market  value of common  equity  held by  non-affiliates  of the
registrant as of June 30, 2007 was  approximately  $864.0  million (based on the
closing price of $18.00 per share as reported by the New York Stock  Exchange on
that date).

As of  February  22,  2008  there  were  50,617,812  outstanding  shares  of the
registrant's shares of beneficial interest.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III:  Those  portions of the  registrant's  Proxy  Statement for the Annual
Meeting to be held in June 2008 which are incorporated into Items 10, 11, 12, 13
and 14.


<PAGE>

                                TABLE OF CONTENTS

                           CENTERLINE HOLDING COMPANY

                           ANNUAL REPORT ON FORM 10-K




                                                                           PAGE
PART I
           Item 1.    Business                                                 1
           Item 1A.   Risk Factors                                             7
           Item 1B.   Unresolved Staff Comments                               21
           Item 2.    Properties                                              21
           Item 3.    Legal Proceedings                                       21
           Item 4.    Submission of Matters to a Vote of Security
                        Holders                                               23

PART II
           Item 5.    Market for Registrant's Common Equity, Related
                        Stockholder Matters and Issuer Purchases of
                        Equity Securities                                     24
           Item 6.    Selected Financial Data                                 26
           Item 7.    Management's Discussion and Analysis of
                        Financial Condition and Results of Operations         27
           Item 7A.   Quantitative and Qualitative Disclosures about
                        Market Risks                                          63
           Item 8.    Financial Statements and Supplementary Data             66
           Item 9.    Changes in and Disagreements with Accountants
                        on Accounting and Financial Disclosure               135
           Item 9A.   Controls and Procedures                                135
           Item 9B.   Other Information                                      135

PART III
           Item 10.   Directors, Executive Officers and Corporate
                        Governance                                           136
           Item 11.   Executive Compensation                                 136
           Item 12.   Security Ownership of Certain Beneficial
                        Owners and Management and Related
                        Stockholder Matters                                  136
           Item 13.   Certain Relationships and Related Transactions,
                        and Director Independence                            136
           Item 14.   Principal Accounting Fees and Services                 136

PART IV
           Item 15.   Exhibits and Financial Statement Schedules             137

SIGNATURES                                                                   144

<PAGE>


                      CAUTIONARY STATEMENT FOR PURPOSES OF
                         THE "SAFE HARBOR" PROVISIONS OF
              THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


This  Annual  Report on Form 10-K  contains  forward-looking  statements.  These
forward-looking  statements are not historical facts, but rather our beliefs and
expectations that are based on our current expectations, estimates, projections,
beliefs  and  assumptions  about  our  Company  and  industry.   Words  such  as
"anticipates,"  "expects,"  "intends," "plans," "believes," "seeks," "estimates"
and similar  expressions  are intended to identify  forward-looking  statements.
These  statements  are not guarantees of future  performance  and are subject to
risks,  uncertainties  and other factors,  some of which are beyond our control,
are  difficult  to predict and could cause actual  results to differ  materially
from those expressed or forecasted in the  forward-looking  statements.  Some of
these risks include, among other things:

     o    adverse changes in real estate markets,  general economic and business
          conditions;
     o    adverse  changes in credit  markets and risks  related to the form and
          structure of our financing arrangements;
     o    our  ability  to  generate  new  income  sources,  raise  capital  for
          investment funds and maintain  business  relationships  with providers
          and users of capital;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our investments;
     o    competition  with  other  companies;
     o    risk of loss  from  direct  and  indirect  investments  in  commercial
          mortgage-backed    securities   ("CMBS")   and   collateralized   debt
          obligations ("CDOs");
     o    risk of loss under  mortgage  banking loss sharing  agreements;  and
     o    risks associated with providing credit intermediation.

We caution you not to place undue reliance on these forward-looking  statements,
which reflect our view only as of the date of this annual report on Form 10-K.


<PAGE>

                                     PART I


ITEM 1.  BUSINESS.

GENERAL

We are Centerline  Holding  Company  (NYSE:CHC),  an  alternative  asset manager
focused on real estate funds and financing. We had $11.9 billion of assets under
management  as of December 31, 2007.  We commenced  operations  in October 1997.
Organized as a statutory  trust created  under the laws of Delaware,  we conduct
substantially  all of our business through our subsidiaries  generally under the
designation Centerline Capital Group. For ease of readership,  however, the term
"we" (as well as "us",  "our" or "the Company") as used throughout this document
may mean the business as a whole or a subsidiary,  while the term "parent trust"
refers only to Centerline Holding Company as a stand-alone entity.

BUSINESS OVERVIEW

Through  our  subsidiaries  and the  funds  they  manage,  we match the users of
capital  with the  providers  of  capital,  with a core focus on the real estate
industry.  We provide capital at every layer of a property's  capital  structure
and investment products at varied levels of the risk spectrum.  Inclusive of our
predecessors  (Related  Capital Company and ARCap  Investors,  L.L.C.),  we have
operated for over 35 years and have a track record of performing  through varied
economic and real estate cycles. We believe our historical  success is rooted in
our unique balance and combination of capital markets and real estate  expertise
as well as our  ability to assess  and  manage  real  estate  risk.  Our team of
professionals thinks creatively in order to achieve highly practical, customized
solutions for real estate investors, developers and owners.

Our core investment  strategy is  Buy-Watch-Fix:  we invest  prudently,  monitor
performance  diligently  and  manage  investments  aggressively.  We  have  four
operating  groups:  Affordable  Housing,  Commercial  Real  Estate,  Credit Risk
Products and Portfolio  Management.  Our Affordable  Housing and Commercial Real
Estate  Groups  raise  capital  through a series of funds to deploy into a broad
array of real estate debt and equity investments. Our Portfolio Management Group
carefully  monitors and services the investments  within our funds and servicing
portfolio.  In the event an asset does not perform as  expected,  our  Portfolio
Management  Group works  towards the best  resolution.  Our Credit Risk Products
Group  provides  credit support to affordable  housing debt and equity  products
and, more recently, began investing in syndicated corporate debt.

Our  strategic  goals are to increase  our assets  under  management  and create
greater earnings power for the Company.  Including predecessor companies,  as of
December  31 of each of the  past  three  years,  our  assets  under  management
consisted of the following:
<TABLE>
<CAPTION>
                                                                                Compound
                                                                                 Annual
(IN MILLIONS)                       2007            2006            2005       Growth Rate
----------------------------   -------------   -------------   -------------   -----------
<S>                            <C>             <C>             <C>                   <C>
Commercial Real Estate
  CMBS Funds                   $     1,475.4   $       890.1   $       890.1          28.8%
  High-Yield Debt Investment
    Entities                           556.6           442.1           114.2         120.8
  Joint Venture Equity Funds           225.6            76.9            76.9          71.3
Affordable Housing
  LIHTC Funds                        9,694.4         8,525.9         7,548.2          13.3
                               -------------   -------------   -------------   -----------
Total                          $    11,952.0   $     9,935.0   $     8,629.4          17.7%
                               =============   =============   =============   ===========
</TABLE>


In 2008, we expect our revenues and equity earnings to be primarily derived from
investment  management,  investment income and transactional income.  Investment
management includes origination, asset management, servicing and incentive fees.
Investment income includes interest income from various  investments we hold for
our  own  portfolio  and  equity  earnings  related  to  co-investments  in  our
Commercial Real Estate funds.  Transactional  income includes  origination  fees
paid to us by  borrowers  and credit  intermediation  fees from our credit  risk
products.

OPERATING SEGMENTS AND PRODUCTS

Effective  January 1, 2007, we began  reporting our segment  results  consistent
with our reorganized structure including the four previously mentioned operating
segments of Affordable Housing, Commercial Real Estate, Portfolio Management and
Credit Risks  Products and two  non-operating  segments  including our Corporate
Group and Consolidated Partnerships.

                                       1
<PAGE>

AFFORDABLE HOUSING

Our  Affordable  Housing Group  primarily  focuses on providing  debt and equity
financing to  properties  that benefit  from the  Low-Income  Housing Tax Credit
("LIHTC").

LIHTC FUNDS

In 1986, the LIHTC was  established to promote the development of rental housing
units for low-income families. Since inception of the LIHTC, we have been one of
the nation's  largest  sponsors and  managers of LIHTC  investment  funds having
raised $9.7 billion in equity from institutional and retail investors.  To date,
we have sponsored more than 145 public and private real estate  investment funds
that have  financed  over  1,400  affordable  rental  properties  in 47  states,
Washington,  DC and Puerto Rico.  During 2007, we raised gross tax credit equity
of $1.2 billion in 16 different LIHTC investment funds.

Management  of LIHTC funds  involves  fund  origination,  property  acquisition,
underwriting, asset management and administration. Revenues earned include:

     o    investment  management fees such as acquisition fees and allowances to
          cover origination and underwriting costs. The investors pay these fees
          at the time the fund closes and we recognize them as the funds acquire
          properties;
     o    partnership management fees for administrative services. Investors pay
          these fees also when the fund closes and we generally  recognize  them
          over five years; and
     o    asset management fees and expense reimbursements.  The fund pays these
          fees and we recognize them over the life of the fund as earned.

With respect to certain  LIHTC equity  investment  funds,  we provide  specified
returns to investors and those investors pay us a fee in return (see also CREDIT
RISK PRODUCTS  discussion below).  Investors pay these fees at the time the fund
closes and we recognize them over the life of the fund (generally the compliance
period of the properties in which it invests).

TAX-EXEMPT MORTGAGE REVENUE BONDS

In addition to providing equity for LIHTC affordable  housing  developments,  we
are a  leading  provider  of  tax-exempt  affordable  housing  debt.  Since  our
inception in 1997, we directly  purchased  tax-exempt  bonds and aggregated over
$2.8  billion  of bond  investments,  securitizing  the  investments  to finance
further bond  acquisitions.  In December 2007, we re-securitized  our Affordable
Housing bond  portfolio  with Federal Home Loan Mortgage  Corporation  ("Freddie
Mac"),  whereby  for  accounting  purposes,  most of the  re-securitization  was
treated as a sale.  In  connection  with the  transaction,  we  retained  $377.5
million in senior, credit enhanced certificates that collateralize the preferred
shares of our subsidiary, a high-yielding residual interest in the portfolio and
servicing rights.  While we re-securitized the majority of our existing mortgage
revenue bonds, we intend to acquire  additional bonds and securitize these bonds
as well, retaining residual interests.

Historically  we earned most of our income and cash flow from a positive  spread
between the interest  earned from our mortgage  revenue bond  portfolio  and the
cost of financing the bonds.  To the extent we retain  residual  interests  from
securitizing  the bonds, we will continue to earn the interest income  allocated
to that  residual  interest.  In  addition,  for new mortgage  revenue  bonds we
purchase, we will earn the interest spread until such bonds are securitized with
the residual  interest  retained.  We also receive fees from  borrowers  for the
acquisition of new bonds.

COMMERCIAL REAL ESTATE

Our  Commercial  Real Estate Group  provides a broad  spectrum of financing  and
investment products for multifamily,  office, retail, industrial,  mixed-use and
other  properties  throughout the United  States.  Our access to a wide array of
capital  markets  executions  enables the Commercial  Real Estate Group to offer
financing  at every  level of a  property's  capitalization,  including  equity,
mezzanine capital, B-notes, bridge and first mortgage loans. In partnership with
our capital sources,  including  pension funds,  investment  banks,  Wall Street
conduits  and  government-sponsored  entities,  we tailor  products  to meet the
financing  needs of our clients.  Our  state-of-the-art  commercial  real estate
origination,  pricing and underwriting platform provides us with the capacity to
competitively finance all commercial property types.

In addition to our direct debt and equity origination platform, we are an active
buyer of real estate  debt  securities,  including  high-yield  CMBS,  preferred
equity and CDO  securities  for the  investment  funds we manage.  We  typically
co-invest  5% in the  Commercial  Real  Estate  funds and  entities  we  manage,
although some co-investments may be for a lesser or greater share.

CMBS FUNDS

We currently manage three high-yield CMBS funds, which have aggregate  committed
equity of approximately $1.5 billion.

CMBS are publicly and privately traded bond issues backed by pools of commercial
real estate  mortgages.  These  securities  are rated by  nationally  recognized
rating agencies such as Fitch Ratings Ltd. ("Fitch"),  Standard & Poor's ("S&P")
and Moody's Investor Services ("Moody's"). The senior tranche of a bond issue is
the highest rated security,  typically "AAA", while more junior tranches receive

                                       2
<PAGE>

lower ratings down to the most junior class that is not rated. "High-yield CMBS"
is the  component  of CMBS issues  rated "BB+" and lower  (including  non-rated)
tranches.  The purchase of high-yield CMBS is similar to the acquisition of real
estate equity  investments in that there is a heavy emphasis on the  performance
and expected cash flows of the real estate.  In the case of high-yield  CMBS, an
offering  typically includes hundreds of individual loans secured by hundreds of
discrete real estate projects. Our funds provide investors access to this market
without requiring the investors to incur the cost to develop the  infrastructure
and personnel  needed to make  knowledgeable  investments in the high-yield CMBS
market.

In preparation for new funds, we may  "warehouse"  CMBS  investments for our own
account (generally acquiring private placements) and later sell them to the fund
when it is formed. Additionally,  when a fund securitizes its assets, we may buy
a portion of the residual interests and hold them for our own account.

With  respect to CMBS  funds,  we earn  investment  management  fees  (including
incentive fees) based on certain events in the fund  life-cycle.  These fees and
our portion of the funds'  earnings from our  co-investments  are  recognized as
equity income. We also earn interest income from warehoused  investments and any
residual or re-securitization certificates we hold for our own account.

HIGH-YIELD DEBT INVESTMENT ENTITIES

We currently  manage two high-yield  debt investment  entities,  Centerline Real
Estate  Special  Situations  Mortgage Fund LLC  ("CRESS"),  a fund we manage and
consolidate,  and American  Mortgage  Acceptance  Company  ("AMAC"),  a publicly
traded real estate investment trust ("REIT"). As of December 31, 2007, CRESS had
$535.7 million of committed equity and AMAC had an equity market  capitalization
of $13.3 million.

CRESS  invests  in  bridge  loans,  subordinate  interests  in  first  mortgages
("B-notes"), CDO securities and mezzanine loans.

AMAC,  an equity  investment,  originates  and acquires  first  mortgage  loans,
mezzanine loans,  construction loans,  subordinated  interests in first mortgage
loans, bridge loans, CMBS and CDO securities. Our co-investment in AMAC includes
common and preferred  shares.  We also provide a credit  facility to AMAC with a
total  capacity of $80.0  million as of December 31, 2007.  Due to recent market
events, AMAC has temporarily suspended originating and acquiring loans.

We earn equity income from our equity  interests in CRESS and AMAC,  origination
fees paid by the  borrowers  of loans  that we  originate  for AMAC,  investment
management fees (including incentive fees) and expense reimbursements.

JOINT VENTURE EQUITY FUNDS

We currently  manage a joint  venture  equity  fund,  Centerline  Urban  Capital
("CUC"),  which has  $225.6  million  of  committed  equity  and whose  majority
investor is the California Public Employees' Retirement System ("CalPERS").  CUC
focuses on equity investments in multifamily  properties in major urban markets.
We earn income from CUC  predominantly  from asset management fees and incentive
fees, as well as equity income from our co-investment.

DEBT PRODUCT ORIGINATION

We  originate,  underwrite  and  service  mortgage  loans  for  multifamily  and
commercial  properties  nationwide.  In 2007, we originated over $1.7 billion of
commercial mortgage loans for our investor partners, including:

     o    closing  and  delivering  multifamily  mortgages  to Federal  National
          Mortgage Association  ("Fannie Mae") under its Delegated  Underwriting
          and Servicing ("DUS") program;
     o    closing and delivering  multifamily mortgages to Freddie Mac under the
          Freddie Mac Program Plus ("Program  Plus") and Delegated  Underwriting
          Initiative   ("DUI")   programs.   During  2007,  we  were  the  first
          multifamily lender to achieve fully delegated status under the Freddie
          Mac Delegated Underwriting for Targeted Affordable Housing;
     o    originating loans as a leading  commercial loan correspondent for Wall
          Street conduits and life insurance companies; and
     o    originating mortgages for CRESS and AMAC.

Mortgage loans we originate for our investment  partners are often closed in our
name,  using cash  borrowed  from a warehouse  lender,  and sold to the investor
partner from one week to three months  following the closing of the loan. We use
the cash received to repay the warehouse loans. We do not retain any interest in
any of the  mortgage  loans except for mortgage  servicing  rights  ("MSRs") and
certain contingent  liabilities under the loss-sharing  arrangements with Fannie
Mae (DUS) and Freddie Mac (DUI) programs.

In this  business,  we earn  transactional-based  origination  fees,  which  are
recognized upon settlement of the sale of the loans to the investor partner.  We
also  earn  servicing  fees over the life of the loan,  although  our  Portfolio
Management Group performs these services for the businesses in this segment.  We
also  earn  interest  on the  loans  for the  period  prior to sale,  as well as
assumption  and  substitution  fees for  modifications  to  serviced  loans  and
prepayment fees on originated loans.

                                       3
<PAGE>

PORTFOLIO MANAGEMENT

Our Portfolio  Management  Group monitors every loan and investment we originate
and acquire for our  investment  funds and provides  services for third parties.
Our  surveillance,  primary  servicing and special  servicing  functions are all
housed within our Portfolio Management Group.

Through our proprietary technology, our Portfolio Management Group has access to
proprietary property and market information on over 19,000 properties within our
investment funds and servicing portfolio.  Our constant monitoring,  we believe,
enables us to detect  issues  early and develop the best  possible  solutions to
preserve our funds' investments and to assess risks prior to investing.

At December 31, 2007, our primary loan servicing portfolio totaled $30.7 billion
and consisted of:

    (i)   $8.5 billion of multifamily loans serviced on behalf of our Commercial
          Real Estate Group for Fannie Mae, Freddie Mac and other agencies;
    (ii)  $15.8 billion of interim servicing,  which is short-term  servicing of
          commercial mortgage loans originated on behalf of Wall Street Conduits
          prior to securitization;
    (iii) $1.3 billion of "private label" servicing for third parties; and
    (iv)  $5.1 billion of loans within our managed  investment  funds or our own
          account.

Our primary servicing  platform carries an "Above Average" rating from S&P and a
"CPS2-" rating from Fitch.

When a loan or investment does not perform,  our special  servicing  department,
comprised of seasoned  real estate  professionals,  crafts and  executes  action
plans intended to provide the best  resolution for the  investment.  At December
31,  2007,  we were  the  named  special  servicer  on over  $116.9  billion  of
commercial  loans.  In  addition  to asset  resolution,  our  special  servicing
department  processes loan  modifications  and assumptions  within our servicing
portfolio. Our special servicing platform carries a "Strong" rating from S&P and
a "CSS1"  rating from Fitch.  As a CDO asset  manager,  we carry a "CAM1" rating
from Fitch.

Our Portfolio  Management Group recognizes asset management fees as earned on an
accrual basis,  servicing fees as earned over the servicing  period and interest
income on servicing escrow balances as earned.

CREDIT RISK PRODUCTS

Through  our Credit  Risk  Products  Group,  we provide  credit  intermediation,
primarily  in the  form  of  credit  default  swaps  ("CDS")  to the  affordable
multifamily  housing industry.  We provide CDS through Centerline  Financial LLC
("Centerline  Financial"),  a  AAA-rated  subsidiary  we  launched  in  2006  in
partnership with Natixis Capital Markets North America Inc ("Natixis").  Natixis
currently owns 10% of Centerline Financial.

Our Credit Risk Products Group provides CDS in connection  with specified  rates
of return on some of the LIHTC funds our  Affordable  Housing Group  originates.
This group initially focused largely on providing CDS credit  intermediation for
the  mortgage  revenue  bonds  in our own  portfolio,  enabling  us to  retain a
significant  portion of fees we would  otherwise have paid to third party credit
providers.  Most of the CDS related to credit intermediation of mortgage revenue
bonds  were  unwound  at the  time we  re-securitized  our  portfolio  (see  the
description of Affordable Housing above).

During 2007,  Centerline  Financial  received its AAA  counterparty  rating as a
credit  derivative  products  company from S&P.  Prior to receiving  the rating,
Natixis   supported  the  credit   intermediation   this  group  provided;   the
counterparty rating allows us to provide CDS to third parties directly.

Our  Credit  Risk  Products  Group  earns  income  and cash  flows  from  credit
intermediation  fees,  generally  recognized  over the applicable  risk-weighted
periods on a straight-line  basis.  For those pertaining to the construction and
lease-up phase of a pool of  properties,  the periods are generally one to three
years.  For those  pertaining to the operational  phase of a pool of properties,
the period is  approximately 20 years. Our Credit Risk Products Group also earns
interest from investing the capital maintained to support issued CDS.

During 2007, this group expanded its activities to include acquiring  syndicated
corporate  debt.  Initially,  we  intend  to  accumulate  a  highly  diversified
portfolio of syndicated loans for our own investment,  eventually  financing the
investments with collateralized loan obligations ("CLOs"). As we gain acceptance
as a CLO issuer,  we expect to retain only a small portion of the CLO equity for
our own account,  with the  remainder  sold to  investors  in a fund format.  We
currently earn interest from these investments during the accumulation period.

CONSOLIDATED PARTNERSHIPS

Consolidated Partnerships consist of four groups:

                                       4
<PAGE>

     o    funds our Affordable Housing Group originates and manages to syndicate
          LIHTC Investments ("LIHTC Fund Partnerships");
     o    property level partnerships for which our Affordable Housing Group has
          assumed  the role of general  partner  or for which we had  foreclosed
          upon the property ("LIHTC Property Partnerships");
     o    funds our Commercial Real Estate  businesses  manage,  which invest in
          CMBS   and   associated    re-securitization    trusts   ("CMBS   Fund
          Partnerships"); and
     o    CRESS,  the high-yield  debt  partnership  our Commercial  Real Estate
          business manages ("High-Yield Debt Fund Partnership").

While we have  little  or no equity  interest  in the  LIHTC  Fund and  Property
Partnerships,  we have  co-investments  of  varying  degrees  in the  CMBS  Fund
Partnerships  and the High-Yield Debt Fund  Partnership,  but all less than 25%.
Although we do not have majority  ownership,  we control the operations of these
partnerships  and consolidate them in our financial  statements.  The amounts of
assets  included in our  consolidated  balance sheets differ from the amounts we
refer  to  as  "Assets  Under   Management"  as  the  carrying  amounts  reflect
mark-to-market  adjustments  for certain  investments,  absorption  of operating
losses for equity investments and other factors.

The LIHTC  Fund  Partnerships  earn  equity  income  from  investments  in LIHTC
property partnerships.  As these funds are designed to generate tax benefits for
their investors,  that equity income is typically  negative and virtually all is
allocated to the investors.

The LIHTC Property  Partnerships earn rental revenues from operating  affordable
housing properties.

The CMBS  Fund  Partnerships  and the  High-Yield  Debt Fund  Partnerships  earn
revenue (primarily interest) from their respective investments.

Funding of Operations
---------------------

We  fund  our  operations,  including  expansion  of  our  business,  through  a
combination of operating  cash flows,  short-term  borrowings,  securitizations,
repurchase agreements,  long-term borrowings and equity issuances. These funding
vehicles  are  described  in detail in  MANAGEMENT'S  DISCUSSION  AND ANALYSIS -
LIQUIDITY  AND  CAPITAL  RESOURCES  and  in  Notes  11,  12,  16  and  17 to our
consolidated financial statements.

Our credit  facilities,  which include a revolving facility due in 2009 and term
facility due during 2008,  are generally  available for corporate  purposes,  as
well as for operations as described in the following paragraphs.

With  respect to our  Affordable  Housing  Group,  we often borrow cash from our
credit facility to acquire LIHTC property partnership investments, and a portion
of the credit  facility  is  reserved  for such  investments.  This  arrangement
enables  us to obtain  and hold  suitable  investments  for a fund  until it has
admitted investors and obtained investment  capital.  When the fund acquires the
investments  from  us,  we  use  the  proceeds  to  repay  the  credit  facility
borrowings.  We  initially  finance  investments  in mortgage  revenue  bonds by
borrowing from the credit facility,  followed by securitization  financing. Such
securitizations  may  take  the  form  of  on-balance-sheet   financing  through
securitization trusts or through off-balance-sheet  financing such as our recent
transaction with Freddie Mac.

With respect to our Commercial Real Estate Group, we generally acquire CMBS fund
investments  including  at the  fund  level  using  repurchase  financing  until
permanent  financing is arranged for the pool of assets in a fund; when the fund
acquires the  investments  from us, we use the proceeds to repay the  repurchase
financing.  For  mortgage  loans we  originate  for  sale,  we  principally  use
asset-backed warehouse lines.

The LIHTC Fund,  CMBS Fund and High-Yield Debt Fund  Partnerships  finance their
investments  through  equity  contributions  from their  investors,  and through
proceeds from debt  facilities at the fund level which is non-recourse to us, as
they are secured by fund assets or equity  subscriptions.  These debt facilities
may include warehouse lines, subscription lines, repurchase facilities or bridge
loans.  Once the CMBS Funds and  High-Yield  Debt Fund  Partnerships  accumulate
investments of appropriate number, size and diversity, these debt facilities may
be replaced with CDO financing or other securitizations, which provide long-term
non-recourse, matched term funding secured by the investments.

Competition
-----------

We face  increasing  levels of competition  both in terms of new competitors and
new competing products. From time to time, we may be in competition with private
investors,  investment banks, mortgage banking companies,  lending institutions,
Government  Sponsored  Enterprises  ("GSEs") such as Fannie Mae and Freddie Mac,
mutual  funds,  domestic  and  foreign  credit  intermediators,  bond  insurers,
investment  partnerships  and other  entities with  objectives  similar to ours.
Although  we  operate  in a  competitive  environment,  competitors  focused  on
providing all of our custom-designed programs are relatively few. Specifically:

                                       5
<PAGE>

     o    our Affordable  Housing Group competes directly with others seeking to
          raise  capital for tax  advantaged  funds,  some of which offer credit
          intermediation  for their funds.  We also  compete  with  regional and
          national  banks that directly  acquire LIHTC  investments,  as well as
          directly with commercial  banks,  GSEs, real estate finance  companies
          and others seeking to invest in tax-exempt mortgage revenue bonds;
     o    our Commercial  Real Estate Group competes with other real estate fund
          management  companies that directly  acquire CMBS debt instruments and
          joint  venture   equity.   In  addition,   with  respect  to  mortgage
          origination we are in  competition  with 24 other licensed DUS lenders
          which  originate  multifamily  mortgages  on behalf of Fannie  Mae, 34
          other  Freddie Mac Program Plus  lenders,  four other  companies  that
          participate  in the DUI  program as well as  numerous  banks,  finance
          companies  and others  that  originate  mortgages  for  investment  or
          resale;
     o    our Portfolio Management Group competes with other primary and special
          loan servicers; and
     o    our Credit Risk  Products  Group  competes  directly  with  investment
          banks,  insurance companies,  other credit  intermediation  companies,
          other derivative products companies,  and various entities that invest
          in syndicated debt.

Some of these competitors have  substantially  greater financial and operational
resources than we do. In addition,  affiliates of some of our managing  trustees
may form entities to engage in  businesses  that could be  competitive  with us,
but, at this time we are not aware of any other single  business that has all of
our real estate financing and investing products (see RISKS RELATED TO INVESTING
IN OUR COMPANY in Item 1A below).  We feel we can  effectively  compete  against
other competitors and at the product level due to:

     o    our on-going relationships with developers and borrowers;
     o    our diversified refinance investment product platform; and
     o    our 35-year  performance  track record over highly rated servicing and
          special servicing platform.

Tax Matters
-----------

Our parent trust is a Delaware statutory trust and a significant  portion of our
revenue is  non-taxable.  Further,  for federal income tax purposes,  the parent
trust  and many of our  subsidiaries  (including  the  tax-exempt  revenue  bond
operations of the Affordable  Housing Group and the CMBS Funds operations of the
Commercial  Real Estate  Group) are treated as not subject to income  taxes.  We
pass  through  our  income,   including  federally  tax-exempt  income,  to  our
shareholders  for  inclusion  in their tax returns.  During  2007,  we derived a
substantial  portion of our income from ownership of first mortgage  multifamily
housing  "Private  Activity  Bonds." The interest  from these bonds is generally
exempt from  regular  federal  income tax.  However,  the Tax Reform Act of 1986
classified this type of interest for bonds issued after August 7, 1986, as a tax
preference  item for  individual and corporate  alternative  minimum tax ("AMT")
purposes.  The percentage of our tax-exempt  interest  income subject to AMT was
approximately 95% for the year ended December 31, 2007,  compared to 94% in 2006
and 93% in 2005.  Following the mortgage revenue bond  re-securitization in late
2007,  we will  continue to generate  tax exempt  interest  through our retained
residual  interest in the Freddie  Mac vehicle  (see Note 4 to our  consolidated
financial statements).

Our Portfolio Management Group, Credit Risk Products Group,  Corporate Group and
the fund  management  operations of our Affordable  Housing Group are subject to
corporate  income tax.  Income from the Fund  activity  of our  Commercial  Real
Estate  Group as well as any  dividends  from the  Corporate  Groups  above  are
included  in  the  income  of  the  parent  trust  and  passed  through  to  our
shareholders. This income is taxable to our shareholders.

Governance
----------

We are governed by a board of trustees  comprised of eleven  managing  trustees,
six of whom are independent. Our board of trustees has five committees:

     (1)  Audit;
     (2)  Compensation;
     (3)  Nominating/Governance;
     (4)  Capital Markets; and
     (5)  Investment.

In accordance with New York Stock Exchange guidelines,  the Audit,  Compensation
and Nominating/Governance committees consist entirely of independent trustees.

Employees
---------

Our subsidiaries had  approximately  500 employees at December 31, 2007, none of
whom were parties to any collective bargaining agreement.

                                       6
<PAGE>

Regulatory Matters
------------------

The mortgage  origination  business  within our Commercial  Real Estate Group is
subject to various  governmental and  quasi-governmental  regulations.  As noted
above, we are licensed or approved to service and/or originate and sell mortgage
loans under Fannie Mae and Freddie Mac programs.  Fannie Mae and Freddie Mac are
federally  chartered public  corporations  that require our subsidiaries to meet
minimum net worth and capital  requirements  and to comply with other  reporting
requirements. Mortgage loans made under these programs are also required to meet
the requirements of these programs. In addition, under Fannie Mae's DUS program,
our  subsidiary  has the authority to originate  loans without a prior review by
Fannie Mae and is required to share in the losses on loans originated under this
program.  If it fails to comply with the  requirements  of these  programs,  the
agency can  terminate  its  license or  approval.  In  addition,  Fannie Mae and
Freddie Mac have the  authority  under their  guidelines to terminate a lender's
authority to originate and service their loans for any reason.  If our authority
is terminated under any of these programs,  it would prevent us from originating
or servicing loans under that program.  As a condition for receiving  Fannie Mae
and Freddie Mac's approval of our acquisitions of the businesses  comprising the
Commercial  Real  Estate  Group we are  required  to  guarantee  such  business'
obligations under these programs.

Additional Information
----------------------

Additional   information  about  Centerline   Holding  Company,   including  its
subsidiaries,  beyond what is included in this Form 10-K,  including our CODE OF
BUSINESS  CONDUCT AND ETHICS,  is  available at  www.centerline.com.  As soon as
reasonably  practicable  after such  material is  electronically  filed with, or
furnished to, the Securities and Exchange  Commission ("SEC") we make available,
on or through our website, free of charge:

     o    our annual report on Form 10-K;
     o    our quarterly reports on Form 10-Q;
     o    our current reports on Form 8-K; and
     o    amendments  to those  reports  filed or furnished  pursuant to Section
          13(a) or 15(d) of the Exchange Act.

You may also read and copy these materials at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549, or obtain them by calling the SEC at
1-800-SEC-0300.  The SEC  also  maintains  an  Internet  website  that  contains
reports,  proxy  and  information  statements  and other  information  regarding
issuers that file electronically with the SEC at www.sec.gov.  We will provide a
copy of any of the foregoing documents upon request.

None of the information on our website that is not otherwise expressly set forth
or incorporated by reference in this Form 10-K is a part of this Form 10-K.


ITEM 1A.  RISK FACTORS.

As with any business,  we face a number of risks.  If any of the following risks
occur, our business,  prospects,  results of operations and financial  condition
would likely suffer. We have grouped these risk factors into several categories,
as follows:

     1.   General Risks Related to Our Business
     2.   Risks Related to Our Affordable Housing Group
     3.   Risks Related to Our Commercial Real Estate Group
     4.   Risks Related to Our Portfolio Management Group
     5.   Risks Related to Our Credit Risk Products Group
     6.   Risks Related to Application of Tax Laws
     7.   Risks Related to Investing in Our Company

1.  GENERAL RISKS RELATED TO OUR BUSINESS

THERE ARE RISKS  ASSOCIATED WITH INVESTMENTS  SECURED BY REAL ESTATE,  WHICH MAY
NEGATIVELY AFFECT OUR NET INCOME AND CASH FLOWS

Through our subsidiaries, we derive a large portion of our earnings by:

     o    originating  and managing  funds that provide equity to LIHTC property
          partnerships;
     o    originating  and  managing  funds that  originate  or  acquire  direct
          mortgage loans, high-yield CMBS or joint venture equity;
     o    investing in mortgage revenue bonds; and
     o    originating and servicing mortgages.

                                       7
<PAGE>

Our  success  depends  in  large  part  on the  performance  of  the  properties
underlying these investments,  which subjects us to various types and degrees of
risk, including the following:

     o    the  properties  might not  generate  sufficient  income to meet their
          operating expenses and payments on the related debt;
     o    economic  conditions  may limit the amount of rent that can be charged
          at the  properties,  the timeliness of rent payments or a reduction in
          occupancy levels;
     o    there may be rent limitations for certain  properties that could limit
          our ability to generate the funds necessary to maintain the properties
          in proper condition;
     o    if an  investment  defaults,  the value of the property  securing such
          investment may be less than the principal amount of the investment;
     o    there are certain types of losses which are either  uninsurable or not
          economically  insurable;  as a result,  the owners of the real  estate
          securing our investments could be required to pay for such costs; and
     o    a guarantor may be unable to fulfill its obligations.

All of these  conditions  and events may increase the  possibility  that,  among
other things:

     o    a property owner may be unable to meet its obligations to us as holder
          of its debt;
     o    a  property  owner  may  default  on a  mortgage  for  which we have a
          loss-sharing obligation;
     o    a fund may not be able to pay our fees;
     o    a fund may not generate  the return that we have  committed to provide
          and we may be called upon to satisfy the promised return;
     o    our incentive fees from fund management may be subject to recapture if
          the funds do not reach overall investment hurdles; and
     o    we could lose our invested capital and/or anticipated future revenue.

This could decrease the fair value of our  investments,  lower the fair value of
assets we pledge as collateral (which could lead to margin calls and asset sales
that could  result in  recognized  losses),  impair our ability to generate  new
business and negatively affect our net income and cash flows.

AN INABILITY TO RAISE CAPITAL OR ACCESS FINANCING ON FAVORABLE TERMS, OR AT ALL,
COULD ADVERSELY AFFECT OUR GROWTH

A major aspect of our business plan includes  co-investment  in sponsored  funds
and initially  warehousing  investments  for them,  which requires  capital.  We
typically fund our co-investments through a combination of operating cash flows,
short-term  borrowings,  securitizations,  repurchase  agreements  and long-term
borrowings.  Our sponsored  funds finance their  investments by similar means as
well as third-party investor private equity commitments.

We also raise capital by periodically offering securities.  Our ability to raise
capital through securities offerings is subject to risks, including:

     o    conditions then prevailing in the relevant capital markets;
     o    our results of operations,  financial condition,  investment portfolio
          and business prospects;
     o    the timing and amount of  distributions  to the  holders of our shares
          which could negatively affect the price of a common share; and
     o    the  amount  of  securities  that  are  structurally   senior  to  the
          securities being sold.

Turbulence  in  credit   markets  that  began  in  2007  has  led  to  decreased
availability  of many forms of financing.  Specifically,  since mid-2007 we have
experienced  a sharp  decline in our  common  share  price and more  constrained
credit in the following areas:

     o    for our new corporate credit facility, the terms include a higher rate
          of interest, a more rapid amortization of principal and more stringent
          covenants than were the norm in prior periods;

     o    with  respect  to short  term  repurchase  financing,  which we use to
          accumulate  CMBS  investments in our Commercial  Real Estate Group and
          CMBS  funds,   advance  rates  for  such   agreements  have  declined,
          compounding the effect on borrowing as market values of the collateral
          assets  have  declined.  Additionally,  the  market  for  issuing  CDO
          financing  has  deteriorated,  impeding  our  ability to  replace  the
          repurchase financing with more cost effective permanent financing; and

     o    lenders for our mortgage loan  warehouse line (some of which have also
          experienced  recent  credit  restrictions)  have sought to lower their
          exposure to specific borrowers or collateral types, resulting in lower
          borrowing capacity for us.

See the description of our existing  facilities under  "MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS - LIQUIDITY AND
CAPITAL RESOURCES."

If current  market  conditions  continue to  experience  volatility  and general
tightening  of credit,  we may be unable to achieve our strategic  goals,  which
could have a material  adverse effect on our business,  financial  condition and
results of operations.  Alternatively, the debt we do arrange may carry a higher

                                       8
<PAGE>

rate of  interest  or shares  issued  may  require a higher  rate of  dividends,
thereby  decreasing our net income and cash flows.  As a result,  certain growth
initiatives could prove more costly or not economically  feasible.  A failure to
renew our  existing  credit  facilities,  to  increase  our  capacity  under our
existing facilities or to add new or replacement debt facilities could therefore
materially impact the value of our company.

WE MAY SUFFER ADVERSE CONSEQUENCES FROM CHANGING INTEREST RATES

Because a portion of our debt is variable  rate and not  hedged,  an increase in
interest  rates  could  negatively   affect  our  net  income  and  cash  flows.
Additionally, increasing interest rates may:

     o    reduce the fair value of our  investments or the  investments of funds
          we manage and residual interests in securitization transactions;
     o    decrease the amount we could realize on the sale or financing of those
          investments;
     o    reduce the income and incentive fees from funds that we manage;
     o    reduce the number of  properties  which are  economically  feasible to
          finance;
     o    reduce the demand for  financing,  which  could  limit our  ability to
          acquire mortgage revenue bonds or to structure  transactions,  thereby
          reducing fees and interest we receive;
     o    increase our borrowing costs;
     o    restrict our access to capital; and
     o    cause  investors  to  find  alternative   investments  that  are  more
          attractive than the equity funds we sponsor.

Conversely,  falling  interest  rates may  prompt  historical  renters to become
homebuyers,  in turn potentially  reducing the demand for the multifamily rental
housing  we  finance.  Further,  a portion  of our net  income is  generated  by
interest income we earn on mortgage escrow deposits. If interest rates decrease,
our net income in the Commercial Real Estate Group decreases as well.

Furthermore,  strategies  we may follow to address  these  risks  carry risks of
their own, including, but not limited to:

     o    the potential  inability to refinance  variable-rate  debt at terms we
          find acceptable;
     o    lack of availability of alternate  sources of fixed rate or lower cost
          financing;
     o    default by interest rate swap  counterparties  on their obligations to
          us;
     o    our  ability  to match the  duration  or reset  periods  of assets and
          liabilities that we want to mitigate the effect of changing rates; and
     o    our other efforts to manage risks related to changes in interest rates
          that may not be successful.

If a change in  interest  rates  causes the  consequences  described  above,  or
otherwise  negatively  affects us, the result could adversely affect our ability
to generate net income or cash flows and our ability to make  distributions  and
other payments in respect of our shares.

WE MAY NOT BE ABLE TO  SUCCESSFULLY  IMPLEMENT  OUR  STRATEGY AS AN  ALTERNATIVE
ASSET MANAGER.

Over the past several years,  we have evolved from a tax-exempt  bond fund to an
alternative asset manager.  In connection with our transformation , we will seek
to  implement  several  strategic  initiatives  to  further  align us with other
publicly-traded alternative asset managers, including:

     o    increasing assets under management;
     o    changing our revenue composition by increasing  investment  management
          fees, transaction fees and investment income;
     o    reducing leverage; and
     o    reducing our dividend payments.

Accordingly,  we will be subject to all of the business risks and  uncertainties
associated with any new business venture, including the risk that we will not be
able to  significantly  increase  our assets  under  management  and achieve our
investment  objectives  and, as a result,  the value of our common  shares could
decline, perhaps substantially.

THE  INABILITY  TO GENERATE  NEW INCOME  SOURCES AND TO MAINTAIN  OUR  RECURRING
INCOME  ARRANGEMENTS  COULD  HAVE A  NEGATIVE  IMPACT ON OUR NET INCOME AND CASH
FLOWS

Two  revenue  sources  in our  Affordable  Housing  Group are  transaction  fees
generated by our  origination of new LIHTC  investment  funds and recurring fees
payable by existing and future funds.  Transaction fees are generally "up-front"
fees that are generated:

     o    by the origination of new investment funds; and
     o    upon investment of the capital raised in an investment fund.

Recurring  fees are generated by the ongoing  operation of  investment  funds we
sponsor  and/or manage,  some of which have finite lives.  With respect to funds
originated in our Commercial Real Estate Group,  equity income is earned for our

                                       9
<PAGE>

role as manager,  our  co-investment  and our incentive fees. The termination of
one or more of these  recurring  arrangements,  or the  inability to sponsor new
funds that  generate new income,  would reduce net income and cash flows.  There
can be no assurance that existing arrangements will not be reduced or terminated
or that we will be able to realize revenues from new investment funds.

Likewise,  two revenue  streams in our Commercial  Real Estate Group are fees we
earn for originating loans and ongoing fees we earn for servicing loans, and our
Portfolio  Management  Group also earns fees for servicing  loans.  A decline in
origination  volume or the loss or termination of a servicing  arrangement could
adversely affect our results of operations and reduce net income and cash flows.
There can be no assurance that existing  recurring fee arrangements  will not be
reduced  or  terminated  or that we will be able to  realize  revenues  from new
business.

WE MAY BE UNABLE TO RAISE CAPITAL FOR NEW INVESTMENT FUNDS

A large part of our net  income is based on fees and  equity  income we earn for
originating or managing  investment  funds, many of which have finite lives. Our
current  strategy to expand our  position  as an  alternative  asset  manager is
dependent upon our ability to attract investors to funds we originate. If we are
not successful in originating funds to expand our business and to replace others
as they  approach the end of their life  cycles,  our ability to earn income and
generate cash flows will decline.

Additionally,  real estate  underlies  most of our  business  lines,  whether by
virtue of sponsoring funds associated with real estate or by direct  investment.
While sometimes viewed as an attractive investment sector, there is no guarantee
that the investors in the funds we sponsor will continue to allocate  capital to
investments  associated  with real estate.  Should there be a general decline in
capital invested in the sector, our ability to sponsor funds would be diminished
and the income we earn from these activities would decline.

WE RELY UPON BUSINESS RELATIONSHIPS WHICH MAY NOT CONTINUE

We  rely  upon  relationships  with  key  investors  and  developers.  If  these
relationships  do not continue,  or if we are unable to form new  relationships,
our ability to generate  revenue will be adversely  affected.  Specifically,  in
2007:

     o    five key investors provided  approximately 66.1% of the equity capital
          raised by tax credit  syndication funds we sponsored,  with Fannie Mae
          and Freddie Mac together providing  approximately  13.3% of the equity
          capital;
     o    ten  key  developers   provided   approximately  53.1%  of  the  LIHTC
          properties  for which we arranged  equity  financing in 2007;
     o    Fannie Mae and Freddie Mac were the  purchasers  of 53.5% of the loans
          originated by our Commercial Real Estate Group in 2007, while AMAC was
          the purchaser of 14.5% of the loans originated; and
     o    Freddie  Mac  was the  counterparty  to the  re-securitization  of our
          mortgage revenue bond portfolio.

There can be no assurance  that we will be able to continue to do business  with
these key investors and  developers  or that new  relationships  will be formed.
Factors  beyond our control may cause  investors or  purchasers to curtail their
activities such as AMAC suspending its purchase of loans in mid-2007. Developers
may also  experience  financial  difficulties  that would,  in turn,  reduce the
amount of business we transact with them.  If developers  were to fail, it could
also lead to some of the adverse  consequences listed under the "THERE ARE RISKS
ASSOCIATED WITH INVESTMENTS SECURED BY REAL ESTATE,  WHICH MAY NEGATIVELY AFFECT
OUR NET INCOME AND CASH FLOWS" section above.

We also rely upon  relationships  with  providers of products in which we invest
(e.g.  CMBS) and  investors  who  invest in the funds  which we  manage.  If our
relationships  with  CMBS  issuers,  Wall  Street  firms,  banks  and  insurance
companies who create and sell  high-yield  debt  products were to terminate,  we
might not be able to obtain  product  for our own  account  or for funds that we
manage.

By reason of their  regulated  status,  certain of our investors have regulatory
incentives  to invest  in our  sponsored  investment  funds in  addition  to the
economic return from such investments. A change in such regulations could result
in determinations by such investors to seek other investment opportunities.

CERTAIN  MANAGEMENT  AGREEMENTS  HAVE FINITE TERMS AND MAY NOT BE RENEWED  WHICH
COULD NEGATIVELY AFFECT OUR NET INCOME AND CASH FLOWS

We receive  fees or equity  allocations  from  investment  funds we sponsor  and
manage.  These funds  generally do not require or authorize  their  investors to
approve the funds'  management  arrangements  with us as we will  generally have
controlling  interests  in the funds or the  entities  which  control the funds.
However,  our  management is subject to the  fiduciary  duty to the investors in
those  funds,  which may affect our  ability to continue to collect the fees and
equity  allocations.  Furthermore,  the  organizational  documents of certain of
these funds allow for the  investors,  at their option,  to remove us as general
partner or managing  member without cause.  Although the funds will generally be
required  to pay fair market  value if they  exercise  this right,  our right to
receive  future  fees would  terminate  and there can be no  assurance  that the
payment will fully  compensate  us for this loss.  Finally,  many of these funds
have finite lives,  after which they are  liquidated.  The termination of a fund
will result in a termination of the fees we receive from it.

                                       10
<PAGE>

REVENUES FROM OUR FEE-GENERATING ACTIVITIES AND OTHER INCOME FROM CERTAIN OF OUR
FINANCING AND INVESTING  PRODUCTS COULD DECLINE,  RESULTING IN A DECREASE IN NET
INCOME AND CASH FLOWS

In 2007,  approximately  16.5% of the revenue we  recognized in our statement of
operations  was  derived  from  fee-generating  service  activities  through our
taxable subsidiaries.  Additionally, in 2007, $18.4 million of our income before
income  taxes was  generated  by equity  income we earned from  Commercial  Real
Estate funds we sponsor and manage.  A  significant  portion of equity income we
expect to generate from these funds is based on incentive fees that we earn, and
the occurrence of events that would trigger such earnings is not in our control.

HEIGHTENED COMPETITION MAY NEGATIVELY IMPACT OUR EARNINGS

We are subject to competition in all of our business lines, as described in Item
1. - BUSINESS - BUSINESS OVERVIEW - COMPETITION.  As competition  increases,  we
may  experience  compression  in the  level of  profits  we earn on our  various
investments and financing products due to, among other things:

     o    reductions in the rate of fees we earn from  originating  and managing
          funds;
     o    reductions in the rate of interest we earn on investments;
     o    reductions  in  the  rates  of  origination  and  servicing  fees  for
          mortgages; and
     o    lower  levels of  discounts  at which  high-yield  investments  may be
          purchased.

As we often borrow funds to make investments, rising interest rates may compound
this issue. Absent cost reductions,  such compression may not permit us to enjoy
the margins we have achieved historically, thereby lowering our revenues and net
income.

OTHER  PARTIES  HAVE THE FIRST  RIGHT TO CASH FLOWS FROM OUR  RESIDUAL  INTEREST
INVESTMENTS

Because of our  utilization of  securitizations,  many of the investments we own
are  residual  interests  subordinate  in  right  of  payment  to  other  senior
securities.  There  are risks in  owning  such  residual  interests  that  could
adversely affect our net income and cash flows, including:

     o    the risk that borrowers may not be able to make payments, resulting in
          us, as the holder of the residual  interests,  receiving principal and
          interest  payments  that are less than  expected or no payment at all;
          and
     o    the risk that the  holders of the senior  interests  may  control  the
          ability to enforce remedies, limiting our ability to take actions that
          might protect our interests.

2.  RISKS RELATED TO OUR AFFORDABLE HOUSING GROUP

THERE IS A RISK OF  ELIMINATION  OF, OR CHANGES TO,  GOVERNMENTAL  PROGRAMS THAT
COULD LIMIT OUR PRODUCT OFFERINGS

A significant  portion of our Affordable  Housing Group revenues is derived from
the  syndication  of  partnership  interests  in  partnerships  that  invest  in
properties  eligible for LIHTCs  which are a provision  of the Internal  Revenue
Code of 1986, as amended (the "Code").

Section 42 of the Code  authorizes  federal  LIHTCs for  affordable  multifamily
rental housing.  Under this program,  a project either receives an allocation of
federal LIHTCs from an agency designated by the government of the state in which
the project is located or the project is entitled to the LIHTCs by reason of its
being  financed by volume cap  mortgage  revenue  bonds.  There are two types of
credits:

     o    4% credits - for new  buildings and existing  buildings  financed with
          mortgage  revenue  bonds that receive an allocation of the volume cap,
          or for new and existing buildings  financed with below-market  federal
          financing  that  receive an  allocation  of federal  LIHTCs from state
          agencies; and
     o    9% credits - for new  buildings  that receive an allocation of federal
          LIHTCs from state agencies.

The credits are taken over a period of ten years, which can span over an 11-year
operating  period.  The credit  amount is based on the  qualified  basis of each
building,  which is based upon the adjusted basis of the building  multiplied by
the percentage of units in the building leased to low-income tenants.

In order to qualify for the federal LIHTC,  the property must comply with either
of the  20/50  or 40/60  tests  that  apply to  tax-exempt  bonds.  However,  in
addition,  the  amount  of rent that may be  charged  to  qualifying  low-income
tenants  cannot exceed 30% of the "imputed  income" for each unit,  i.e., 30% of
the imputed  income of a family  earning 50% or 60% of area  median  income,  as
adjusted for family size. Failure to comply continuously with these requirements
throughout  the 15-year  recapture  period  could  result in a recapture  of the
federal LIHTCs.  In addition,  if the rents from the property are not sufficient
to pay debt service on the mortgage revenue bonds or other financing  secured by
the property and a default ensues,  the initial borrower could lose ownership of

                                       11
<PAGE>

the project as the result of  foreclosure  of the mortgage.  In such event,  the
initial  equity  investors  would no longer  be  entitled  to claim the  federal
LIHTCs, but the foreclosing lender could claim the remaining LIHTCs provided the
project  continues to be operated in accordance with the requirements of Section
42. As a result,  there is a strong  incentive for the federal LIHTC investor to
ensure  that the  development  is current  on debt  service  payments  by making
additional capital contributions or otherwise.

With respect to most of the properties,  substantially all the multifamily units
are rented to individuals or families earning no greater than 60% of area median
income  and,  thus,  substantially  all of the  qualified  basis  may be used to
determine the amount of the federal  LIHTC.  This maximizes the amount of equity
raised  from the  purchasers  of the  federal  LIHTCs for each  development  and
provides for the maximum  amount of rent that can be obtained from tenants where
there is currently strong occupancy demand.

The  LIHTC  funds  we  sponsor   contribute   the   negotiated   equity  to  the
developer/owner, paid over a period of time. In the case of properties utilizing
4% credits,  this  contribution  will usually provide between 25% and 35% of the
costs of the development. For properties utilizing 9% credits, this contribution
will usually provide between 45% and 55% of the cost of the development.

Since  LIHTCs  are a part of the Code,  Congress  could  repeal  or modify  this
legislation  at any  time or  modify  the tax  laws so that  the  value of LIHTC
benefits is reduced. If such legislation is repealed or adversely  modified,  we
would no longer be able to pursue this portion of our business strategy.

OUR ROLE AS A SPONSOR OF INVESTMENT  FUNDS AND  CO-DEVELOPER OF LIHTC PROPERTIES
EXPOSES US TO RISKS OF LOSS

In  connection  with the  sponsorship  of  investment  funds and  joint  venture
activities for co-development of LIHTC properties,  we act as a fiduciary to the
investors  in our  investment  funds  and are  often  required  to also  provide
performance guarantees.  We advance funds to acquire interests in LIHTC property
partnerships  for inclusion in investment  funds and, at any point in time,  the
amount of funds  advanced can be material.  Recovery of these amounts is subject
to our ability to attract investors to new investment funds or, if investors are
not found, the sale of the partnership  interests in the underlying  properties.
We could also be liable to investors in investment  funds and third parties as a
result of  serving as general  partner  or  special  limited  partner in various
investment funds.

Investors in the LIHTC funds we sponsor and manage anticipate certain returns on
their investment and for certain funds we have agreed to provide specified rates
of return. If the LIHTC properties in which these funds invest do not perform as
expected,  we may advance monies to a fund to cover shortfalls,  although we are
not required to do so, to maintain our  relationship  with the investors.  If we
make such  advances,  there can be no assurance  that we will be able to recover
the monies.  If we determine  that any such  advances are not  recoverable,  the
negative impact on our net income and cash flows could be material.

FUNDS  MAY  NOT  GENERATE  SUFFICIENT  CASH TO PAY  FEES  DUE TO US,  WHICH  MAY
NEGATIVELY IMPACT OUR NET INCOME AND CASH FLOWS

Much of the  revenue in our  Affordable  Housing  Group is earned from fees that
LIHTC funds we sponsor and manage pay to our subsidiaries for services rendered.
These funds are dependent upon the cash flows of LIHTC property  partnerships in
which  they  invest to  generate  their own cash flows that are used to pay such
fees for services,  such as asset management and advisory services. As the LIHTC
property  partnerships are susceptible to numerous  operational risks (see above
"THERE ARE RISKS ASSOCIATED WITH INVESTMENTS  SECURED BY REAL ESTATE,  WHICH MAY
NEGATIVELY  AFFECT  OUR NET  INCOME AND CASH  FLOWS"),  the LIHTC  funds may not
collect  sufficient  cash to pay the fees they owe to us.  If we do not  receive
these fees, or if we determine  that the fees are not  collectible,  the loss of
such revenue would negatively impact our cash flows and net income.

3.  RISKS RELATED TO OUR COMMERCIAL REAL ESTATE GROUP

INVESTMENTS IN NON-INVESTMENT GRADE CMBS ARE SUBJECT TO RISK OF LOSS

We have invested in  subordinated  CMBS for our own account and through the CMBS
funds we sponsor and manage.  Subordinated  CMBS of the type in which we and our
funds  invest   typically   include  "first  loss"  and   non-investment   grade
subordinated  interests,  commonly  referred  to as  high-yield.  A  first  loss
security is the most  subordinate  class in a structure and  accordingly  is the
first to bear the loss  upon a  default,  restructuring  or  liquidation  of the
underlying collateral,  is the last to receive payment of interest and principal
and is often not assigned an investment  rating.  Accordingly,  such classes are
subject to a greater risk of loss of principal and  non-payment of interest than
more senior, rated classes. The market values of subordinated  interests in CMBS
and other  subordinated  securities  tend to be more  sensitive  to  changes  in
economic  conditions than more senior,  rated classes.  As a result of these and
other factors,  subordinated interests generally are not actively traded and are
relatively illiquid investments.

In addition,  recent volatility in trading markets for CMBS has caused the value
of investments to decline significantly in 2007. This circumstance is compounded
by the decreased  liquidity in the market for such investments and the decreased
availability of long-term  financing (see also "AN INABILITY TO RAISE CAPITAL OR
ACCESS  FINANCING ON FAVORABLE  TERMS,  OR AT ALL,  COULD  ADVERSELY  AFFECT OUR
GROWTH" under GENERAL RISKS RELATED TO OUR BUSINESS  above).  These factors have
led to significant margin calls with respect to repurchase  facilities in one of
our  CMBS  funds  and we have  extended  a loan to the  fund to allow it to meet

                                       12
<PAGE>

margin calls. As we intend to originate  similar funds in the future and may use
repurchase  financing  to acquire  assets,  such  actions may be required in the
future also.

In addition,  if market conditions  continue into the liquidation periods of the
investment funds we manage and they are required to sell assets, the losses they
would realize could be significant.  As we have  co-investments in the funds and
earn incentive fees based on their performance,  the impact of such losses would
negatively impact our net income.

OUR INVESTMENTS IN AMAC ARE SUBJECT TO RISK OF LOSS

We manage and hold a co-investment  in AMAC, a  publicly-traded  REIT and two of
our trustees (Marc D. Schnitzer,  out Chief Executive Officer and President, and
Jeff T. Blau, a Managing  Trustee) are also members of AMAC's board of trustees.
Robert L. Levy, our Chief Financial  Officer performs the same role for AMAC. We
have  invested  in AMAC  common  and  preferred  shares at a cost basis of $12.2
million. Since mid-2007, AMAC has experienced a reduction in liquidity which has
resulted in margin calls on some of its repurchase  facilities and interest rate
derivative  contracts.  These  margin calls have  necessitated  asset sales that
resulted in substantial losses. Through December 31, 2007, we have recorded $4.0
million of equity losses  associated with these  investments,  representing  our
proportionate  share of losses AMAC has  incurred.  The market value of our AMAC
shares was $2.3 million as of December 31, 2007.

As of December 31 2007, we also had advances to AMAC of $77.7 million through an
unsecured revolving credit facility we provided to it. AMAC has informed us that
it is in technical default of the facility although we have not accelerated that
facility to date.  As a result,  the  repayment  to us of the balance due on the
facility may be in jeopardy.

If AMAC  continues to incur net losses,  we will continue to recognize a portion
in our net income and we may not receive dividend income from our investment. If
AMAC  can not  repay  its  debt to us or if we can not  recover  the cost of our
co-investment, losses incurred could be significant.

THERE ARE  RISKS OF LOSS  ASSOCIATED  WITH OUR  MORTGAGE  ORIGINATIONS  THAT MAY
NEGATIVELY IMPACT OUR NET INCOME AND CASH FLOWS

In our DUS program,  we originate loans through one of our subsidiaries that are
thereafter  purchased or credit enhanced by Fannie Mae. For most of these loans,
we retain a first loss position with respect to loans that we originate and sell
under this program. For these loss sharing loans, we assume responsibility for a
portion of any loss that may result from borrower defaults,  based on the Fannie
Mae loss sharing formulas, and risk Levels I, II or III. Of the 846 loss sharing
loans in this program as of December  31, 2007,  all but one were Level I loans.
For such loans, if a default occurs,  we are responsible for the first 5% of the
unpaid principal  balance and a portion of any additional losses to a maximum of
20% of the original  principal  balance;  any remaining  loss is borne by Fannie
Mae. In Level II and Level III loans we carry a higher loss sharing percentage.

Under the terms of our master  loss  sharing  agreement  with Fannie Mae, we are
responsible for funding 100% of mortgagor  delinquency  (principal and interest)
and  servicing  advances  (taxes,  insurance  and  foreclosure  costs) until the
amounts  advanced  exceed  5% of the  unpaid  principal  balance  at the date of
default.  Thereafter,  for Level I loans,  we may request  interim  loss sharing
adjustments  which allow us to fund 25% of such advances until final  settlement
under the master loss sharing  agreement.  No interim  sharing  adjustments  are
available for Level II and Level III loans.

We also participate in loss sharing transactions under Freddie Mac's DUI program
whereby we originate loans that are purchased by Freddie Mac. Under the terms of
our master agreement with Freddie Mac, we are obligated to reimburse Freddie Mac
for a  portion  of any loss  that  may  result  from  borrower  defaults  on DUI
transactions. For such loans, if a default occurs, our share of the loss will be
the  first 5% of the  unpaid  principal  balance  and 25% of the next 20% of the
remaining unpaid  principal  balance to a maximum of 10% of the unpaid principal
balance.  The loss on a defaulted  loan is  calculated  as the unpaid  principal
amount due, unpaid interest due and default resolutions costs (taxes, insurance,
operation and foreclosure costs) less recoveries.

Our maximum  "first loss" exposure under the DUS and DUI programs is detailed in
MANAGEMENT'S  DISCUSSION AND ANALYSIS - OFF BALANCE SHEET  ARRANGEMENTS and Note
25 to the consolidated financial statements.

CHANGES IN EXISTING  GOVERNMENT  SPONSORED AND FEDERAL  MORTGAGE  PROGRAMS COULD
NEGATIVELY AFFECT OUR COMMERCIAL REAL ESTATE GROUP

Our  ability  to  generate  revenue  through  mortgage  sales  to  institutional
investors  largely depends on programs  sponsored by Fannie Mae and Freddie Mac,
which  facilitate  the issuance of  mortgage-backed  securities in the secondary
market. Any  discontinuation  of, or significant  reduction in, the operation of
those  programs  could have a material  adverse  effect on our  Commercial  Real
Estate Group and results of operations.  Also, any significant adverse change in
the level of activity in the secondary  market or the  underwriting  criteria of
these entities would reduce our revenues.

                                       13
<PAGE>

THE LOSS OF OUR  RELATIONSHIPS  WITH GSES AND RELATED  ENTITIES COULD  ADVERSELY
AFFECT OUR BUSINESS

Our  agreements  with Fannie Mae and Freddie  Mac,  which  afford us a number of
advantages,  may be canceled by the counterparty for cause.  Cancellation of one
or  more of  these  agreements  would  have a  material  adverse  affect  on our
operating  results  and could  result in  further  disqualification  with  other
counterparties, loss of technology and other materially adverse consequences.

AS A MORTGAGE LENDER, WE MUST COMPLY WITH NUMEROUS LICENSING  REQUIREMENTS,  AND
OUR INABILITY TO REMAIN IN COMPLIANCE  WITH SUCH  REQUIREMENTS  COULD  ADVERSELY
AFFECT OUR OPERATIONS AND, IN GENERAL, OUR REPUTATION

Like other  mortgage  lending  companies,  we must  comply  with the  applicable
licensing and other regulatory requirements of each jurisdiction in which we are
authorized to lend. These requirements are complex and vary from jurisdiction to
jurisdiction. From time to time we are subject to examination by regulators and,
if  it is  determined  that  we  are  not  in  compliance  with  the  applicable
requirements,  we  may be  fined,  and  our  license  to  lend  in  one or  more
jurisdictions may be suspended or revoked.

4.  RISKS RELATED TO OUR PORTFOLIO MANAGEMENT GROUP

IF OUR LOAN SERVICING PORTFOLIO  DECREASES,  OUR NET INCOME AND CASH FLOWS WOULD
BE NEGATIVELY AFFECTED

A large  portion of our  revenues in the  Portfolio  Management  Group relate to
recurring  fees for servicing  mortgages we originate or those for which we have
sub-servicing  or  special  servicing  agreements.  Loans in our  portfolio  are
subject to maturity,  prepayments,  defaults and refinancing  after which we may
not recapture the loan.  Changes in market  factors may also reduce the level of
pre-securitization  servicing that we perform.  Upon these events, our portfolio
would decline,  depriving us of the associated  revenue  stream.  This, in turn,
would negatively affect our net income and cash flows.

5.  RISKS RELATED TO OUR CREDIT RISK PRODUCTS GROUP

THERE ARE RISKS ASSOCIATED WITH CREDIT INTERMEDIATION AND COMMITMENTS TO PROVIDE
SPECIFIED RATES OF RETURN THAT EXPOSE US TO LOSSES

Through our subsidiaries,  we provide credit intermediation to third parties for
a fee. If such third parties default on their  obligations for which we provided
credit  intermediation,  our loss would  likely be in an amount far in excess of
the fee paid to us for  providing  the  service.  We also  contract  to  provide
specified  internal  rates of return to investors in LIHTC funds we sponsor.  In
connection  with such  transactions  we might be  required  to advance  funds to
ensure that the  investors do not lose their  expected tax benefits  and, if the
internal rate of return to investors  falls below the specified  level, we would
be  required  to make a payment  so that the  specified  rate of return  will be
achieved.  Our maximum  potential  liability  pursuant to those  transactions is
detailed  in   MANAGEMENT'S   DISCUSSION   AND  ANALYSIS  -  OFF  BALANCE  SHEET
ARRANGEMENTS and Note 25 to the consolidated financial statements.

THERE ARE RISKS RELATED TO OUR INITIATIVE FOR INVESTING IN SYNDICATED  CORPORATE
DEBT

During  2007,  we  began  acquiring   syndicated  corporate  debt  for  our  own
investment,  and plan to  finance  the  investments  with  CLOs.  Prior to a CLO
execution, we will finance acquisitions using short term warehouse financing. As
we gain acceptance as a CLO issuer,  we expect to retain only a small portion of
the CLO equity for our own account,  with the  remainder  sold to investors in a
fund format.

There are various  risks  associated  with this  initiative,  including  but not
limited to the following:

     o    recent  disruption  in  credit  markets  has  affected  many  types of
          financing,  including  CLOs. If the market for CLO issuances  does not
          improve, we may not be able to obtain permanent financing and may have
          to bear the entire risk associated with these assets;

     o    as some of the assets are unsecured,  we may have  substantial risk of
          loss during the period we hold these assets for our own account;

     o    we have  limited  experience  in this  market  and we may not  achieve
          acceptance as a CLO issuer,  which would inhibit our ability to pursue
          this business;

     o    debt  we use  to  finance  this  business  is  subject  to  the  risks
          enumerated  in  the  "GENERAL  RISKS  RELATED  TO  OUR  BUSINESS  - AN
          INABILITY TO RAISE CAPITAL OR ACCESS  FINANCING ON FAVORABLE TERMS, OR
          AT ALL, COULD ADVERSELY AFFECT OUR GROWTH" section above; and

     o    syndicated  debt  investments  have  a  different  risk  profile  than
          investments  secured by real estate,  which has historically  been our
          core competency.

All of these  risks  could  lead to  adverse  impacts on our net income and cash
flows.

                                       14
<PAGE>

6.  RISKS RELATED TO APPLICATION OF TAX LAWS

OUR CLASSIFICATION AS A PUBLICLY TRADED PARTNERSHIP NOT TAXABLE AS A CORPORATION
IS NOT FREE FROM DOUBT AND COULD BE CHALLENGED

We, and many of our Affordable Housing and Commercial Real Estate  subsidiaries,
operate as partnerships or are disregarded for federal income tax purposes. This
allows us to pass through our income, including our federally tax-exempt income,
and deductions to our shareholders.  The listing of our common shares on the New
York Stock Exchange causes us to be treated as a "publicly  traded  partnership"
for federal income tax purposes. We and our counsel, Paul, Hastings,  Janofsky &
Walker LLP ("Paul Hastings"), believe that we have been and are properly treated
as a partnership for federal income tax purposes.  However, the Internal Revenue
Service  ("IRS")  could  challenge our  partnership  status and we could fail to
qualify as a partnership  in years that are subject to audit or in future years.
Qualification  as a partnership  involves the application of numerous  technical
legal  provisions.  For  example,  a publicly  traded  partnership  is generally
taxable as a corporation  unless 90% or more of its gross income is "qualifying"
income (which includes interest,  dividends, real property rents, gains from the
sale or  other  disposition  of real  property,  gain  from  the  sale or  other
disposition  of capital assets held for the production of interest or dividends,
and certain other  items).  We have  represented  that in all prior years of our
existence at least 90% of our gross income was  qualifying  income and we intend
to conduct our operations in a manner such that at least 90% of our gross income
will constitute  qualifying income in the current year and in the future. In the
opinion of Paul  Hastings,  although  the issue is not free from doubt,  we have
been and are properly treated as a partnership for federal income tax purposes.

In  determining  whether  interest is treated as  qualifying  income under these
rules,  interest income derived from a "financial business" and income and gains
derived by a "dealer" in  securities  are not treated as qualifying  income.  We
have  represented that we are acting as an investor with respect to our mortgage
revenue  bond  investments  and that we have not engaged in, and will not engage
in,  a  financial  business,  although  there  is  no  clear  guidance  on  what
constitutes a financial  business  under the tax law. We have taken the position
that  for  purposes  of  determining  whether  we are in a  financial  business,
Affordable Housing activities that we are engaged in now and that we contemplate
engaging  in  prospectively  would not  cause us to be  engaged  in a  financial
business or to be considered a "dealer" in securities. The IRS could assert that
our activities constitute a financial business. If our activities constitute (or
as a result of increased volume  constitute) a financial business or cause us to
be treated as a dealer,  there is a  substantial  risk that more than 10% of our
gross income would not constitute qualifying income. We could also be treated as
if we were  engaged in a financial  business  if the  activities  of  Centerline
Capital  Group  ("CCG")  and its  subsidiaries  were  attributed  to us and were
determined  to  constitute a financial  business.  CCG,  including its principal
subsidiaries  Centerline Affordable Housing Advisors LLC ("CAHA") and Centerline
Mortgage  Capital  Inc.  ("CMC"),  is  subject  to  income  tax on  its  income.
Accordingly,  we believe the activities  and income of CCG and its  subsidiaries
will not be attributed to Centerline  for purposes of  determining  Centerline's
tax  status.  In  addition,  in  determining  whether  interest  is  treated  as
qualifying  income,  interest income that is determined based upon the income or
profits of any  person is not  treated as  qualifying  income.  A portion of the
interest payable on participating interest bonds owned by us is determined based
upon  the  income  or  profits  of  the  properties  securing  our  investments.
Accordingly,  if we were to  receive  more than 10% of our  gross  income in any
given year from such "contingent interest," the IRS could take the position that
we should be treated as a publicly traded partnership  taxable as a corporation.
There can be no assurance that such monitoring  would be effective in all events
to avoid the receipt of contingent interest and any other non-qualifying  income
in any given year that  exceeds 10% of our gross  income  because  circumstances
outside of our (or our subsidiaries) control could cause such a result.

If, for any reason,  less than 90% of our gross  income  constitutes  qualifying
income, items of income and deduction would not pass through to our shareholders
and our  shareholders  would be  treated  for  federal  income tax  purposes  as
stockholders  in a  corporation.  We  would be  required  to pay  income  tax at
corporate  rates  on any  portion  of our net  income  that  did not  constitute
tax-exempt income. In addition, a portion of our federally tax-exempt income may
be included in determining our alternative minimum tax liability.  Distributions
by us to our  shareholders  would  constitute  dividend  income  taxable to such
holders  to  the  extent  of our  earnings  and  profits,  which  would  include
tax-exempt  income, as well as any taxable income we might have, and the payment
of these  distributions  would not be deductible by us. These consequences would
have a  material  adverse  effect on us, our  shareholders  and the price of our
shares.

OUR  TREATMENT  OF INCOME FROM OUR RESIDUAL  INTERESTS  AS FEDERALLY  TAX-EXEMPT
COULD BE CHALLENGED

We hold residual  interests in certain  federally  tax-exempt  mortgage  revenue
bonds through  securitization  programs,  including out  re-securitization  with
Freddie Mac.  These  residual  interests  entitle us to a share of the federally
tax-exempt  interest of such mortgage  revenue  bonds.  Special tax counsel have
each rendered an opinion to the effect that the issuer of the residual interests
will each be classified as a partnership for federal income tax purposes and the
holders  of  the  residual  interests  will  be  treated  as  partners  of  each
partnership. Consequently, as the holder of the residual interests, we treat our
share of the federally  tax-exempt  income  allocated and  distributed  to us as
federally tax-exempt income. However, it is possible that the IRS could disagree
with those  conclusions and an alternative  characterization  could cause income
from the residual interests to be treated as ordinary taxable income. If such an
assertion of an  alternative  characterization  prevailed,  it would  materially
adversely affect us and our shareholders.

                                       15
<PAGE>

THERE IS A RISK THAT THE IRS WILL  DISAGREE  WITH OUR  JUDGMENT  WITH RESPECT TO
ALLOCATIONS

We  use  various   accounting  and  reporting   conventions  to  determine  each
shareholder's  allocable share of income,  including any market discount taxable
as ordinary income, gain, loss and deductions. Our allocation provisions will be
respected for federal  income tax purposes  only if they are  considered to have
"substantial  economic effect" or are in accordance with the partners' "interest
in the  partnership."  There is no  assurance  that the IRS will  agree with our
various accounting methods, conventions and allocation provisions,  particularly
our allocation of adjustments to  shareholders  attributable  to the differences
between the  shareholders'  purchase  price of common shares and their shares of
our tax basis in our assets, pursuant to an election we made.

THE STRUCTURE OF OUR ACQUISITIONS COULD BE CHALLENGED

Our  acquisitions of CAHA and other  subsidiaries  were structured to prevent us
from realizing  active income from these businesses and effectively to receive a
tax deduction (via the allocation of subsidiary income) for payments made to its
selling principals.  It is possible that the IRS could challenge this structure,
with material  adverse  consequences to us. First, the IRS could assert that we,
as the parent trust, are the owner of these businesses, in which case the parent
trust would  realize an amount of active  income from them that would require it
to be treated as a  corporation  instead of a publicly  traded  partnership  for
income tax purposes. If the IRS prevailed,  we would be required to pay taxes on
that income, thereby reducing the amount available for us to make distributions.
As a result,  it is likely that the value of our shares would  decline.  Second,
the IRS might assert that the Special  Common Units  ("SCUs") and Special Common
Interests  ("SCIs") held by the selling  principals of the businesses and others
are  actually  shares  of  our  Company.   If  this  position   prevailed,   the
distributions  payable on the units would not reduce the taxable  income of CCG.
In such event, CCG would be subject to increased tax, which could reduce our net
income,  our cash flows and our  distributions,  which  could  also  result in a
decrease in the portion of our distributions  that is excluded from gross income
for federal income tax purposes.

THE TAXABILITY OF OUR INCOME DEPENDS UPON THE APPLICATION OF TAX LAWS THAT COULD
BE CHALLENGED

The following  discussion  relates only to the portion of our investments  which
generate federally tax-exempt income.

     TAX-EXEMPTION OF OUR MORTGAGE REVENUE BONDS

     On the date of original  issuance or re-issuance  of each mortgage  revenue
     bond,  nationally  recognized bond counsel or special tax counsel  rendered
     its  opinion to the effect  that,  based on the law in effect on that date,
     interest   on   such   mortgage    revenue   bonds   is   excludable   from
     federally-taxable  gross  income,  except with  respect to any revenue bond
     (other  than a  revenue  bond,  the  proceeds  of  which  are  loaned  to a
     charitable  organization described in Section 501(c)(3) of the Code) during
     any  period  in which it is held by a  "substantial  user" of the  property
     financed  with the proceeds of such  mortgage  revenue  bonds or a "related
     person" of such a  "substantial  user." Each opinion  speaks only as of the
     date it was delivered.  In addition,  in the case of mortgage revenue bonds
     which,  subsequent  to their  original  issuance,  have been  reissued  for
     federal tax  purposes,  nationally  recognized  bond counsel or special tax
     counsel  has  delivered  opinions  that  interest on the  reissued  bond is
     excludable from federally-taxable  gross income of the holder from the date
     of re-issuance  or, in some cases,  to the effect that the  re-issuance did
     not adversely affect the  excludability of interest on the mortgage revenue
     bonds from the gross income of the holders thereof.  However, an opinion of
     counsel has no binding  effect and there is no assurance  that the IRS will
     not contest these conclusions or, if contested, that they will be sustained
     by a court.

     The Code establishes  certain  requirements which must be met subsequent to
     the issuance and delivery of tax-exempt mortgage revenue bonds for interest
     on such mortgage revenue bonds to remain excludable from  federally-taxable
     gross income.  Among these continuing  requirements are restrictions on the
     investment  and use of the revenue bond proceeds and, for mortgage  revenue
     bonds  the  proceeds  of which  are  loaned  to a  charitable  organization
     described in Section  501(c)(3) of the Code, the continued exempt status of
     such  borrower.  In addition,  there is a requirement  that the property be
     operated as a rental property and that during the Qualified  Project Period
     (defined below) at least either:

          o    20% of the units must be rented to  individuals or families whose
               income  is less than 50% of the area  median  gross  income  (the
               "20/50 test"); or

          o    40% of the units must be rented to  individuals or families whose
               income  is less than 60% of the area  median  gross  income  (the
               "40/60 test");

     in each case with adjustments for family size. The Qualified Project Period
     begins when 10% of the units in the property are first occupied and ends on
     the latest of the date:

         (i)   which is 15 years after 50% of the units are occupied;
         (ii)  on which all the bonds have been retired; or
         (iii) on which any  assistance  provided  under  Section 8 of the U.S.
               Housing Act of 1937 terminates.

     Continuing  requirements also include regulatory  agreement  compliance and
     compliance with rules pertaining to arbitrage.  Each issuer of the mortgage
     revenue bonds, as well as each of the underlying borrowers,  has covenanted
     to  comply  with  certain  procedures  and  guidelines  designed  to ensure
     satisfaction of the continuing  requirements of the Code. Failure to comply
     with these  continuing  requirements  of the Code may cause the interest on


                                       16
<PAGE>

     such bonds to be includable in federally-taxable gross income retroactively
     to the date of  issuance,  regardless  of when such  noncompliance  occurs.
     Greenberg  Traurig,  LLP (also  referred to as "Greenberg  Traurig") as our
     bond counsel,  and Paul  Hastings,  as our  securities  counsel  (Greenberg
     Traurig  and Paul  Hastings  are  collectively  referred  to  herein as our
     "Counsel"),  have not, in connection  with this filing,  passed upon and do
     not assume any  responsibility  for, but rather have assumed the continuing
     correctness  of,  the  opinions  of bond  counsel or  special  tax  counsel
     (including   opinions  rendered  by  Greenberg  Traurig)  relating  to  the
     exclusion from  federally-taxable  gross income of interest on the mortgage
     revenue  bonds and have not  independently  verified  whether any events or
     circumstances have occurred since the date such opinions were rendered that
     would adversely affect the conclusions set forth herein.

     "SUBSTANTIAL USER LIMITATION"

     Interest on a mortgage  revenue bond we own, other than a bond the proceeds
     of which are  loaned to a  charitable  organization  described  in  Section
     501(c)(3) of the Code,  will not be excluded  from gross income  during any
     period in which we are a "substantial user" of the properties financed with
     the  proceeds  of such  mortgage  revenue  bond or a "related  person" to a
     "substantial user."

     A "substantial  user"  generally  includes any underlying  borrower and any
     person  or entity  that uses the  financed  properties  on other  than a de
     minimis basis. We would be a "related  person" to a "substantial  user" for
     this purpose if, among other things,

          o    the same person or entity  owned more than a 50% interest in both
               us and in the  properties  financed  with the  proceeds of a bond
               owned by us or one of our subsidiaries; or
          o    we owned a partnership or similar equity interest in the owner of
               a property  financed  with the  proceeds of a bond owned by us or
               one of our subsidiaries.

     Greenberg  Traurig has reviewed most of the mortgage  revenue bonds we own,
     the  ownership  of the  obligors  of our  mortgage  revenue  bonds  and the
     ownership of our shares and our  subsidiaries'  shares,  and concurs in the
     conclusion that we are not "substantial  users" of the properties  financed
     with the  proceeds of the  mortgage  revenue  bonds  reviewed by  Greenberg
     Traurig,  or related parties thereto.  There can be no assurance,  however,
     that the IRS would not challenge  such  conclusion.  If such challenge were
     successful,  the interest received on any bond for which we were treated as
     a  "substantial  user" or a "related  party" thereto would be includable in
     federally taxable gross income.

     SECURITIZATION PROGRAMS AND REVENUE PROCEDURE 2003-84

     Many of the senior interests in securitization programs used by us are held
     by tax-exempt  money-market funds. For various reasons,  money market funds
     will only acquire and hold interests in securitization programs that comply
     with Revenue Procedure 2003-84,  which provides for exemption from Schedule
     K-1  reporting  requirements  for  certain  partnerships.  Counsel  for the
     securitization   programs  we  currently   use  has  advised  us  that  the
     partnerships   in  those   securitization   programs   currently  meet  the
     requirements of Revenue Procedure 2003-84.

     These  partnerships  intend to continue to meet those  requirements,  which
     include an income test and an expense test, on an ongoing basis.  There can
     be no assurance,  however, that unforeseen circumstances might cause one or
     more of the  securitization  partnerships to fail either the income test or
     the expense test,  which would cause these  securitization  partnerships to
     have to comply with all of the requirements of subchapter K of the Code. In
     the  event one or more of the  securitization  partnerships  was  forced to
     comply with the  provisions  of subchapter K of the Code, it is likely that
     all of the tax-exempt  money market funds that hold the senior interests in
     those securitizations would tender their positions.  This would require the
     remarketing agent to locate new purchasers, which were not tax-exempt money
     market funds,  for those  tendered  senior  interests.  This would probably
     result in an  increase  in the  distributions  to the holders of the senior
     interests,  which would reduce, dollar for dollar, the distributions on the
     residual  interests in the  securitizations,  which are owned by us through
     our subsidiaries

     TAXABLE INCOME

     In our Affordable Housing business, we primarily invest in investments that
     produce   only   tax-exempt   income.   However,   the  IRS  may   seek  to
     re-characterize  a portion of our  tax-exempt  income as taxable  income as
     described above. If the IRS were successful,  a shareholder's  distributive
     share of such income  would be taxable to the  shareholder,  regardless  of
     whether  an amount of cash  equal to such  distributive  share is  actually
     distributed.  Any taxable  income would be allocated pro rata among our CRA
     Preferred  Shares,  our CRA Shares and our common shares.  We may also have
     taxable income in the form of market  discount or gain on the sale or other
     disposition of our investments, and we expect to own investments and engage
     in certain fee generating  activities  (through our subsidiaries) that will
     generate taxable income.

                                       17
<PAGE>

The following discussion relates only to our REIT subsidiary:

     ADVERSE  CONSEQUENCES  OF  FAILURE TO  MAINTAIN  REIT  STATUS  MAY  INCLUDE
     TAXATION OF A PORTION OF OUR EARNINGS NOT OTHERWISE TAXABLE

     Centerline  REIT,  Inc.  ("Centerline  REIT"),  a  subsidiary,  intends  to
     continue  to operate  in a manner so as to  qualify  as a REIT for  federal
     income tax purposes.  If Centerline  REIT were to fail to qualify as a REIT
     in any taxable year, it would be subject to federal  income tax  (including
     any  applicable  alternative  minimum tax) on its taxable income at regular
     corporate  rates,  and  distributions  to  its  stockholders  would  not be
     deductible  in  computing  its  taxable  income.  Any  such  corporate  tax
     liability  could  be  substantial  and  would  reduce  the  amount  of cash
     available for distribution to our  shareholders.  Unless entitled to relief
     under  certain  provisions  of the  Code,  Centerline  REIT  also  would be
     disqualified  from taxation as a REIT for the four taxable years  following
     the year during which it ceased to qualify as a REIT.

     Centerline REIT must distribute annually at least 90% of its taxable income
     (excluding  any net  capital  gain) in order to be  exempt  from  corporate
     income  taxation  of  the  earnings  that  it  distributes.   In  addition,
     Centerline REIT is subject to a 4% nondeductible  excise tax on the amount,
     if any, by which certain distributions it pays with respect to any calendar
     year are less than the sum of:

          1.   85% of its ordinary income for that year,
          2.   95% of its capital gain net income for that year; and
          3.   100% of its  undistributed  ordinary  income and capital gain net
               income from prior years.

     While Centerline REIT intends to make  distributions to its stockholders to
     comply  with the 90%  distribution  requirement  and to be exempt  from the
     nondeductible  excise tax, differences in timing between the recognition of
     taxable  income  and the actual  receipt  of cash may  require it to borrow
     funds to meet this distribution requirement and to avoid the excise tax. In
     addition,  the  requirement  to  distribute  a  substantial  portion of its
     taxable income could cause Centerline REIT to:

          1.   distribute amounts that represent a return of capital;
          2.   distribute  amounts  that  would  otherwise  be spent on  capital
               expenditures or repayment of debt; or
          3.   distribute amounts that may be treated as excess inclusion income
               and accordingly,  unrelated  business taxable income in the hands
               of certain not-for-profit stockholders.

     To qualify as a REIT,  Centerline  REIT must satisfy  certain  requirements
     concerning  the nature of its assets and  income,  which may  restrict  its
     ability to invest in various types of assets. Specifically:

          1.   at least 75% of  Centerline  REIT's  assets must  consist of real
               estate  assets,  cash  and cash  items,  and  certain  government
               securities,   to  ensure  that  the  bulk  of  Centerline  REIT's
               investments  are  either  equity or  mortgage  interests  in real
               property; and
          2.   Centerline  REIT will not be able to  acquire  securities  (other
               than  securities that are treated as an interest in real property
               or interests in a taxable REIT  subsidiary)  of any single issuer
               that would  represent  either  more than 5% of the total value of
               its assets or 10% of the voting  securities  of such  issuer,  to
               ensure a diversification  of Centerline REIT's  non-real-property
               investments.

     In addition,  to satisfy the income requirements of a REIT, Centerline REIT
     generally will be restricted to acquiring  assets that generate  qualifying
     income for  purposes of certain  income  tests.  These  restrictions  could
     affect  adversely  Centerline  REIT's  ability to optimize its portfolio of
     assets.

     CHANGES IN TAX LAWS REGARDING REITS COULD ADVERSELY AFFECT OUR NET INCOME

     Congress,  and to some extent the United States Department of Treasury,  as
     well as state  legislatures and regulatory  authorities,  could at any time
     adversely change the way in which a REIT and its stockholders are taxed, by
     imposing additional entity-level taxes, further restricting the permissible
     beneficial  ownership  and types of assets and income of a REIT,  requiring
     additional  distributions,  or  changing  the  law  in any  other  respect.
     Moreover,  such changes could apply retroactively.  Should any such changes
     be implemented, they would likely cause our net income to decline.

7.  RISKS RELATED TO INVESTING IN OUR COMPANY

BECAUSE  WE  HOLD  MOST  OF  OUR  INVESTMENTS  THROUGH  OUR  SUBSIDIARIES,   OUR
SHAREHOLDERS  ARE EFFECTIVELY  SUBORDINATED TO THE LIABILITIES AND EQUITY OF OUR
SUBSIDIARIES AND OUR PREFERRED SHARES

We hold most of our investments  through our  subsidiaries.  Because we own only
common equity of our subsidiaries,  we, and therefore holders of our shares, are
effectively  subordinated to the debt obligations,  preferred  equity,  SCUs and
SCIs of our subsidiaries,  which at December 31, 2007, aggregated  approximately
$1.8  billion.  Additionally,  in  January  2008,  we issued  $131.2  million of
preferred securities to which our common shareholders are also subordinated.  In

                                       18
<PAGE>

particular,  the holders of the preferred shares of our Centerline Equity Issuer
Trust  subsidiary  ("Equity  Issuer")  are  entitled  to  receive   preferential
distributions with respect to $377.5 million of residual interest investments it
holds.   Accordingly,   a  portion  of  the  cash  flow  from  our  investments,
particularly certain retained interests,  will not be available for distribution
on our common shares. Likewise if we pay a common dividend:

     o    holders of SCUs issued by our Centerline  Capital  Company LLC ("CCC")
          subsidiary  are entitled to receive  preferential  distributions  with
          respect to the earnings of CCC and its subsidiaries; and
     o    holders of SCIs issued by our Centerline  Investors I LLC ("Centerline
          Investors")   subsidiary   are   entitled   to  receive   preferential
          distributions with respect to the earnings of Centerline Investors.

Additionally,  we have  issued  preferred  shares that rank senior to our common
shares with respect to payment of dividends and any other  distributions.  While
most  of  these  preferred  shares  are  convertible  into  common  shares,  the
preferences will exist at all times prior to any such conversion.

Our earnings,  therefore,  may not be available for  distribution  to our common
shareholders.

WE DEPEND UPON THE SERVICES OF OUR EXECUTIVE OFFICERS

We and our subsidiaries  depend upon the services of our executive  officers and
other individuals who comprise our executive management team. All decisions with
respect to the  management  and  control of our  Company  and our  subsidiaries,
subject  to  the  supervision  of our  Board  of  Trustees  (or  the  applicable
subsidiary's board), are currently made by these key officers.  The departure or
the loss of the  services  of any of these  key  officers  or a large  number of
senior  management  personnel and other employees could have a material  adverse
effect on our ability to operate our business effectively and our future results
of operations.

OUR BOARD OF TRUSTEES CAN CHANGE OUR BUSINESS POLICIES UNILATERALLY

Our Board of Trustees  may amend or revise our business  plan and certain  other
policies without  shareholder  approval.  Therefore,  our  shareholders  have no
control over changes in our  policies,  including  our  business  policies  with
respect  to  acquisitions,   financing,   growth,   debt,   capitalization   and
distributions, which are determined by our Board of Trustees.

THERE ARE POSSIBLE ADVERSE EFFECTS ARISING FROM SHARES AVAILABLE FOR FUTURE SALE

Our board of trustees is permitted to offer additional equity or debt securities
of our Company and our  subsidiaries  in exchange  for money,  property or other
consideration.  Our ability to sell or exchange such  securities  will depend on
conditions  then  prevailing in the relevant  capital markets and our results of
operations,  financial  condition,  investment portfolio and business prospects.
Subject to New York Stock Exchange rules which require shareholder  approval for
certain  issuances  of  securities  and as  long  as the  issuance  is  made  in
accordance with our trust agreement,  the issuance of such additional securities
will not be subject  to the  approval  of our  shareholders  and may  negatively
affect the resale price of our shares. Shareholders will not have any preemptive
rights in connection  with the issuance of any  additional  securities we or our
subsidiaries may offer and any of our equity offerings would cause dilution of a
shareholder's investment in us.

THE FORMER OWNERS OF CENTERLINE  AFFORDABLE  HOUSING ADVISORS AND MEMBERS OF OUR
MANAGEMENT TEAM HAVE SIGNIFICANT  VOTING POWER ON MATTERS SUBMITTED TO A VOTE OF
OUR  SHAREHOLDERS,  AND THEIR INTERESTS MAY BE IN CONFLICT WITH THE INTERESTS OF
OUR OTHER SHAREHOLDERS

In connection with our acquisition of Centerline Affordable Housing Advisors LLC
("CAHA")  in 2003,  we  issued to each of its  selling  principals  one  special
preferred voting share for each SCU they received.  Our special preferred voting
shares  have no  economic  interest,  but  entitle  each  holder to one vote per
special  preferred  voting share on all matters subject to a vote of the holders
of our common  shares.  The  selling  principals  of CAHA who  received  special
preferred voting shares include Marc D. Schnitzer,  our Chief Executive  Officer
and President, and a subsidiary of Related Companies,  L.P. ("TRCLP"),  which is
controlled by Stephen M. Ross, the chairman of our Board of Trustees.

Mr.  Schnitzer has also received share grants from the Company that are entitled
to vote  during the  vesting  periods,  as have other  members of our  executive
management  team. As a result of the special  preferred  voting share  issuance,
additional  common shares directly or indirectly  owned by them and share grants
we have  made,  members of our  executive  management  team and Mr.  Ross in the
aggregate directly or indirectly owned voting shares representing  approximately
32.1% of our voting  power as of January  31,  2008,  taking  into  account  the
issuance of convertible  preferred securities in January 2008, all of which were
purchased by an entity controlled by Mr. Ross. As such, if they vote as a block,
such shareholders will have significant voting power on all matters submitted to
a vote of our common shareholders.

Also, because Mr. Schnitzer and Mr. Ross serve as our managing  trustees,  there
are ongoing  conflicts of interest when we are required to determine  whether or
not to take actions to enforce our rights under the various  agreements  entered

                                       19
<PAGE>

into in  connection  with the CAHA  acquisition.  While any  material  decisions
involving these persons are subject to the vote of a majority of our independent
trustees, such decisions may create conflicts between us and these persons.

In addition,  we have some obligations to these former owners which will require
us to make  choices as to how we operate our business and which may affect those
obligations.  For example,  we have guaranteed the payment to all holders of the
SCUs of all but $5.0  million  of the  distributions  they  would  otherwise  be
entitled  to receive  from CCC. In  addition,  we have agreed to share cash flow
from investment  funds so that we and certain of these former owners can receive
payment of deferred fees. Further,  TRCLP and its affiliates currently engage in
businesses which compete with us. The  non-competition  covenants contained in a
future  relations  agreement  entered  into  by  TRCLP  and  its  affiliates  in
connection  with our  acquisition of CAHA prohibit TRCLP and its affiliates from
competing with any business  currently  engaged in by us other than in specified
areas, including:

     o    providing  credit  intermediation  on debt products secured by "80/20"
          multifamily housing properties; and
     o    providing  mezzanine financing to multifamily housing properties other
          than so-called "tax credit properties."

There can be no assurance that we and TRCLP and its affiliates  will not compete
for similar products and opportunities in these areas in the future.

NO  ASSURANCE  CAN BE GIVEN THAT OUR  SHAREHOLDERS  WILL BE ENTITLED TO THE SAME
LIMITATION ON PERSONAL  LIABILITY AS  STOCKHOLDERS OF PRIVATE  CORPORATIONS  FOR
PROFIT

We are governed by the laws of the State of Delaware.  Under our trust agreement
and  the  Delaware  Statutory  Trust  Act,  as  amended  ("Delaware  Act"),  our
shareholders  will be entitled  to the same  limitation  of  personal  liability
extended to stockholders of private  corporations for profit organized under the
General  Corporation Law of the State of Delaware.  In general,  stockholders of
Delaware  corporations  are not  personally  liable for the payment of corporate
debts and obligations,  and are liable only to the extent of their investment in
the  Delaware  corporation.  However,  a  shareholder  may be  obligated to make
certain payments provided for in our trust agreement and bylaws.  The properties
securing our  investments  are dispersed in numerous  states and the District of
Columbia.  In  jurisdictions  which  have  not  adopted  legislative  provisions
regarding statutory trusts similar to those of the Delaware Act, questions exist
as to whether such  jurisdictions  would recognize a statutory  trust,  absent a
state  statute,  and whether a court in such  jurisdiction  would  recognize the
Delaware Act as  controlling.  If not, a court in such  jurisdiction  could hold
that our  shareholders are not entitled to the limitation of liability set forth
in our trust  agreement  and the Delaware Act and, as a result,  are  personally
liable for our debts and obligations.

OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE THIRD-PARTY PROPOSALS

Certain  provisions of our trust agreement may have the effect of discouraging a
third party from making an  acquisition  proposal  for our  Company.  This could
inhibit a change in control of our Company under  circumstances  that could give
our  shareholders  the  opportunity  to realize a premium  over  then-prevailing
market prices. Such provisions include the following:

     ADDITIONAL CLASSES AND SERIES OF SHARES

     Our trust  agreement  permits  our Board of  Trustees  to issue  additional
     classes or series of beneficial  interests and to establish the preferences
     and  rights  of any such  securities.  Thus,  our Board of  Trustees  could
     authorize the issuance of beneficial  interests  with terms and  conditions
     which  could  have  the  effect  of   discouraging   a  takeover  or  other
     transaction.

     STAGGERED BOARD

     Our Board of Trustees is divided into three  classes of managing  trustees.
     The terms of the first,  second and third classes will expire in 2008, 2009
     and 2010, respectively. Managing trustees for each class will be chosen for
     a three-year  term upon the  expiration of the current class' term. The use
     of a staggered  board makes it more  difficult for a third-party to acquire
     control over us.

SALES IN THE PUBLIC  MARKET OF OUR COMMON  SHARES  ISSUABLE IN EXCHANGE  FOR OUR
OTHER EQUITY INSTRUMENTS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR SHARES

Future sales of  substantial  amounts of our common  shares in the public market
could adversely affect  prevailing  market prices of our shares.  As of December
31,  2007,  14.3  million  common  shares  remained  issuable  in  exchange  for
outstanding  SCUs, 0.3 million common shares  remained  issuable in exchange for
outstanding  SCIs and we have  granted  restricted  common  shares  of which 2.1
million  were  unvested  at December  31,  2007.  When these  shares vest and/or
convert, their sale in the public market could, and depending upon the number of
involved,  likely would, adversely affect prevailing market prices of our shares
and our ability to raise additional capital through the equity markets.

In addition, we have issued other series shares that are convertible into common
shares, including:

     o    Convertible Community Reinvestment Act Preferred Shares;

                                       20
<PAGE>

     o    Series A Convertible Community Reinvestment Act Preferred Shares; and
     o    4.40%  Cumulative  Perpetual  Convertible  Community  Reinvestment Act
          Preferred Shares.

As of December 31, 2007,  these shares were convertible into an aggregate of 7.2
million  common  shares.  In  January  2008,  we also  issued  11.0%  Cumulative
Convertible  Preferred  Shares ("11.0%  Preferred  Shares") that are convertible
into 12.2 million common shares.

As of December 31, 2007, TRCLP and its owners  indirectly held 10.2 million SCUs
and 1.1 million common shares which, subject to some exceptions, are not subject
to a lock-up agreement.  An affiliate of TRCLP purchased the entire issue of the
11.0% Preferred  Shares in January 2008. In addition,  former  executives of our
Company  held 2.9  million  SCUs as of  December  31,  2007.  These SCUs are not
subject to lock-up agreements and may be converted to common shares at any time.

IF WE HAD TO REGISTER UNDER THE INVESTMENT  COMPANY ACT, THERE COULD BE NEGATIVE
CONSEQUENCES TO OUR INVESTMENT STRATEGY

Neither we nor our subsidiaries are registered under the Investment  Company Act
of 1940,  as amended (the  "Investment  Company  Act") and we may not be able to
conduct our activities as we currently do if we were required to so register.

At  all  times,  we  intend  to  conduct  our  activities,   and  those  of  our
subsidiaries, so as not to become regulated as an "investment company" under the
Investment  Company  Act.  Even if we are not an  investment  company  under the
Investment  Company Act, we could be subject to regulation  under the Investment
Company Act if a  subsidiary  of ours were deemed to be an  investment  company.
There are a number of possible exemptions from registration under the Investment
Company  Act that we  believe  apply  to us and our  subsidiaries  and  which we
believe  make it  possible  for us not to be subject to  registration  under the
Investment Company Act.

For example,  the  Investment  Company Act exempts  entities that are "primarily
engaged in the business of purchasing or otherwise acquiring mortgages and other
liens on and  interests  in real  estate,"  which  we  refer  to as  "qualifying
interests." Under current  interpretations  by the SEC staff, one of the ways in
which our  subsidiaries  can qualify for this  exemption is to maintain at least
55% of their assets  directly in  qualifying  interests  and the balance in real
estate-type interests. We believe our subsidiaries can rely on this exemption or
another exemption from registration.

The requirement that our subsidiaries maintain 55% of their assets in qualifying
interests  (or satisfy  another  exemption  from  registration)  may inhibit our
ability to acquire certain kinds of assets or to securitize additional interests
in the future.  If any of our  subsidiaries  fail to qualify for exemption  from
registration as an investment  company and we, in turn, are required to register
as an investment company, our ability to maintain our financing strategies would
be  substantially  reduced,  and we would be unable to conduct  our  business as
described herein. Such a failure to qualify could have a material adverse effect
upon our ability to make distributions to our shareholders.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

We lease the office space in which our  headquarters  are located at 625 Madison
Avenue, New York, NY. The leases expire in 2017.

We also lease office space in other  locations,  available for use by all of our
operations, as follows:

     o    Arlington, VA - an office facility; the lease expires in 2008.
     o    San Rafael, CA - an office facility; the lease expires in 2008.
     o    Dallas, TX - an office facility; the lease expires in 2010.
     o    Jersey City, NJ - an office facility; the lease expires in 2010.
     o    Irvine, CA - an office facility; the lease expires in 2011.
     o    Kansas City, MO - an office facility; the lease expires in 2012.
     o    San Francisco, CA - an office facility; the lease expires in 2012.
     o    Vienna, VA - an office facility; the lease expires in 2012.
     o    Chicago, IL - an office facility; the lease expires in 2014.
     o    Irving, TX - an office facility; the leases expires in 2016.

During 2008, we plan on consolidating  our headquarters and Jersey City location
into newly leased space in New York,  NY. We believe that these  facilities  are
suitable for current requirements and contemplated future operations.

                                       21
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

We are subject to routine litigation and administrative  proceedings  arising in
the ordinary course of business.

Putative Class and Derivative Actions
-------------------------------------

Through  February 29, 2008, we and our trustees have been named as defendants in
twelve  shareholder  putative class and/or derivative actions arising out of our
announcements that (i) we have taken steps to transition our business to more of
a fund manager and in connection  with such action intend to reduce the dividend
payable on our common  shares  from that which has been paid in prior  years and
(ii) we  committed  to sell an 11%  Convertible  Preferred  Stock to The Related
Companies  LP (see Note 27 to the  consolidated  financial  statements).  Six of
these cases are putative class actions pending in federal court in New York that
assert  claims  under  the  federal  securities  laws.  The  other six cases are
primarily derivative actions, although some purport also to assert class claims,
arising under state law. Each of the actions is summarized below.


FEDERAL SECURITIES CASES

On January 18, 2008, the first of the federal securities  putative class actions
was filed  against us and  certain of our  officers  and  trustees in the United
States District Court for the Southern  District of New York.  Thereafter,  five
other,  essentially  duplicative  putative  class actions were also filed in the
same court.  The  complaint in each case  asserts  that we and other  defendants
allegedly  violated  federal  securities  law by failing to disclose in a timely
fashion our recently  announced  transaction  with Freddie Mac.  Each  complaint
seeks an  unspecified  amount of  compensatory  damages and other relief.  After
March 18, 2008, the court will designate a lead plaintiff for these cases and we
expect that  thereafter  all six  lawsuits  will be  consolidated  into a single
action.  We intend to  defend  vigorously  the  claims  that have been  asserted
against us and our officers and trustees. The federal lawsuits are:

     o    On January 18, 2008,  Goldstein v. Centerline Holding Company, et al.,
          No. 08 CV 00505,  was filed  against  us and  against  certain  of our
          officers  and  trustees in the United  States  District  Court for the
          Southern District of New York;
     o    On January 31, 2008, Frank v. Centerline Holding Company,  et al., No.
          08 CV 01026,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York;
     o    On February 4, 2008,  Weinrib v. Centerline  Holding Company,  et al.,
          No. 08 CV 01158,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York;
     o    On February 11, 2008, Lyons v. Centerline Holding Company, et al., No.
          08 CV 01458,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York; and
     o    On February 15, 2008, Dechter v. Centerline  Holding Company,  et al.,
          No. 08 CV 01593,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York.
     o    On February 26, 2008,  Quill v.  Centerline  Holding Co., Inc, et al.,
          No. 08 CV 01902,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York.

DERIVATIVE LAWSUITS

On January  15,  2008,  the first of the state law cases,  a putative  class and
derivative action,  entitled OFF V. ROSS, CA No. 3468-VCP, was filed against us,
our Board of Trustees and The Related  Companies,  L.P. in the Delaware Court of
Chancery.  The lawsuit concerns our sale of a new issue of convertible preferred
stock to an affiliate of The Related Companies,  L.P. The lawsuit alleges claims
for breach of  fiduciary  duty  against the  Trustees  and seeks an  unspecified
amount of  compensatory  damages from them as well as injunctive  relief against
all defendants. Thereafter, five other derivative lawsuits asserting the same or
similar  claims  were filed in state and  federal  courts in New York and in the
Delaware Chancery Court. Two of these  later-filed  actions also allege that the
trustees  breached  their  fiduciary  duties to us by  allegedly  violating  the
federal securities laws (as alleged in the federal securities lawsuits described
above). We are named solely as a nominal defendant in all six derivative actions
and no  monetary  relief is sought  against us in any of those  cases.  The five
derivative actions filed subsequent to the OFF case are:

     o    On January 18, 2008, Kramer v. Ross, et al., Index. No. 100861-08, was
          filed against us and our board of trustees, in New York County Supreme
          Court;
     o    On January 25, 2008,  Carfagno v. Schnitzer,  et al., No. 08 CV 00912,
          was filed  against us and our board of trustees  in the United  States
          District Court for the Southern District of New York;
     o    On January 30, 2008,  Ciszerk v. Ross, et al., CA No. 3511,  was filed
          against us, our board of trustees and The Related  Companies,  L.P. in
          the Delaware Court of Chancery;
     o    On February 22, 2008, Kanter v. Ross, et al., 08 Civ. 01827, was filed
          against us, our board of trustees and The Related  Companies,  L.P. in
          the United  States  District  Court for the  Southern  District of New
          York; and
     o    On February 27, 2008, Broy v.  Centerline  Holding Company et al., No.
          08 CV 01971,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York.

We have  negotiated a settlement with the plaintiff in the OFF case based on the
rights offering which we have  previously  announced (see Notes 17 and 27 to the
consolidated  financial  statements) and which is subject to court approval.  We

                                       22
<PAGE>

believe that the  settlement  in OFF will also  resolve the similar  claims that
have been  asserted in several of the other  derivative  lawsuits.  If the court
does not  approve  the  settlement  in OFF,  and/or to the  extent  that the OFF
settlement does not resolve all of the claims in the other cases, the defendants
intend to defend themselves vigorously in all of the lawsuits.

In addition, the outside members of the Board of Trustees have received a letter
from one of our purported shareholders demanding that they investigate potential
claims against our officers and others arising out of the  allegations  asserted
in the federal securities litigation.  The Board will consider the letter at its
next regularly scheduled meeting.

Other
-----

Claims  have  been  asserted  against  our  subsidiaries  in  two  separate  but
interrelated lawsuits relating to two properties for which we have provided debt
and equity  financing,  but associated  with the same  developers.  The lawsuits
allege, among other things:

     o    breach of fiduciary duty;
     o    breach of the implied covenant of good faith and fair dealing;
     o    intentional misrepresentation, fraud and deceit;
     o    negligent misrepresentation; and
     o    tortious interference with contracts.

One of the lawsuits, which was originally filed in Pierce County Superior Court,
and  thereafter  transferred  to King  County  Superior  Court,  in the State of
Washington,  is  entitled  SILVERWOOD  ALLIANCE  APARTMENTS,   LLC,  ET  AL.  V.
AFFORDABLE HOUSING PARTNERSHIP  ALLIANCE LLC, ET AL., Case No.  06-2-40705-9SEA.
SILVERWOOD involves a counterclaim for unspecified  damages.  The other lawsuit,
also was  originally  filed in  Pierce  County  Superior  Court in the  State of
Washington and  thereafter  was removed to the United States  District Court for
the Western  District of Washington,  is entitled  VIEWCREST  BREMERTON,  LLC V.
RELATED  CAPITAL  HOUSING  PARTNERSHIP  I,  L.P.  - SERIES  3, ET AL.,  Case No.
C06-5459RSM.  VIEWCREST alleges damages of at least $10 - 15 million against our
subsidiaries.  SILVERWOOD  is  currently  scheduled  for  trial  in  June  2008.
Viewcrest  does not  currently  have a scheduled  trial date.  The parties  have
engaged in  discovery  and have entered into  settlement  discussions  seeking a
global  resolution  of all of these  disputes.  If such a  settlement  cannot be
achieved,  we intend to defend  vigorously  against the claims. We are unable at
the  present  time to  estimate  what  potential  losses,  if any,  may arise in
connection with this litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters  submitted to  shareholders  for voting  during the fourth
quarter of 2007.

                                       23
<PAGE>

                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information
------------------
Our common  shares are  listed on the New York Stock  Exchange  under the symbol
"CHC".

The high and low prices for each  quarterly  period of the last two years during
which our common shares were traded were as follows:
<TABLE>
<CAPTION>
                                  2007                          2006
                       ---------------------------   ---------------------------
   Quarter Ended            Low           High           Low            High
--------------------   ------------   ------------   ------------   ------------
<S>                    <C>            <C>            <C>            <C>
March 31               $      18.50   $      21.87   $      19.52   $      22.65
June 30                $      16.75   $      19.95   $      16.86   $      20.13
September 30           $      10.35   $      18.47   $      18.10   $      21.05
December 31            $       6.28   $      16.02   $      19.52   $      21.76
</TABLE>

The last reported sale price of our common shares on the New York Stock Exchange
on February 22, 2008, was $5.46.

Holders
-------

As of  February  22,  2008,  there were  2,597  registered  shareholders  owning
50,617,812 common shares.

Distributions
-------------

Our  Convertible CRA Shares (see Notes 16 and 17 to the  consolidated  financial
statements)  rank on par with the common  shares  with  respect  to rights  upon
liquidation,  dissolution  or  winding  up of our  Company,  although  both  are
subordinate to our 4.4%  Convertible  CRA Preferred  shares and 11.0%  Preferred
Shares.  Quarterly cash  distributions  during the years ended December 31, 2007
and 2006 were as follows:
<TABLE>
<CAPTION>
                                                                     Total Amount
                                          Date            Per         Distributed
Cash Distribution for Quarter Ended       Paid           Share       (IN THOUSANDS)
-----------------------------------   ------------   -------------   -------------
<S>                                       <C>        <C>             <C>
March 31, 2007                             5/15/07   $        0.42   $      25,327
June 30, 2007                              8/14/07            0.42          24,747
September 30, 2007                        11/14/07            0.42          24,796
December 31, 2007                          2/14/08            0.42          24,879
                                                     -------------   -------------
Total for 2007                                       $        1.68   $      99,749
                                                     =============   =============

March 31, 2006                             5/15/06   $        0.42   $      24,764
June 30, 2006                              8/14/06            0.42          24,806
September 30, 2006                        11/14/06            0.42          25,175
December 31, 2006                          2/14/07            0.42          25,201
                                                     -------------   -------------
Total for 2006                                       $        1.68   $      99,946
                                                     =============   =============
</TABLE>


There are no material legal  restrictions  upon our present or future ability to
make  distributions  in accordance with the provisions of our Second Amended and
Restated  Trust  Agreement.  We do not  believe  that  the  financial  covenants
contained in our and our subsidiaries'  secured  indebtedness or in the terms of
the preferred shares issued by Equity Issuer will have any adverse impact on our
ability to make distributions in the normal course of business to our common and
Convertible  CRA   shareholders.   As  discussed  more  fully  in  "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES",  our Revolving Credit and Term Loan contains a
covenant  that  limits  distributions  (including  common  share  dividends  and
distributions  paid to SCU and SCI  holders) to an amount  equal to or less than
50%  of  our  consolidated  earnings  before  interest,  tax,  depreciation  and
amortization (as defined in the agreement).  Future distributions will be at the
discretion of the trustees based upon  evaluation of our actual cash flows,  our
financial condition,  capital requirements,  covenants and such other factors as
our trustees deem relevant.  In December 2007, we announced our intention to pay
dividend  on our  common  shares at a rate of $0.60  per share on an  annualized
basis ($0.15 on a quarterly basis) in 2008,  subject to declaration and approval
by the Board of Trustees.

                                       24
<PAGE>

Securities authorized for issuance under equity compensation plans
------------------------------------------------------------------

The following table provides information related to our incentive share plans as
of December 31, 2007:
<TABLE>
<CAPTION>
                                                (a)                (b)               (c)

                                                                                  Number of
                                                                                  securities
                                                                                  remaining
                                            Number of                           available for
                                         securities to be      Weighted-        future issuance
                                           issued upon      average exercise     under equity
                                           exercise of          price of         compensation
                                           outstanding        outstanding      plans (excluding
                                             options,           options,          securities
                                           warrants and       warrants and       reflected in
                                              rights             rights          column a)(1)
                                         ----------------   ----------------   ----------------
<S>                                             <C>         <C>                       <C>
Equity compensation plans approved by
  security holders                              2,879,180   $          20.17          7,772,353
Equity compensation plans not approved
  by security holders                                  --                 --
                                         ----------------   ----------------   ----------------

Totals                                          2,879,180   $          20.17          7,772,353
                                         ================   ================   ================
</TABLE>

(1)  Our 2007 Incentive  Share Plan (see Note 19 to the  consolidated  financial
     statements)  authorizes  us  to  issue  options  or  other  share  -  based
     compensation  equal to 10% of the total shares  outstanding  (as defined in
     the plan) as of  December  31 of the year  preceding  the  issuance  of new
     grants or options. Of the amount shown, 702,318 securities remain available
     for issuance under our incentive  share plan that existed prior to our 2007
     Incentive Share Plan.


Securities purchased by us
--------------------------

The Board of Trustees has authorized a common share repurchase plan, enabling us
to  repurchase,  from time to time, up to 3.0 million  common shares in the open
market;  however,  under the  terms of our  Revolver  and Term  Loan  facilities
entered into as of December 27, 2007, we are restricted  from acquiring  capital
stock  during  the  term of such  facilities  (see  Note 11 to our  consolidated
financial  statements)  except for preferred  shares that we will  repurchase as
part  of  our  rights  offering  (see  Note  27 to  our  consolidated  financial
statements). The following table presents information related to our repurchases
of our equity securities during the fourth quarter of 2007 and other information
related to our repurchase program:

                         PURCHASES OF EQUITY SECURITIES
<TABLE>
<CAPTION>

                                                                        Maximum
                                                      Total number     number of
                                                       of shares      shares that
                                                      purchased as    may yet be
                           Total                         part of       purchased
                         number of        Average       publicly       under the
                           shares       price paid      announced      plans or
        Period          purchased (1)    per share       program        program
---------------------   ------------   ------------   ------------   ------------
<S>                           <C>      <C>                      <C>       <C>
October 1 - 31, 2007          18,908   $      15.44             --
November 1 - 30, 2007         57,230          13.01             --
December 1 - 31, 2007             --                            --
                        ------------   ------------   ------------   ------------

Total                         76,138   $      13.61             --        303,854
                        ============   ============   ============   ============
</TABLE>

(1) These  repurchases  were in  connection  with  tax  withholding  obligations
    incurred by holders of newly vested restricted  shares,  were outside of our
    share  repurchase  program and not subject to the debt covenant  restriction
    described above.

                                       25
<PAGE>

Other  information  required by this item, as well as information  regarding our
share  repurchase  program  and  share  compensation  paid  to  our  independent
trustees,  is  included  in  Notes  17  and  19 to  our  consolidated  financial
statements.

ITEM 6. SELECTED FINANCIAL DATA.

The information set forth below presents our selected financial data. Additional
financial information is set forth in the consolidated  financial statements and
notes thereto.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                        -------------------------------------------------------------------------
                                          2007 (1)       2006 (2)      2005 (3)      2004 (4)      2003 (5)
                                        -----------    -----------   -----------   -----------   -----------
<S>                                     <C>            <C>           <C>           <C>           <C>
Revenues                                $   572,927    $   387,259   $   295,097   $   232,432   $   152,240
Expenses                                $   632,303    $   460,647   $   351,658   $   234,214   $    87,995
(Loss) income before income taxes       $   (54,243)   $    47,786   $    30,437   $    48,120   $    60,514
Net (loss) income                       $   (58,750)   $    41,294   $    59,014   $    65,363   $    66,586
Net (loss) income available to
  shareholders (6)                      $   (63,507)   $    36,542   $    56,994   $    65,363   $    61,248

Net (loss) income per share (6)
  Basic                                 $     (1.11)   $      0.63   $      0.98   $      1.19   $      1.31
  Diluted                               $     (1.11)   $      0.62   $      0.98   $      1.19   $      1.31

Financial position
-------------------------------------

Total assets                            $ 9,491,588    $ 9,687,971   $ 6,968,757   $ 5,737,221   $ 2,581,169
Notes payable                           $   505,888    $   591,165   $   304,888   $   174,454   $   153,350
Financing arrangements and secured
  financing                             $   555,315    $ 1,801,170   $ 1,429,692   $ 1,068,428   $   900,008
Preferred shares of subsidiary:
  Subject to mandatory repurchase       $   273,500    $   273,500   $   273,500   $   273,500   $   273,500
  Not subject to mandatory repurchase   $   104,000    $   104,000   $   104,000   $   104,000   $        --

Dividends
-------------------------------------

Dividends declared per share(7)         $      1.68    $      1.68   $      1.65   $      1.57   $      1.37
</TABLE>

(1) In December  2007,  the  re-securitization  of our  mortgage  revenue  bonds
    resulted in a loss of $77.9 million  before  minority  interest  allocations
    (see Note 4 to the consolidated financial statements).
(2) Includes  Centerline  Investors beginning in August 2006, and includes $29.2
    million  of  expense  (or $0.50 per basic and  diluted  share)  related to a
    valuation allowance recorded against deferred tax assets (see Note 20 to the
    consolidated financial statements).
(3) Includes a $22.6 million  non-cash  pre-tax charge ($12.3 million after tax,
    or $0.21  per basic and  diluted  share)  related  to the  write-off  of the
    "Related  Capital  Company"  trade-name  intangible asset (see Note 9 to the
    consolidated financial statements).
(4) Reflects adoption of FASB  Interpretation  46(R),  CONSOLIDATION OF VARIABLE
    INTEREST  ENTITIES  ("FIN  46(R)"),  as of March 31, 2004 (See Note 1 to the
    consolidated financial statements).
(5) Includes CAHA beginning in November 2003.
(6) Includes common shareholders and Convertible CRA shareholders.
(7) Distributions  per share are the same for both common shares and Convertible
    CRA shares.

                                       26
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations  ("MD&A") is intended to help the reader  understand  the
results of operations  and financial  condition of Centerline  Holding  Company.
MD&A is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and the accompanying notes.

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

This MD&A contains forward-looking statements.  These forward-looking statements
are not historical  facts, but rather our beliefs and expectations and are based
on our current  expectations,  estimates,  projections,  beliefs and assumptions
about  our  Company  and  industry.  Words  such  as  "anticipates,"  "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
intended  to  identify  forward-looking  statements.  These  statements  are not
guarantees of future  performance  and are subject to risks,  uncertainties  and
other  factors,  some of which are beyond our control,  are difficult to predict
and could cause  actual  results to differ  materially  from those  expressed or
forecasted in the forward-looking statements. Some of these risks include, among
other things:

     o    adverse changes in real estate markets  general  economic and business
          conditions;
     o    adverse  changes in credit  markets and risks  related to the form and
          structure of our financing arrangements;
     o    our  ability  to  generate  new  income  sources,  raise  capital  for
          investment funds and maintain  business  relationships  with providers
          and users of capital;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our investments;
     o    competition with other companies;
     o    risk of loss from direct and indirect investments in CMBS and CDOs;
     o    risk of loss under  mortgage  banking loss sharing  agreements;  and
     o    risks associated with providing credit intermediation.

We caution you not to place undue reliance on these forward-looking  statements,
which reflect our view only as of the date of this annual report on Form 10-K.

OVERVIEW
--------

We are an  alternative  asset  manager with a core focus on real estate and more
than $11.9  billion of assets under  management  as of December  31,  2007.  Our
consolidated results since 2005 reflect our transformation from direct investing
towards  growing our  business  through  fund and asset  management,  while 2007
results were hampered by general  economic  conditions in the latter half of the
year.

We manage our  operations  through four  reportable  operating  segments and two
segments not involved in direct operations. Our four operating segments are:

     1.   Affordable  Housing,  which brings together the users and providers of
          debt and equity capital to the affordable  multifamily  rental housing
          industry;
     2.   Commercial  Real Estate,  which provides a broad spectrum of financing
          and investment products for multifamily,  office, retail,  industrial,
          mixed-use and other properties;
     3.   Portfolio  Management,  which  comprises  activities  for  monitoring,
          managing and  servicing the  Affordable  Housing and  Commercial  Real
          Estate assets we own, for funds we manage, and for third parties; and
     4.   Credit Risk Products,  which provides credit  intermediation,  through
          our  subsidiaries,  to  affordable  housing debt and equity  products.
          Through this segment, we also invest in syndicated corporate debt.

Our two additional segments are Consolidated Partnerships,  which includes those
entities we are required to  consolidate in accordance  with various  accounting
pronouncements, and our Corporate segment.

Significant events during 2007 include:

     Market Conditions
     -----------------

     o    Disruption  in  credit  markets,  specifically  with  respect  to  CDO
          financing,  repurchase  financing  for  investments  such as CMBS  and
          commercial  real estate  lending,  impacted our Commercial Real Estate
          Group throughout the latter half of 2007;
     o    Such disruption  made credit  generally less available and more costly
          across all of our business  lines.  This impacted the spread we earned
          in the Affordable  Housing bond  investing  business and increased our
          general cost of doing business;
     o    Changes in  interest  rates led to  significant  declines  in the fair
          value of our interest  rate swaps and widening  credit  spreads led to
          significant  declines in the values of CMBS investments we hold or the
          funds we manage hold.

                                       27
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     Affordable Housing
     ------------------

     o    The  re-securitization  of  our  tax-exempt  affordable  housing  bond
          portfolio  with  Freddie Mac in December  2007,  which for  accounting
          purposes was principally treated as a sale; and
     o    Raising  gross equity of $1.2 billion in 16 LIHTC funds ($1.2  billion
          in 15 LIHTC funds in 2006).

     Commercial Real Estate
     ----------------------

     o    The launch of our third  high-yield CMBS Fund in August with committed
          capital of $585.3 million as of December 31, 2007;
     o    An increase in capital commitments of $178.6 million in our High-Yield
          Debt Fund Partnership;
     o    The origination of over $1.7 billion of commercial  mortgage loans for
          our investor partners; and
     o    The pricing and closing of a $986.0 million CDO offering in one of our
          CMBS Fund Partnerships.

     Portfolio Management
     --------------------

     o    An increase in our primary loan servicing portfolio to $30.7 billion.

     Credit Risk Products
     --------------------

     o    The achievement of AAA counterparty rating from S&P for our Centerline
          Financial  subsidiary,  which will  allow us to expand our  ability to
          offer credit intermediation to third parties.

During 2008, we expect our revenue  composition to be  principally  comprised of
investment management fees (e.g., fund sponsorship, asset management,  servicing
and incentive  fees) and  transactional  fees (e.g.,  origination  fees,  credit
intermediation  fees) and, to a lesser extent,  income from  investments we hold
for our own account.  In 2007 and prior,  mortgage  revenue bond interest income
was  the  most  significant   component  of  revenue.  In  addition,   strategic
initiatives for 2008 include:

     1.   the growth of assets under  management  from our current base of $11.9
          billion  through raising funds for our Commercial Real Estate debt and
          equity funds, our Affordable  Housing funds, new mortgage revenue bond
          investments and syndicated corporate debt investments;
     2.   growth  in  our  credit  intermediation   business  to  third  parties
          following the AAA counterparty rating received in 2007; and
     3.   reduction of our debt.

Profitability
-------------

Through 2007, we utilized cash available for distribution ("CAD") as a financial
metric with respect to  allocation  of  resources,  employee  compensation,  and
compliance  with certain  covenants.  Beginning in the first quarter of 2008, we
will no longer  utilize  CAD for  internal  purposes  or as a  condition  of any
financial covenant,  and, therefore we will no longer report it as a performance
metric.  Instead, the Company will report adjusted earnings per share ("Adjusted
EPS")  which we define as earnings  per share  computed  pursuant  to  generally
accepted accounting  principles ("GAAP") and adjusted for non-cash  amortization
of acquired intangible assets and acquisition related, share-based compensation.
There is no generally  accepted  accounting method for computing CAD or Adjusted
EPS and our computation may not be comparable to similar  measurements  reported
by other  companies.  For further  information  see Note 24 to our  consolidated
financial statements.

                                       28
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)          2007          2006         2005
---------------------------------------------------    ----------    ----------   ----------
<S>                                                    <C>           <C>          <C>
CAD including costs of re-securitization transaction   $    5,864    $  111,030   $  114,710
                                                       ==========    ==========   ==========
CAD excluding costs of re-securitization transaction   $   94,894    $  111,030   $  114,710
                                                       ==========    ==========   ==========
                                                       $  (60,128)   $   41,294   $   59,014
Net (loss) income
  Amortization of acquired intangible assets               22,238        16,912       38,774
  Acquisition related, share-based compensation            15,091         9,242        3,307
                                                       ----------    ----------   ----------

Adjusted net (loss) income                             $  (22,799)   $   67,448   $  101,095
                                                       ==========    ==========   ==========
Loss on re-securitization of mortgage revenue bonds
  (net of minority interest impact)                       (55,376)           --           --
                                                       ----------    ----------   ----------
Adjusted net income excluding net loss on
  re-securitization of mortgage revenue bonds          $   32,577    $   67,448   $  101,095
                                                       ----------    ----------   ----------
Adjusted EPS (diluted)                                 $    (0.54)   $     1.07   $     1.70
                                                       ----------    ----------   ----------
Adjusted EPS (diluted) excluding loss on
  re-securitization of mortgage revenue bonds          $     0.43    $     1.07   $     1.70
                                                       ==========    ==========   ==========
</TABLE>


Our consolidated results since 2005 reflect our ongoing business  transformation
as an  alternative  asset  manager,  as well as the  following  items  impacting
comparability:

     o    The December  2007  re-securitization  of our mortgage  revenue  bonds
          resulting in a loss of $55.4 million ($77.9  million  before  minority
          interest  allocations)  included  within  the net loss (or  $0.97  per
          share) and $89.0 million  included  within CAD (see also Note 4 to the
          consolidated financial statements);
     o    The acquisition of Centerline  Investors in August 2006 resulting in a
          full year of  operations in 2007 for this business as compared to only
          4.5 months of operations included in the 2006 year;
     o    The 2006 period  included the gain on termination of the Capri Capital
          Advisors LLC ("CCA") loan of $6.9 million; and
     o    The 2006 period included non-recurring costs of $12.2 million relating
          to corporate initiatives primarily related to the launch of Centerline
          Financial.

We recorded a net loss for the 2007 period as compared to net income in the 2006
period. Much of the current year loss was due to:

     o    the December  2007  re-securitization  of our mortgage  revenue  bonds
          resulting in a loss of $55.4 million ($77.9  million  before  minority
          interest allocations) included within the net loss (see also Note 4 to
          the consolidated financial statements);
     o    impairment charges of $19.9 million (primarily in the first quarter of
          2007)  recognized  on mortgage  revenue  bonds and a charge to reserve
          against associated receivables;
     o    a  non-cash  impairment  charge  of $7.2  million  associated  with an
          intangible asset related to AMAC;
     o    non-cash  expenses of $17.2  million  recorded for the decline in fair
          value of interest rate derivatives;
     o    non-cash costs stemming from the acquisition of Centerline  Investors,
          such as amortization  of restricted  shares awarded in connection with
          the transaction and amortization of intangible assets acquired;
     o    reduced margins in several of our businesses; and
     o    severance costs of $3.8 million.

The decline in net income in 2006 as compared to 2005 resulted from a tax charge
to record a valuation  allowance  against deferred tax assets.  This charge more
than offset increased pre-tax income that resulted from:

     o    an $9.2  million  increase  in  interest  income  and $3.8  million of
          servicing fee income following our acquisition of Centerline Investors
          (formerly  ARCap  Investors)  and the $15.3  million of equity  income
          earned from our  co-investments  in the CMBS and High-Yield  Debt Fund
          Partnerships it sponsored; and
     o    a $6.9 million gain on the repayment of a loan to we had made to CCA.

These   factors  more  than  offset  an  increase  in   interest,   general  and
administrative expenses resulting from the acquisition. While we recorded a $2.6
million  charge  in 2006 to write  off  intangible  assets  of a  subsidiary  we
recorded a $22.6 million charge in 2005 related to the discontinuance of a trade
name.

                                       29
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


CONSOLIDATED RESULTS

Our summary consolidated results of operations are presented below for the years
ended December 31, 2007, 2006 and 2005:
<TABLE>
<CAPTION>
                                                                                               % Change    % Change
                                     % of                    % of                    % of      2007 vs.    2006 vs.
(IN THOUSANDS)            2007     Revenues       2006     Revenues       2005     Revenues       2006        2005
--------------------   ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
<S>                    <C>             <C>     <C>             <C>     <C>             <C>        <C>         <C>
Revenues               $ 572,927       100.0%  $ 387,259       100.0%  $ 295,097       100.0%       47.9%       31.2%
Expenses                 632,303       110.3     460,647       119.0     351,658       119.2        37.3        31.0
Other items (1)            3,755         0.7     121,174        31.3      86,998        29.5       (96.9)       39.3
(Loss) income before
  income taxes:
(Loss) income 31,555
  subject to tax         (36,337)       (6.3)    (31,555)       (8.1)    (48,872)      (16.6)      (15.2)      (35.4)
(Loss) income not
  subject to tax         (19,284)       (3.4)     79,341        20.5      79,309        26.9      (124.3)         --
                       ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
                         (55,621)       (9.7)     47,786        12.3      30,437        10.3      (216.4)       57.0
Income tax
  (provision)
  benefit                 (4,507)       (0.8)     (6,492)       (1.7)     28,577         9.7       (30.6)     (122.7)

Net (loss) income        (60,128)      (10.5)     41,294        10.7      59,014        20.0      (245.6)      (30.0)
</TABLE>

(1) 2007  includes  the  $77.9  million  loss on the re-  securitization  of our
mortgage revenue bond portfolio.


REVENUES

The following table presents our revenues for the years ended December 31, 2007,
2006 and 2005:
<TABLE>
<CAPTION>
                                                                 % Change                  % Change
                                                                 2007 vs.                  2006 vs.
(IN THOUSANDS)                             2007        2006        2006          2005        2005
-------------------------------------   ---------   ---------   ---------     ---------   ---------
<S>                                     <C>         <C>             <C>       <C>             <C>
Mortgage revenue bond interest income   $ 150,609   $ 156,500        (3.8)%   $ 146,024         7.2%
Other interest income                      58,988      34,159        72.7        16,162       111.4
Fee income                                 94,290      90,946         3.7        90,047         1.0
Other revenues                             11,019      15,998       (31.1)       14,908         7.3
                                        ---------   ---------   ---------     ---------   ---------
Subtotal                                  314,906     297,603         5.8       267,141        11.4
                                        ---------   ---------   ---------     ---------   ---------

Revenues of LIHTC Fund and Property
  Partnerships                             76,645      48,338        58.6        27,956        72.9

Revenues of CMBS and High-Yield Debt
  Fund Partnerships                       181,376      41,318       339.0            --          --
                                        ---------   ---------   ---------     ---------   ---------

Total revenues                          $ 572,927   $ 387,259        47.9%    $ 295,097        31.2%
                                        =========   =========   =========     =========   =========
</TABLE>


The growth in revenues in both 2007 and 2006 is attributable to:

     o    Growth in revenues of Consolidated  Partnerships of $168.4 million and
          $61.7  million  in  2007  and  2006,  respectively  reflective  of the
          increases in assets under  management for both our Affordable  Housing
          segment and Commercial Real Estate segment;
     o    Increase in revenues of our operating  segments due to  acquisition of
          Centerline  Investors of $40.8  million and $14.7  million in 2007 and
          2006, respectively; and
     o    Increase in interest income from investments, cash collateral balances
          and  cash  escrows  in  our  Commercial   Real  Estate  and  Portfolio
          Management  segments,  largely  in  part  due  to the  acquisition  of
          Centerline Investors.

Adjusting to include Centerline  Investors'  revenues for all periods,  revenues
would have increased 20.5% in 2007 and 11.9% in 2006.

                                       30
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


Detailed  discussion of revenues is included in RESULTS BY SEGMENT later in this
section.

EXPENSES

The following table presents our expenses for the years ended December 31, 2007,
2006 and 2005:
<TABLE>
<CAPTION>
                                                                     % Change                         % Change
(DOLLARS IN THOUSANDS)                  2007            2006       2007 vs. 2006         2005       2006 vs. 2005
--------------------------------   -------------   -------------   -------------    -------------   -------------
<S>                                <C>             <C>                   <C>        <C>                     <C>
Interest expense                   $     145,236   $      97,853            48.4%   $      57,098            71.4%
                                   -------------   -------------   -------------    -------------   -------------

Interest expense - preferred
  shares of subsidiary                    18,898          18,898              --           18,898              --

Salaries and benefits                    116,764          94,916            23.0           68,983            37.6
Other general and administrative          65,720          65,870            (0.2)          56,412            16.8
                                   -------------   -------------   -------------    -------------   -------------
  Subtotal                               182,484         160,786            13.5          125,395            28.2
                                   -------------   -------------   -------------    -------------   -------------

Depreciation and amortization             45,099          45,395            (0.7)          43,795             3.7
Write-off of intangible assets             7,226           2,644           173.3           22,567           (88.3)
Loss on impairment of assets              20,008           5,003           299.9            4,555             9.8
                                   -------------   -------------   -------------    -------------   -------------
  Subtotal before consolidated
    partnerships                         418,951         330,579            26.7          272,308            21.4
                                   -------------   -------------   -------------    -------------   -------------

Interest expense of consolidated
  LIHTC Fund and Property
  Partnerships                            19,245          25,989           (25.9)          26,322            (1.3)
Interest expense of consolidated
  CMBS Fund and High-Yield Debt
  Fund Partnerships                       81,076          21,937           269.6               --              --
                                   -------------   -------------   -------------    -------------   -------------

                                         100,321          47,926           109.3           26,322            82.1
                                   -------------   -------------   -------------    -------------   -------------

Other expenses of consolidated
  LIHTC Fund and Property
  Partnerships                           106,360          81,704            30.2           53,028            54.1
Other expenses of consolidated
  CMBS Fund and High-Yield Debt
  Fund Partnerships                        6,671             438         1,423.1               --              --
                                   -------------   -------------   -------------    -------------   -------------
                                         113,031          82,142            37.6           53,028            54.9
                                   -------------   -------------   -------------    -------------   -------------
  Subtotal expenses of
    consolidated partnerships            213,352         130,068            64.0           79,350            63.9
                                   -------------   -------------   -------------    -------------   -------------
Total expenses                     $     632,303   $     460,647            37.3%   $     351,658            31.0%
                                   =============   =============   =============    =============   =============
</TABLE>


The increase in costs for each period is  attributable  to overall growth of our
business and other factors. More specifically,  significant drivers of costs for
the periods presented include:

     o    INTEREST  EXPENSE - For 2007 and 2006,  higher financing costs are due
          to higher borrowing levels to support  expansion of our businesses and
          general  increases  in interest  rates.  The higher  borrowing  levels
          reflect the  acquisition  of Centerline  Investors in August 2006. The
          year  ended   December  31,  2007,  was  also  impacted  by  increased
          volatility  related  to  freestanding  derivatives  we  wrote to third
          parties and we expect this volatility to continue in 2008;
     o    SALARIES  AND  BENEFITS  - For  periods  presented,  the  increase  in
          salaries and benefits is mostly  attributable  to the  acquisition  of
          Centerline  Investors  in August  2006 and the  resultant  increase in
          salary costs,  share-based  compensation and deferred  incentive based
          compensation as further  discussed below under  Commercial Real Estate
          segment results of operations;
     o    OTHER GENERAL AND  ADMINISTRATIVE  - Other general and  administrative
          increased  as a result of higher  infrastructure  costs to support the
          growth of our  businesses,  including  the  acquisition  of Centerline
          Investors,  in  both  periods.  For  2006,  additional  expenses  were

                                       31
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


          incurred  related to the launch of what now  comprises our Credit Risk
          Products  segment and growth in  professional  fees due,  in part,  to
          complying  with costs  related to  Sarbanes-Oxley  implementation  and
          legal costs related to protecting  our interest in certain  properties
          (see Note 25 to the consolidated financial statements);
     o    DEPRECIATION AND AMORTIZATION - Amortization of MSRs increased in each
          of 2007 and 2006 as  compared to the prior  period.  In  addition,  we
          recognized a retroactive  depreciation  charge in 2006 for real estate
          owned;
     o    WRITE OFF OF  INTANGIBLE  ASSETS - In 2007,  we recorded an impairment
          associated with the partnership service contract asset associated with
          our management of AMAC. In 2005, management decided to discontinue the
          use  of  "Related   Capital   Company"  trade  name.  The  absence  of
          amortization during 2006, related to this write-off,  partially offset
          depreciation and amortization expense discussed above;
     o    LOSS ON IMPAIRMENT  OF ASSETS - The increase for 2007 was  principally
          attributable to a first quarter  impairment of mortgage revenue bonds;
          and
     o    CONSOLIDATED   PARTNERSHIPS   -  Interest   and  other   expenses   of
          Consolidated Partnerships is principally related to the acquisition of
          Centerline  Investors  and  includes  the  consolidation  of CMBS Fund
          Partnerships and the High-Yield Debt Fund Partnership.

In addition to higher  borrowings,  interest  expense over the three year period
reflects an increase in the average  borrowing  rate,  resulting  primarily from
gradual increases in the Securities  Industry and Financial Markets  Association
Municipal  Swap Index  ("SIFMA")  and LIBOR  rates  over the three year  period,
following sharp declines in prior years.  Interest expense also includes amounts
paid and received  pursuant to swap  agreements  as part of our risk  management
strategy.
<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)                                 2007         2006         2005
------------------------------------------------    -----------  -----------  ------------
<S>                                                 <C>          <C>          <C>
Average borrowing rate                                     5.3%         4.6%          3.8%
Average borrowings                                  $2,492,982   $1,992,862   $ 1,425,953
Average SIFMA rate                                        3.62%        3.45%         2.45%
Average LIBOR rate                                        5.25%        5.13%         3.46%
Swap agreements - notional amount at December 31    $  275,000   $  725,000   $   500,000
</TABLE>


Subsequent  to  the   re-securitization  of  our  mortgage  revenue  bonds,  our
borrowings based on the SIFMA rate are minimal.

The amount  reported  as  "interest  expense - preferred  shares of  subsidiary"
represents  dividends on the Equity Issuer Trust  subsidiary  ("Equity  Issuer")
preferred shares that are subject to mandatory  repurchase (see also OTHER ITEMS
below  regarding   dividends  on  shares  that  are  not  subject  to  mandatory
repurchase).  As of December 31, 2007,  the  preferred  shares of Equity  Issuer
entitle  their  holders to a claim on certain  residual  interests  acquired  in
connection with the  re-securitization  of the Affordable Housing bond portfolio
in December 2007, and, for economic  purposes,  are defeased (see Note 15 to the
consolidated financial statements).

                                       32
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


OTHER ITEMS
<TABLE>
<CAPTION>
                                                                     % Change                            % Change
(DOLLARS IN THOUSANDS)                 2007             2006        2007 vs. 2006         2005         2006 vs. 2005
-------------------------------   -------------    -------------    -------------     -------------    -------------
<S>                               <C>              <C>                     <C>        <C>                      <C>
Equity and other income (loss)    $      (5,165)   $       1,978           (361.1)%   $       7,037            (71.9)%
                                  =============    =============    =============     =============    =============
Gain on termination of CCA loan   $          --    $       6,916               --%    $          --               --%
Gain on sale or repayment of
  mortgage revenue bonds and
  other assets                            1,063            1,120             (5.1)            1,561            (28.3)
Gain on sale or repayment of
  loans                                  10,088           10,334             (2.4)            6,501             59.0
                                  -------------    -------------    -------------     -------------    -------------
Gain on sale or repayment of
  loans and mortgage revenue
  bonds                           $      11,151    $      18,370            (39.3)%   $       8,062            127.9%
                                  =============    =============    =============     =============    =============

Loss on re-securitization of
  mortgage revenue bonds          $     (77,903)   $          --               --%    $          --               --%
                                  =============    =============    =============     =============    =============

(Income)/loss allocations:

  Preferred shareholders of
    subsidiary                    $      (6,225)   $      (6,225)              --%    $      (6,225)              --%

  SCUs                            $      23,852    $     (16,131)          (247.9)%   $     (23,091)           (30.1)%
  SMUs                                      296             (102)          (390.2)             (330)           (69.1)
  SCI's                                     313              (80)          (491.3)               --               --
  Other minority interests                 (350)             219           (259.8)               --               --
                                  -------------    -------------    -------------     -------------    -------------
  Minority interests in
    subsidiaries, net             $      24,111    $     (16,094)          (249.8)%   $     (23,421)           (31.3)%
                                  =============    =============    =============     =============    =============

  Partners of consolidated
    partnerships                  $     398,893    $     401,377             (0.6)%   $     349,531             14.8%
                                  =============    =============    =============     =============    =============
</TABLE>


Other than the  non-recurring  gain on the repayment on a Commercial Real Estate
loan  investment in 2006,  principal  movements  included within other items are
equity  and  other   income   (loss);   loss   incurred   as  a  result  of  our
re-securitization  of our Affordable Housing bond portfolio as of December 2007;
and the allocation of gain or loss to minority interest holders.

     EQUITY AND OTHER INCOME (LOSS)
     Equity and other income (loss) includes income related to entities in which
     we invest but do not  consolidate.  This  includes our  investments  in tax
     advantaged  investment  vehicles  similar to those we sponsor  (which often
     produce equity losses) as well as our equity loss related to our investment
     in AMAC, which began in May 2007 (see Note 22 to the consolidated financial
     statements).  The loss in 2007 is  attributable to equity losses from these
     investments.

     Before we acquired  Centerline  Investors in August 2006, we had common and
     preferred  interests  in the  business,  which we  accounted  for under the
     equity  method.  The decrease in 2006 compared to 2005 is due to the a full
     year of income from that investment as compared to the shorter period prior
     to the acquisition in 2006.

     We co-invest in our CMBS and  High-Yield  Debt Fund  Partnerships  and earn
     equity income from those investments,  positively  affecting our net income
     by  $22.5  million  in 2007  compared  to  $15.3  million  in  2006,  which
     represented  a  partial  period  from the  acquisition  date  (see  further
     discussion in COMMERCIAL REAL ESTATE segment  discussion  below).  Since we
     consolidate these  partnerships and eliminate this income in consolidation,
     these amounts are not displayed in the amounts presented above.

     LOSS ON RE-SECURITIZATION OF MORTGAGE REVENUE BONDS
     In December 2007, we re-securitized  our Affordable  Housing bond portfolio
     which  resulted in a loss more fully  discussed in the  Affordable  Housing
     segment results and in Note 4 to the consolidated financial statements.

                                       33
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     ALLOCATION OF LOSS (INCOME)
     The income allocation to SCUs, SMUs and SCIs of subsidiaries represents the
     proportionate   share  of  after-tax  income  attributable  to  holders  of
     subsidiary  equity  as if they were all  converted  to  common  shares  and
     therefore  fluctuates along with net income.  There was no income allocated
     to SCIs in 2005 as the units were first issued in August 2006 in connection
     with our Centerline  Investors  acquisition.  "Other" minority  interest in
     2007 and 2006 principally  represents the portion of one of our Credit Risk
     Products  subsidiaries owned by Natixis.  As of December 31, 2007, all SMUs
     had been redeemed.

     LOSS ALLOCATED TO PARTNERS OF CONSOLIDATED PARTNERSHIPS
     The loss allocation to partners of consolidated partnerships represents the
     allocation of operating losses of LIHTC Fund and Property  Partnerships and
     the income or losses of CMBS Fund Partnerships and the High-Yield Debt Fund
     Partnership to outside investors that hold the majority  ownership in these
     partnerships.  With  respect  to the  LIHTC  Fund  Partnerships  and  LIHTC
     Property Partnerships,  we have an insignificant equity interest or none at
     all. With respect to the CMBS Fund  Partnerships  and the  High-Yield  Debt
     Partnership, we have ownership of between 5% and 25%.

INCOME TAXES

A large majority of our pre-tax income was derived from our tax-exempt  mortgage
revenue bond investing  included in our Affordable  Housing segment,  which were
held within flow-through  entities.  Likewise, the CMBS and High-Yield Debt Fund
Partnership  businesses which are included in our Commercial Real Estate segment
are similarly  structured.  As such, the income from those  businesses  does not
subject us to income taxes.

LIHTC fund  management,  the other  Commercial  Real Estate  businesses  and our
Portfolio  Management and Credit Risk Products business,  however, are conducted
in  corporations  and are subject to income taxes.  Our Corporate  Group is also
housed in a corporate  entity.  Because the  distributions  paid on the minority
interests in our corporate subsidiaries  effectively provide a tax deduction, as
well as other factors within these  businesses,  they often have losses for book
purposes.  In 2005, the other factors included the $22.6 million write-off of an
intangible  asset (see EXPENSES above and Note 9 to the  consolidated  financial
statements).

We provide for income taxes for these corporate  subsidiaries in accordance with
Statement of Financial  Accounting  Standards  ("SFAS") No. 109,  ACCOUNTING FOR
INCOME TAXES ("SFAS 109"), which requires the recognition of deferred tax assets
and  liabilities   for  the  expected  future  tax   consequences  of  temporary
differences  between the financial  statement carrying amounts and the tax bases
of assets and liabilities.

The tax  benefit  disclosed  in 2005  relates to the book  losses of the taxable
businesses and the tax deductible  distributions on their subsidiary  equity. As
the  proportion of our pre-tax income  contributed by the businesses  generating
taxable  income and losses  changes,  the resulting tax benefit or provision may
appear  incongruous  with  our  consolidated  income  before  income  taxes,  as
illustrated in Note 20 to the  consolidated  financial  statements.  In 2007 and
2006, a current tax provision is due to higher  currently  taxable income and in
2006,  is  coupled  with  valuation  allowances  against  deferred  tax  assets.
Management  determined  that,  in  light  of  projected  taxable  losses  in the
corporate  subsidiaries  for the  foreseeable  future,  all of the  deferred tax
assets will likely not be realized and hence a valuation allowance was provided.

As noted above,  we recognized an income tax provision in 2007 and 2006 compared
to an income tax  benefit for 2005.  The  effective  tax rate on a  consolidated
basis was (8.1)% in 2007,  13.6% in 2006 and (93.9)% in 2005, due to the factors
noted above. The effective rate for our corporate subsidiaries that were subject
to taxes was (23.4)% in 2007,  (20.6)% in 2006 and 58.5% in 2005. See Note 20 to
the  consolidated  financial  statements for further  information  regarding the
effective tax rate.

ACCOUNTING CHANGES

The adoption of several accounting  pronouncements has affected our consolidated
financial statements.

STATEMENT  NO. 156. As of January 1, 2007,  we adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 156,  ACCOUNTING  FOR SERVICING OF FINANCIAL
ASSETS ("SFAS 156"). SFAS 156 amends SFAS No. 140,  ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND  EXTINGUISHMENT  OF LIABILITIES  ("SFAS 140"),
stipulating the accounting for mortgage  servicing rights ("MSRs") and requiring
that such rights be recorded initially at fair value. SFAS 156 also permits, but
does not  require,  that we may  subsequently  record  MSRs at fair  value  with
changes in fair value recognized in the statement of operations.  Alternatively,
we may continue to amortize the MSRs over their projected  service  periods.  We
elected to continue amortization of our MSRs and, therefore, there was no impact
on our consolidated financial statements upon adoption.

FIN NO.  48. As of  January 1, 2007,  we  adopted  FIN No.  48,  ACCOUNTING  FOR
UNCERTAINTY IN INCOME TAXES ("FIN 48").  FIN 48 sets a standard for  recognizing
tax benefits in a company's  statement of  operations  based on a  determination

                                       34
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


whether it is more  likely than not that the  position  would  withstand  audit,
without regard for the likelihood of an audit taking place.  Assuming a position
meets the  "more-likely-than-not"  threshold, FIN 48 also prescribes measurement
standards  requiring  determination  of how  much  of  the  tax  position  would
ultimately  be  allowed  if  challenged  (see Note 20  regarding  the  impact of
adoption).

INFLATION

Inflation did not have a material  effect on our results of  operations  for the
periods presented.

RESULTS BY SEGMENT
------------------

The following table presents segment revenues, expenses and operating income for
the three years ended  December 31, 2007 in accordance  with GAAP.  Transactions
between segments are accounted for as third-party  arrangements for the purposes
of presenting segment results of operations.  Typical intersegment  eliminations
include fees earned from Consolidated Partnerships, asset management fees earned
by Portfolio  Management  with respect to assets held by our other  segments and
intercompany  interest.  The table  below  also  includes  CAD which is  further
described,  and  reconciled  to net  income,  in  Note  24 to  the  consolidated
financial statements.

                                       35
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)
<TABLE>
<CAPTION>
                                                                     % Change                           % Change
(DOLLARS IN THOUSANDS)                2007             2006        2007 vs. 2006          2005        2006 vs. 2005
-------------------------------  -------------    -------------    -------------     -------------    -------------
<S>                              <C>              <C>                     <C>        <C>                     <C>
REVENUES:
  Affordable Housing             $     282,956    $     287,686             (1.6)%   $     263,127              9.3%
  Commercial Real Estate                65,893           55,062             19.7            46,513             18.4
  Portfolio Management                  61,402           35,372             73.6            22,203             59.3
  Credit Risk Products                  15,748            3,644            332.2                --               --
  Corporate                             28,314           23,940             18.3            11,345            111.0
  Consolidated Partnerships            258,021           89,656            187.8            27,956            220.7
  Eliminations                        (139,407)        (108,101)           (29.0)          (76,047)           (42.2)
                                 -------------    -------------    -------------     -------------    -------------
    Total revenues               $     572,927    $     387,259             47.9%    $     295,097             31.2%
                                 =============    =============    =============     =============    =============

EXPENSES:
  Affordable Housing             $     204,388    $     179,668             13.8%    $     134,664             33.4%
  Commercial Real Estate               118,175           86,115             37.2            63,422             35.8
  Portfolio Management                  36,048           18,330             96.7             9,636             90.2
  Credit Risk Products                  12,784            9,508             34.5                --               --
  Corporate                            109,383           81,186             34.7            93,618            (13.3)
  Consolidated Partnerships            293,232          197,789             48.3           128,869             53.5
  Eliminations                        (141,707)        (111,949)           (26.6)          (78,551)           (42.5)
                                 -------------    -------------    -------------     -------------    -------------
    Total expenses               $     632,303    $     460,647             37.3%    $     351,658             31.0%
                                 =============    =============    =============     =============    =============

OTHER INCOME (LOSS):
  Affordable Housing             $     (78,116)   $        (540)            N/M%     $       5,739           (109.4)%
  Commercial Real Estate (1)            28,838           35,605            (19.0)            9,680            267.8
  Corporate                                 --              568               --              (358)           258.7
  Consolidated Partnerships (2)         57,786          123,145            (53.1)          101,545             21.3
  Eliminations                         (22,639)         (15,285)           (48.1)               38              N/M
                                 -------------    -------------    -------------     -------------    -------------
    Total other income                 (14,131)         143,493           (109.8)%   $     116,644             23.0%
                                 =============    =============    =============     =============    =============

INCOME (LOSS) BEFORE OTHER
  ALLOCATIONS:
  Affordable Housing             $         452    $     107,478            (99.6)%   $     134,202            (19.9)%
  Commercial Real Estate               (23,444)           4,552           (615.0)           (7,229)           163.0
  Portfolio Management                  25,354           17,042             48.8            12,567             35.6
  Credit Risk Products                   2,964           (5,864)          (150.5)               --               --
  Corporate                            (81,069)         (56,678)           (43.0)          (82,631)            31.4
  Consolidated Partnerships             22,575           15,012             50.4               632              N/M
  Eliminations                         (20,339)         (11,437)           (77.8)            2,542           (549.9)
                                 -------------    -------------    -------------     -------------    -------------
    Total (loss) income
      before other allocations   $     (73,507)   $      70,105           (204.9)%   $      60,083             16.7%
                                 =============    =============    =============     =============    =============

CAD (3)
  Affordable Housing             $     118,289    $     150,327            (21.3)%   $     182,221            (17.5)%
  Commercial Real Estate                23,906           19,704             21.3             9,001            118.9
  Portfolio Management                  32,145           17,149             87.4            12,646             35.6
  Credit Risk Products                  14,857           (5,822)           355.2                --               --
  Unallocated Corporate Costs          (94,303)         (70,328)           (34.1)          (89,158)            21.1
                                 -------------    -------------    -------------     -------------    -------------
    Consolidated CAD excluding
      costs of re-securitization
      transaction                $      94,894    $     111,030            (14.5)%   $     114,710             (3.2)%
                                 =============    =============    =============     =============    =============

  Cash costs of re-securiti-
    zation transaction                 (89,030)              --               --                --               --
                                 -------------    -------------    -------------     -------------    -------------
    Consolidated CAD including
      cash costs of re-securit-
      ization transaction        $       5,864    $     111,030            (94.7)%   $     114,710             (3.2)%
                                 =============    =============    =============     =============    =============
</TABLE>

(1)  Includes equity income of CMBS Fund and High-Yield  Debt Fund  Partnerships
     as more fully described below.
(2)  Includes losses allocated to partners of consolidated partnerships.
(3)  See Note 24 to the consolidated  financial  statements for a description of
     CAD and a reconciliation to net income.

                                       36
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


AFFORDABLE HOUSING

Revenues
--------
<TABLE>
<CAPTION>
                                                                            %Change                           % Change
(DOLLARS IN THOUSANDS)                      2007              2006        2007 vs. 2006          2005       2006 vs. 2005
-------------------------------------   -------------    -------------    -------------     -------------   -------------
<S>                                     <C>              <C>                        <C>     <C>                      <C>
Mortgage revenue bond interest income   $     171,722    $     167,699              2.4%    $     146,024            14.9%
Other interest income                           1,362            1,447             (5.9)              815            77.6
Fee income from fund sponsorship              100,938          108,119             (6.6)          108,188            (0.1)
Expense reimbursements                          6,623            7,112             (6.9)            6,495             9.5
Other revenues                                  2,311            3,309            (30.2)            1,605           106.2
                                        -------------    -------------    -------------     -------------   -------------
  Total revenues                        $     282,956    $     287,686             (1.6)%   $     263,127             9.3%
                                        =============    =============    =============     =============   =============
</TABLE>


Our Affordable Housing operation principally derives revenues from the following
sources:

     INTEREST INCOME - We recognize  mortgage revenue bond interest income using
     the  effective  yield  method  based  on the  actual  coupon  rate  and the
     outstanding  principal  amount of the  underlying  mortgages,  taking  into
     account  differences  in interest  rate during the  construction  period as
     compared to balance of the term, premiums and discounts,  any fees received
     in  connection  with  bond   originations  and  the  effects  of  estimated
     prepayments.  Other interest income pertains to loans receivable related to
     affordable  housing  properties and the income is also recognized using the
     effective yield method.

     FEE INCOME - Our LIHTC Fund sponsorship activities generate fees associated
     with sponsoring tax-credit equity investment funds, for assisting the funds
     in  acquiring  assets and for  providing  specified  yields to investors of
     certain funds. These include:

            (I.)    ORGANIZATION,  OFFERING AND  ACQUISITION  ALLOWANCE FEES are
                    for  reimbursement  of costs we incur for  organizing  LIHTC
                    investment  funds and for providing  assistance in acquiring
                    the properties to be included in the funds. We recognize the
                    organization,  offering and  acquisition  allowance fee when
                    the  investment  funds  acquire   properties.   The  related
                    expenses   are   included  in  general  and   administrative
                    expenses.

            (II.)   PROPERTY  ACQUISITION  FEES  are for services we perform for
                    the LIHTC investment funds to acquire  interests in property
                    partnerships.  We  recognize  these  fees when the  investor
                    equity  is   invested   and  as  the   properties'   limited
                    partnership interests are acquired by the investment fund.

            (III.)  PARTNERSHIP  MANAGEMENT  FEES  are for maintaining the books
                    and records of LIHTC investment funds,  including  requisite
                    investor  reporting.  We recognize  these fees over the five
                    year  contractual   service  period  following  the  initial
                    closing of the fund.

            (IV.)   CONSTRUCTION  SERVICE  FEES  from  borrowers  for  servicing
                    mortgage  revenue bonds during the  construction  period are
                    deferred and amortized  into other income over the estimated
                    construction period.

            (V.)    ADMINISTRATION FEES charged to the property  partnerships or
                    to other entities we manage are recorded as the payments are
                    received due to the uncertainty of collectability.

            (VI.)   ASSET  MANAGEMENT FEES from LIHTC investment funds, based on
                    a percentage of each investment fund's invested assets,  are
                    earned for monitoring the acquired property interests and to
                    ensure that their development, leasing and operations comply
                    with LIHTC or other tax credit requirements.

            (VII.)  BOND  ACQUISITION  FEES  are  paid  by  borrowers  when we
                    acquire mortgage revenue bonds. These fees are recognized as
                    yield  adjustments in mortgage  revenue bond interest income
                    if we retain the bond or recognized  immediately  if we were
                    to sell the bond.

            (VIII.) CREDIT  INTERMEDIATION  FEES for  transactions to provide
                    specified  rates of return for an LIHTC  fund,  received  in
                    advance,  are deferred  and  amortized  over the  applicable
                    risk-weighted  periods on a straight-line  basis.  For those
                    pertaining to the  construction and lease-up phase of a pool
                    of properties, the periods are generally one to three years.
                    For those  pertaining to the operational  phase of a pool of
                    properties, the period is approximately 20 years.

     OTHER REVENUES - Other revenues principally consist of penalties we receive
     at  the  time  of  prepayment  of  a  mortgage  revenue  bond  and  expense
     reimbursements  for amounts billed to investment funds and other affiliated
     entities for  reimbursement of salaries and certain other ongoing operating
     expenditures, which are recognized as earned.

                                       37
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


MORTGAGE REVENUE BOND INVESTING
<TABLE>
<CAPTION>
                                                                            %Change                           % Change
(DOLLARS IN THOUSANDS)                      2007              2006        2007 vs. 2006          2005       2006 vs. 2005
-------------------------------------   -------------    -------------    -------------     -------------   -------------
<S>                                     <C>              <C>                        <C>     <C>                      <C>
Total acquisition and funding
  activity                              $     226,393    $     419,940            (46.1)%   $     443,517            (5.3)%
Mortgage revenue bonds repaid           $      21,751    $      83,746            (74.0)%   $     104,279           (19.7)%
Mortgage revenue bonds
  re-securitized with Freddie
  Mac                                   $   2,800,560    $          --              --%     $          --              --%
Average portfolio balance
  (fair value)                          $   2,773,351    $   2,560,099              8.3%    $   2,229,654            14.8%
Weighted average permanent
  interest rate of bonds
  acquired                                       5.81%            5.99%                              6.19%
Weighted average yield of
  portfolio                                      6.19%            6.72%                              6.77%
</TABLE>


For the periods presented, interest income earned on mortgage revenue bonds held
in our own  account  increased  primarily  due to the higher  average  portfolio
balance due to acquisition  activity  offset by a lower weighted  average yield.
Also  included  in  mortgage  revenue  bond  interest  income was  participating
interest of $0.1 million in 2007, $5.2 million in 2006 and $2.6 million in 2005.
Subsequent to the  re-securitization  of the mortgage  revenue bonds, we have no
remaining participating mortgage revenue bonds.

Historically  we earned most of our income and cash flow from a positive  spread
between the interest  earned from our mortgage  revenue bond  portfolio  and the
cost of capital we use to purchase the bonds.  As a result of the December  2007
re-securitization   of  the  bond  portfolio  with  Freddie  Mac,  we  expect  a
significant decrease in mortgage revenue bond interest income in future periods,
but a higher level of other interest income from our residual interests.

While we re-securitized the majority of our mortgage revenue bonds, we intend to
acquire additional bonds and securitize these bonds as well,  retaining residual
interests.  To the extent we maintain  residual  interests from securitizing the
bonds we will  continue to earn the  interest  income  allocated to the retained
residual interest.  In addition,  for new mortgage revenue bonds we purchase, we
will earn the  interest  spread  until  such  bonds  are sold with the  residual
interest retained.

                                       38
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


LIHTC Fund Sponsorship
----------------------
<TABLE>
<CAPTION>
                                                                  % Change                         % Change
(DOLLARS IN THOUSANDS)               2007            2006       2007 vs. 2006         2005       2006 vs.2005
-----------------------------   -------------   -------------   -------------    -------------   -------------
<S>                             <C>             <C>                     <C>      <C>                     <C>
Fees based on equity raised
---------------------------
Partnership management fees     $       9,238   $       6,927            33.4%   $       5,322            30.2%

Fees based on equity invested
-----------------------------
Organization, offering and
  acquisition allowance fees           14,434          19,552           (26.2)          22,559           (13.3)
Property acquisition fees              30,383          35,705           (14.9)          34,655             3.0

Fees based on management of
  other entities
  --------------
Asset management fees                  29,561          27,022             9.4           25,485             6.0

Other fee income
----------------
Construction service fees               3,547           4,801           (26.1)           4,583             4.8
Administration fees                     2,738           2,492             9.9            1,876            32.8
Credit intermediation fees              9,153           8,215            11.4            9,845           (16.6)
Bond acquisition fees                   1,884           3,405           (44.7)           3,863           (11.9)
                                -------------   -------------   -------------    -------------   -------------
                                $     100,938   $     108,119            (6.6)%  $     108,188            (0.1)%
                                =============   =============   =============    =============   =============


Assets under management -
  LIHTC funds                   $   9,694,430   $   8,525,903            13.7%   $   7,548,240            13.0%

Equity raised by LIHTC funds    $   1,168,527   $   1,184,321            (1.3)%  $   1,131,274             4.7%
Equity invested by LIHTC
  funds (1)                     $   1,200,693   $   1,113,289             7.9%   $   1,074,457             3.6%
</TABLE>

(1) Excludes  warehoused  properties that have not yet closed into an investment
fund.

FEES BASED ON EQUITY RAISED

The  increase  in  partnership  management  fees over the three  year  period is
primarily the result of additional (and larger) funds closed during the periods.
As the fees  collected  are a percentage  of the gross  equity in the fund,  the
amount collected will increase the revenue recognized over the five-year service
period following the funds' inception.

FEES BASED ON EQUITY INVESTED

Organization,  offering and acquisition allowance fees decreased compared to the
2006  period due to a decrease  in both the equity  raised as well as in the fee
rate realized stemming from heightened  competition relating to certain types of
funds.  These  same  revenues  decreased  in 2006  compared  to the 2005  period
primarily  due to a  decrease  in the fee rate  realized,  offset by a  marginal
increase in equity raised.

While we acquire  properties on an ongoing basis  throughout the year, we do not
recognize  property  acquisition fees until we place the property in a sponsored
fund.  Therefore,  delays in timing of a fund  closure  may  impact the level of
revenues  we  recognize  in a given  period.  Additionally,  the  type of  funds
originated  (whether  for a  single  investor,  multiple  investors  or one with
specified  rates of return) can affect the level of revenues as the fee rate for
each varies.

These fees decreased in 2007, compared to the 2006 results, due to a decrease in
the fee rate realized, stemming from changes in the mix of funds originated. The
decrease in fee rates realized was partially offset by an increase in the amount
of equity invested period over period. The increase in 2006 compared to the 2005
results is comparable to the increase in funds originated.

                                       39
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


FEES BASED ON MANAGEMENT OF OTHER ENTITIES

As many of these revenues are recognized  over time following the sponsorship of
a new fund,  much of the 2007 and 2006  increases  relate to the funds closed in
2005 and 2006. The increase in asset management fees is attributable to:

     o    the  higher  level  of  assets  under  management  as we  add  to  the
          population of funds  sponsored  (with 15 added in 2007 and 10 added in
          2006); and
     o    the  improvement  of the cash  position  of certain  investment  funds
          allowing  us to  collect  management  fees  in 2007  which  we did not
          previously recognize until collectability was reasonably assured. Some
          of these funds are now in the  disposition  stage and were able to pay
          these fees from the proceeds of the disposition of assets.

The 2006 increase was partially offset due to a decline in the cash positions of
certain investment funds from the prior year which prevented us from recognizing
any management fees for these funds.

OTHER REVENUES

Construction service fees, credit  intermediation,  expense  reimbursement,  and
other  revenues  in this  segment  consist  largely of service  fees  charged to
entities we manage (including consolidated  partnerships) and fluctuate with the
growth of the number of those entities and their cash flows.

Since  mid-2006,   the  Affordable  Housing  Group  no  longer  provides  credit
intermediation for new funds (as credit  intermediation of new funds is provided
by and fees are earned  directly  by our Credit  Risk  Products  segment).  This
segment, however, continues to recognize fees for transactions prior to mid-2006
but we expect the fee stream in this  segment to  continue  to decline in future
periods as amortization ends for fees related to older transactions.

Expenses and Other Income (Loss)
--------------------------------

Interest expense in this segment  represents  direct financing costs,  including
on-balance  sheet  securitizations  of our mortgage  revenue  bonds prior to the
re-securitization of these bonds to Freddie Mac in December 2007,  distributions
on preferred shares of Equity Issuer and  intercompany  interest expense on cash
we borrow  from our  corporate  credit  facility  to  warehouse  LIHTC  property
partnership investments prior to them being closed into a fund.

Other major  expenses  include  salaries  and other costs of  employees  working
directly in this  business  as well as  allocations  of  corporate  costs.  This
segment also includes costs to  subcontract  asset  management  functions to our
Portfolio  Management Group at estimated market rates as applied to assets under
management.

                                       40
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


<TABLE>
<CAPTION>
                                                                        % Change                           % Change
(DOLLARS IN THOUSANDS)                 2007              2006         2007 vs. 2006         2005         2006 vs. 2005
-------------------------------   -------------     -------------     -------------     -------------    -------------
<S>                               <C>               <C>                       <C>       <C>                     <C>
Interest expense                  $     111,764     $      87,391              27.9%    $      46,781             86.8%
Interest expense - preferred
  shares of subsidiary                   18,898            18,898                --            18,898               --
General and administrative
  expenses                               52,481            61,938             (15.3)           59,205              4.6
Depreciation and amortization             1,312             6,438             (79.6)            5,225             23.2
Impairment of assets                     19,933             5,003             298.4             4,555              9.8
                                  -------------     -------------     -------------     -------------    -------------
  Total expenses                  $     204,388     $     179,668              13.8%    $     134,664             33.4%
                                  =============     =============     =============     =============    =============

Equity and other (loss) income    $      (1,016)    $      (1,588)            (36.0)%   $       4,216           (137.7)%
Loss on re-securitization of
  mortgage revenue bonds                (77,903)               --                --                --               --
Repayments of mortgage revenue
  bonds and sales of other
  assets                                    803             1,048             (23.4)            1,523            (31.2)
                                  -------------     -------------     -------------     -------------    -------------
  Total other (loss) income       $     (78,116)    $        (540)              N/M     $       5,739           (109.4)%
                                  =============     =============     =============     =============    =============

Average borrowing rate (1)                 4.79%             4.17%                               3.65%
Average SIFMA rate                         3.62%             3.45%                               2.45%
</TABLE>

 (1) Includes  effect  of  swaps  and in  2006,  incremental  costs  related  to
     restructuring of our securitization programs.


With an increase in our average  mortgage  revenue  bond  portfolio  balance our
level of  securitizations  also increased  which,  coupled with rising borrowing
rates,  resulted in higher interest  expense over the three-year  period.  These
costs also include  direct  borrowings for  warehousing of LIHTC  investments or
intercompany interest charges after the direct borrowing facility was terminated
in 2006. We expect  interest  expense to decrease during 2008 as a result of the
re-securitization  of the bond  portfolio  and  reduction  in related  financing
arrangements.

The decrease in general and  administrative  expenses over the three-year period
is due to lower fund sponsorship expenses incurred in connection with organizing
and  offering  the LIHTC funds and is  consistent  with the  decrease in the fee
rates  realized as discussed in the revenue  section  above.  Furthermore,  as a
result of the re-securitization of bonds with Freddie Mac, swaps we entered into
that  served  to  provide   variable-rate  bond  financing  are  now  considered
free-standing  derivatives.  Recognizing  changes in fair  values of these swaps
resulted in additional  interest expense of $2.8 million in 2007. We may seek to
mitigate the impact of these derivatives by issuing a mirror swap in 2008.

We  recognized  impairment  on nine  mortgage  revenue bonds in the 2007 period,
eight in the 2006 period and four in the 2005 period.

The loss on re-securitization of mortgage revenue bonds principally includes the
impact of the December 2007  re-securitization as further discussed in Note 4 to
the  consolidated  financial  statements.  The gain  recognized  as a result  of
selling  the  bonds at  remaining  principal  outstanding  (as  compared  to the
amortized cost basis) of $73.4 million was more than offset by  transaction  and
other costs incurred.  For certain bonds included in the  re-securitization,  we
have continuing  involvement that precluded sale treatment despite consideration
received from Freddie Mac. For those bonds,  we did not recognize a gain, but we
may when sale treatment is ultimately  obtained,  which depends on the nature of
the continuing involvement.

Income before other allocations
-------------------------------
<TABLE>
<CAPTION>
                                                                        % Change                           % Change
(DOLLARS IN THOUSANDS)                 2007              2006         2007 vs. 2006         2005         2006 vs. 2005
-------------------------------   -------------     -------------     -------------     -------------    -------------
<S>                               <C>               <C>                       <C>       <C>                      <C>
Income before other allocations   $         452     $     107,478             (99.6)%   $     134,202            (19.9)%
</TABLE>

The decrease in income before other  allocations  in 2007 as compared to 2006 is
principally due to:

                                       41
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     o    the loss recognized on the  re-securitization of the bond portfolio in
          December 2007 of $57.5 million; and
     o    increased interest expense.

The decrease in other income  (loss) before  allocations  in 2006 as compared to
2005 is primarily driven by the increase in interest expense.

Affordable Housing CAD
----------------------

CAD in this  segment  mostly  comprises  fee  income  based on fund  sponsorship
activity  which is  seasonal  as well as the  "spread  income"  on our  mortgage
revenue bond  investments.  With respect to mortgage  revenue bond  investments,
prior to the  re-securitization  transaction  with Freddie Mac, we earned income
and cash flow from a  positive  spread  between  the  interest  earned  from our
mortgage  revenue bond  portfolio  and the cost of financing  the bonds.  To the
extent we maintain  residual  interests  from  securitizing  the bonds,  we will
continue  to  earn  the  interest  income  allocated  to the  retained  residual
interest. In addition,  for new mortgage revenue bonds we purchase, we will earn
the  interest  spread  until  such  bonds  are sold with the  residual  interest
retained

CAD  in  2007   (excluding   the   transaction   costs   associated   with   the
re-securitization  transaction  in December  2007) was lower than the 2006 level
because of a decline in fee income from fund sponsorship principally as a result
of decreased fee rates  realized.  Additionally,  higher  interest costs in 2007
more than  offset the higher  level of mortgage  revenue  bond  interest  income
during 2007.

CAD in this  segment  declined in 2006 from the 2005 period  level due to higher
borrowing costs from steadily  increasing interest rates and charges recorded in
2006 associated with the  restructuring of our  securitization  programs.  These
factors were partially  offset by a sharply  higher level of prepayment  penalty
income.

See Note 24 to the  consolidated  financial  statements for a description of CAD
and a reconciliation to net income.

COMMERCIAL REAL ESTATE

Assets under Management
-----------------------
Assets under management in our Commercial Real Estate segment consisted of:
<TABLE>
<CAPTION>
                                                                        % Change                           % Change
(IN MILLIONS)                          2007              2006         2007 vs. 2006         2005         2006 vs. 2005
-------------------------------   -------------     -------------     -------------     -------------    -------------
<S>                               <C>               <C>                       <C>       <C>                      <C>
CMBS funds                        $     1,475.4     $       890.1              65.8%    $       890.1               --%
High-yield debt investment
  entities                                556.6             442.1              25.9             114.2            287.1
Joint venture equity funds                225.6              76.9             193.4              76.9               --
                                  -------------     -------------     -------------     -------------    -------------
                                  $     2,257.6     $     1,409.1              60.2%    $     1,081.2             30.3%
                                  =============     =============     =============     =============    =============
</TABLE>

Revenues
--------
<TABLE>
<CAPTION>
                                                                        % Change                           % Change
(DOLLARS IN THOUSANDS)                 2007              2006         2007 vs. 2006         2005         2006 vs. 2005
-------------------------------   -------------     -------------     -------------     -------------    -------------
<S>                               <C>               <C>                       <C>       <C>                      <C>
Mortgage origination fees         $       7,555     $       8,799             (14.1)%   $       7,454             18.0%
Mortgage servicing fees                  18,477            19,355              (4.5)           18,928              2.3
Other fee income                          7,214             3,986              81.0             2,432             63.9
Other interest income                    25,385            12,891              96.9             6,644             94.0
Prepayment penalties                      3,022             5,194             (41.8)            5,150              0.9
Other revenues                            4,240             4,837             (12.3)            5,905            (18.1)
                                  -------------     -------------     -------------     -------------    -------------
  Total revenues                  $      65,893     $      55,062              19.7%    $      46,513             18.4%
                                  =============     =============     =============     =============    =============
</TABLE>

                                       42
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


Our Commercial Real Estate Group  principally  derives  revenues from investment
interest and fee income, which includes:

     MORTGAGE  BANKING  FEES -  Mortgage  origination  fees  are  recorded  upon
     settlement of sale to the purchaser of the loans whereas mortgage servicing
     fees are  recognized on an accrual basis as the services are performed over
     the servicing period.

     ASSET MANAGEMENT FEES - We manage certain  high-yield debt investment funds
     including  AMAC as well  as a joint  venture  equity,  CUC,  for  which  we
     recognize  asset  management  fees as earned  provided  that  collection is
     reasonably assured.

     INCENTIVE FEES - Subject to the achievement of performance  criteria we may
     earn  incentive  based fees in  connection  with our  management of CUC and
     AMAC.

     Investment   management  fees  (including  incentive  fees)  pertaining  to
     management of CMBS and High-Yield  Debt Fund  Partnerships  are recorded in
     the form of equity income.

     INTEREST INCOME - Interest income in this segment includes  interest on our
     loan to AMAC and also  that of  retained  CMBS  interest  certificates.  We
     recognize interest income as it accrues,  provided collectability of future
     amounts is reasonably assured.

Originations
------------

Mortgage  originations  for the  years  ended  December  31 are  broken  down as
follows:
<TABLE>
<CAPTION>
                                                                            % of Change                       % of Change
(DOLLARS IN THOUSANDS)      2007                               2006        2007 vs. 2006        2005         2007 vs. 2006
---------------------   -------------                     -------------    -------------    -------------    -------------
<S>                     <C>                               <C>                       <C>     <C>                       <C>
Mortgage originations   $   1,799,083                     $   1,541,797             16.7%   $   1,278,448             20.6%

<CAPTION>


                                           of % Total                        of % Total                        of % Total
                                         -------------                     -------------                     -------------
<S>                     <C>                      <C>      <C>                      <C>      <C>                      <C>
                        $     481,594             26.8%   $     620,583             40.3%   $     705,024             55.1%
Fannie Mae
Freddie Mac                   480,052             26.7          280,093             18.2          160,835             12.6
Centerline Direct             708,761             39.4          535,554             34.7               --               --
Conduit and other             128,676              7.1          105,567              6.8          412,589             32.3
                        -------------    -------------    -------------    -------------    -------------    -------------

  Total                 $   1,799,083            100.0%   $   1,541,797            100.0%   $   1,278,448            100.0%
                        =============    =============    =============    =============    =============    =============
</TABLE>


Despite an overall  increase in originations  over the 2006 period,  origination
fees decreased in 2007 as the average rate of  origination  fees was impacted by
the higher  proportion of  non-agency  as well as non-risk  sharing loans (which
generally  result in lower  origination  fees)  and  spread  compression  in the
market.  Originations  for our lending  program for AMAC and CRESS  ("Centerline
Direct")  declined  sharply  beginning  in the  third  quarter  of 2007 as CRESS
reached its maximum  investment level and as a result of market  conditions that
led to the  suspension of AMAC's  investing  activity.  We expect this trend may
continue in 2008.

Origination  fees in 2006  increased  over the 2005 period in  proportion to the
increase in originations during the same periods.

Servicing
---------
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                     <C>       <C>                       <C>
Primary servicing mortgage
  portfolio at December 31               $   8,545,368    $   8,360,889           2.2 %     $   8,499,955             (1.6)%
</TABLE>


Despite an overall increase in the primary servicing mortgage portfolio balance,
mortgage  servicing fees declined in 2007 due to a decrease in the servicing fee
rate resulting from a higher proportion of non-agency and non-loss sharing loans
in the portfolio.

                                       43
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


Investments
-----------

Increased  interest income over the three-year  period in this segment  reflects
the acquisition of Centerline  Investors in mid-2006 as the operations  acquired
hold retained  interests on securitized  assets for investment.  The 2007 amount
reflects  a full year of  interest  income on these  investments  while the 2006
results include only the period after acquisition. Also contributing to the 2007
increase  was  the  periodic  acquisition  of  CMBS  investments  by  Centerline
Investors,  most of which were  subsequently sold to a new CMBS Fund Partnership
in August 2007.

Other Revenues
--------------

The  decrease  in  prepayment  penalties  in 2007  relates  to a lower  level of
refinancing activity in the current year as compared to last year. The number of
loans for which we received  prepayment  penalty fees in 2007 decreased by close
to 50% from the prior period level.

Expenses and Other Income (Loss)
--------------------------------

Interest expense in this segment  represents  direct financing costs,  including
repurchase  facilities (primarily used for CMBS fund investments until permanent
financing  is  arranged  for the  pool of  assets  in a fund)  and  asset-backed
warehouse lines (used for mortgage loans we originate).

Other major expenses include amortization of mortgage servicing rights, salaries
and other  costs of  employees  working  directly  in this  business  as well as
allocations of corporate costs.  This segment also includes costs to subcontract
asset management and loan servicing functions to our Portfolio  Management Group
at contracted rates.
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                     <C>       <C>                    <C>
Interest expense                         $      25,631    $       7,518           240.9%    $       3,093            143.1%
General and administrative
  expenses                                      77,076           60,539            27.3            40,711             48.7
Depreciation and amortization                   15,468           18,058           (14.3)           19,618             (8.0)
                                         -------------    -------------   -------------     -------------    -------------
  Total expenses                         $     118,175    $      86,115          37.2 %     $      63,422             35.8%
                                         =============    =============   =============     =============    =============

Equity income                            $      18,392    $      18,283             0.6%    $       3,179            475.1%
Gain on sale or repayment of loans              10,446           10,406             0.4             6,501             60.1
Gain on termination of loan                         --            6,916              --                --               --
                                         -------------    -------------   -------------     -------------    -------------
  Total other income (loss)              $      28,838    $      35,605           (19.0)%   $       9,680          267.8 %
                                         =============    =============   =============     =============    =============

Carrying value of MSRs at
  December 31                            $      52,334    $      56,562            (7.5)%   $      62,190             (9.0)%
</TABLE>


The  interest  expense  increase  in the 2007  period  is due to a full  year of
interest on the Commercial  Real Estate  repurchase  facilities that are part of
Centerline  Investors  as compared  to only a partial  period of interest in the
2006 period subsequent to acquisition.  In addition, 2007 includes $13.5 million
in interest expense related to three free-standing interest rate swap agreements
entered into in connection  with a CMBS fund that closed in the third quarter of
2007.

General  and  administrative  expenses  increased  mostly  as a  result  of  the
Centerline Investors acquisition, which resulted in:

     o    approximately 100 employees added upon acquisition in August 2006;
     o    incremental non-cash  compensation costs of $4.8 million in 2007 (over
          the 2006  period)  and $5.1  million  in 2006  (over the 2005  period)
          related to shares issued in connection  with the  acquisition  (of the
          incremental  amount in 2006,  approximately  $0.5  million  related to
          shares that vested immediately);
     o    increased  deferred  incentive  sharing  based  compensation  in  2006
          related to CMBS Funds we sponsor;
     o    increased infrastructure costs; and
     o    increased  compliance costs related to Sarbanes-Oxley  principally due
          to Centerline Investors previous status as a private company.

                                       44
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


The level of deferred  incentive  sharing based  compensation  decreased in 2007
(compared  to the 2006  period) due to a  corresponding  decrease in the accrued
incentive income from CMBS Fund Partnerships.

Depreciation  and  amortization  decreased  over the  three  year-period  due to
reduced amortization related to the declining MSR balance over the same period.

Gain on sale or  repayment  of  loans  relates  directly  to the  value  of MSRs
recorded when loans are sold or servicing contracted is undertaken. The MSRs, in
turn, are valued based on projected servicing revenues, which decreased over the
three year period due to lower servicing fee rates for new originations as noted
above.  The gain on repayment of a loan in 2006 relates to a participating  loan
investment we had in a pension fund advisory business. When the loan was repaid,
we received a $6.0  million  cash payment and the right to manage CUC, the value
of which right was recognized as a $0.9 million gain.

We act as general partner of the CMBS Fund  Partnerships and the High-Yield Debt
Fund Partnership we sponsor and own a portion of the funds at varying  ownership
percentages up to 25%.  Equity income in this segment  primarily  represents our
proportionate  share of profits as well as other allocations for general partner
services.  The 2007 period  includes an equity loss related to our investment in
AMAC (in  which we  co-invested  beginning  in May  2007)  and  lower  levels of
incentive income accrued for CMBS Fund Partnerships  stemming from disruption in
CMBS  markets.  The 2006 and 2005  amounts  also  include  the  income  from our
membership interest in Centerline Investors prior to full acquisition.

Income (loss) before other allocations
--------------------------------------
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                     <C>       <C>                       <C>
Income (loss) before other allocations   $     (23,444)   $       4,552          (615.0)%   $      (7,229)           163.0%
</TABLE>

The decrease in income  (loss) before other  allocations  in 2007 as compared to
2006 is due to the lower  level of  incentive  income  and  higher  costs.  Cost
increases were due to interest  expense,  principally  related to  free-standing
derivatives,  and  increased  general  and  administrative  expenses,  primarily
related to salaries and benefits.

Income  (loss)  before  other  allocations  improved in 2006 as compared to 2005
principally as a result of the Centerline Investors acquisition and the addition
of equity and interest income streams in August 2006.  Incremental revenues were
partially offset by increased infrastructure costs that were due to the addition
of the Centerline Investors business and the overall growth of this segment.

Commercial Real Estate CAD
--------------------------

The increase in segment CAD for 2007 and 2006 is  attributable to the Centerline
Investors  acquisition and the addition of equity and interest income streams in
August  2006.   Incremental   revenues  were   partially   offset  by  increased
infrastructure  costs that were due to the addition of the Centerline  Investors
business and the overall  growth of this  segment.  We expect that the increased
size of the CMBS Fund  Partnerships  under  management (and the equity income we
earn from them) will continue to drive  increased CAD growth in this segment but
will be offset to a degree by declining origination and servicing fee rates.

See Note 24 to the  consolidated  financial  statements for a description of CAD
and a reconciliation to net income.

                                       45
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


PORTFOLIO MANAGEMENT

Revenues
--------
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                     <C>       <C>                       <C>
Other interest income                    $      23,666    $      13,707            72.7%    $       5,977            129.3%

Asset management fees                           14,980            9,803            52.8             9,908             (1.1)
Servicing fees                                  12,206            8,075            51.2             6,258             29.0
Other fees                                       9,714            3,751           159.0                60              N/M
                                         -------------    -------------   -------------     -------------    -------------
  Total fee income                       $      36,900    $      21,629            70.6%    $      16,226             33.3%
                                         -------------    -------------   -------------     -------------    -------------

Other revenues                                     836               36             N/M                --               --
                                         -------------    -------------   -------------     -------------    -------------
  Total revenues                         $      61,402    $      35,372            73.6%    $      22,203             59.3%
                                         =============    =============   =============     =============    =============
</TABLE>


Our  Portfolio  Management  Group  recognizes  servicing  fee income,  including
primary and special servicing. These fees are generally based on a percentage of
the balance of loans serviced,  and we record them as earned on an accrual basis
provided that  collection is reasonably  assured.  Assumption  and  substitution
fees,  included within other fees, are earned for  modifications of loans in the
servicing portfolio.  This group also earns fees for performing asset management
and loan servicing for the Affordable  Housing and Commercial Real Estate Groups
at estimated  market rates as applied to assets under  management  or contracted
rates for loans serviced.

Our Portfolio  Management  Group also earns interest  income on escrow  balances
serviced on the accrual basis as earned.
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                     <C>       <C>                       <C>
Servicing portfolio at December 31:
  Primary servicing (1)                  $  30,668,203    $  21,331,571            43.8%    $   8,947,775            138.4%
  Special servicing                            926,671          201,207           360.6                --               --
Carrying value of MSRs at
  December 31                                    6,195           12,223           (49.3)               --               --
</TABLE>

(1) Includes sub-servicing of the Commercial Real Estate servicing portfolio.

Revenues  increased  over the  three-year  period as a result  of the  servicing
business  added as part of the Centerline  Investors  acquisition in August 2006
and are reflective of the overall growth of assets under  management  throughout
the Company.  That growth is due to the  sponsorship  of new LIHTC funds and the
growth of our Commercial Real Estate business,  particularly  with regard to the
business done with AMAC, CRESS and the CMBS funds.

The increase also  includes  earnings from escrow  accounts  maintained  for the
primary  servicing  portfolio  and  increased  over the three year period due to
higher balances as well as higher rates earned.  Costs also include amortization
of mortgage servicing rights related to third-party servicing.

                                       46
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


Expenses
--------

Expenses in this segment include  salaries and other costs of employees  working
directly in this business as well as allocations of corporate costs.
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                      <C>      <C>                       <C>
Interest expense                         $          82    $          --              --%    $          --               --%
General and administrative expenses             29,147           18,223            59.9             9,557             90.7
Depreciation and amortization                    6,819              107             N/M                79             35.4
                                         -------------    -------------   -------------     -------------    -------------
  Total expenses                         $      36,048    $      18,330            96.7%    $       9,636             90.2%
                                         =============    =============   =============     =============    =============
</TABLE>


Expenses over the three year-period are principally due to higher infrastructure
costs as we expand these  businesses.  The growth in general and  administrative
costs in 2007 and 2006 is principally  due to the employees added at the time we
acquired Centerline  Investors,  including its servicing affiliate.  Included in
the increase is incremental non-cash  compensation costs of $2.0 million in 2007
(over the 2006 period) and $2.9  million in 2006 (over the 2005 period)  related
to shares issued in connection with the  acquisition (of the incremental  amount
in 2006, approximately $0.6 million related to shares that vested immediately).

Income before other allocations
-------------------------------
<TABLE>
<CAPTION>
                                                                            % Change                           % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006         2005         2006 vs. 2005
--------------------------------------   -------------    -------------   -------------     -------------    -------------
<S>                                      <C>              <C>                      <C>      <C>                       <C>
Income before other allocations          $      25,354    $      17,042            48.8%    $      12,567             35.6%
</TABLE>

The increase in income before other  allocations  in 2007 as compared to 2006 is
principally  due  to the  acquisition  of  Centerline  Investors  and  increased
earnings  from  escrow  accounts.  The  decrease  in 2006  compared  to 2005 was
principally  due  to  higher  general  and  administrative  costs,  particularly
employee related costs.

Portfolio Management CAD
------------------------

Segment CAD for the 2007 period  reflects an increase over 2006 primarily due to
the  inclusion  of the  servicing  business  we acquired  along with  Centerline
Investors for the full year period as compared to a partial year in 2006 and the
growth factors discussed above.

Segment  CAD for the 2006  period  was higher  than the same  period in 2005 due
primarily to the higher level of assets under management throughout the Company,
due in part  to our  acquisition  of  Centerline  Investors.  In  addition,  the
introduction  of new revenue streams upon the Centerline  Investors  acquisition
also had a beneficial  impact.  We expect that the  continued  expansion of this
business and the expected  synergies from  combining  existing  operations  with
Centerline Investors should benefit segment CAD in future periods.

See Note 24 to the  consolidated  financial  statements for a description of CAD
and a reconciliation to net income.

                                       47
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


CREDIT RISK PRODUCTS

Revenues
--------
<TABLE>
                                                                        % Change
 (DOLLARS IN THOUSANDS)                    2007            2006       2007 vs. 2006
-----------------------------------   -------------   -------------   -------------
<S>                                   <C>             <C>                     <C>
Credit intermediation fees            $      11,894   $       2,471           381.3%
Other interest income                         3,714             969           283.3
Other revenues                                  140             204           (31.4)
                                      -------------   -------------   -------------
  Total revenues                      $      15,748   $       3,644           332.2%
                                      =============   =============   =============
</TABLE>

Our Credit Risk Products  Group  principally  derives  revenues from  investment
interest and fee income, which includes:

     CREDIT INTERMEDIATION FEES - Fees for credit intermediation transactions to
     provide  specified rates of return for an LIHTC fund,  received in advance,
     are deferred and amortized over the applicable  risk-weighted  periods on a
     straight-line  basis. For those pertaining to the construction and lease-up
     phase of a pool of  properties,  the  periods  are  generally  one to three
     years.  For  those  pertaining  to  the  operational  phase  of a  pool  of
     properties,  the period is  approximately  20 years.  Fees for other credit
     intermediation  transactions  are received monthly and recognized as income
     when earned.

     INTEREST INCOME - Interest income on temporary investments is recognized as
     earned.  For  investments  in  syndicated   corporate  debt,   interest  is
     recognized on the effective yield method,  taking into account discounts or
     premiums on the investments.

Fee income is related to the credit  intermediation  of  mortgage  revenue  bond
securitizations which began in mid-2006 with the launch of this segment and fees
associated  with credit  intermediation  of certain  LIHTC funds.  The volume of
credit  intermediation  provided to the Affordable Housing segment exceeded $1.4
billion through December 27, 2007. Much of this volume was discontinued upon the
re-securitization  of the  Affordable  Housing  Group's  mortgage  revenue  bond
portfolio (upon which the associated credit default swaps this group issued were
unwound).  During 2007,  however,  our  subsidiary  received a AAA  counterparty
rating as a credit derivatives products company from S&P. As a result, we expect
third party fees generated by this segment to increase.

Interest  income in this segment  increased  along with collateral cash balances
and  acquisitions  of syndicated  corporate  debt  investments  beginning in the
fourth quarter of 2007.

Expenses
--------

Interest expense in this segment represents direct financing costs, including an
asset-backed warehouse line to acquire syndicated corporate debt investments, as
well as intercompany  interest  expense on cash we may borrow from our corporate
credit facility. Other expenses in this segment include salaries and other costs
of  employees  working  directly  in this  business  as well as  allocations  of
corporate costs.
<TABLE>
<CAPTION>
                                                                        % Change
 (DOLLARS IN THOUSANDS)                    2007            2006       2007 vs. 2006
-----------------------------------   -------------   -------------   -------------
<S>                                   <C>             <C>                     <C>
Interest expense                      $       1,023   $         462           121.4%
General and administrative expenses          11,686           9,046            29.2
Impairment of other assets                       75              --              --
                                      -------------   -------------   -------------
  Total expenses                      $      12,784   $       9,508            34.5%
                                      =============   =============   =============
</TABLE>

                                       48
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


The increase in total expenses in 2007 is due to:

     o    the current year  representing  a full year of expenses as compared to
          only  six  months  in 2006  (subsequent  to the  commencement  of this
          segment);
     o    higher  non-cash  compensation  costs  related  to  stock  option  and
          restricted share grants issued in 2007;
     o    fees incurred to obtain our credit default products enterprise rating;
          and
     o    structuring  fees paid to Natixis  based on a higher  volume of credit
          intermediation on which the fees are based.

The 2006  period  included  start-up  costs  and  termination  and  other  costs
associated with the restructuring of securitization  programs in connection with
the launch of this segment.

Income (loss) before other allocations
--------------------------------------
<TABLE>
<CAPTION>
                                                                            % Change
(DOLLARS IN THOUSANDS)                       2007              2006       2007 vs. 2006
--------------------------------------   -------------    -------------   -------------
<S>                                      <C>              <C>                     <C>
Income (loss) before other allocations   $       2,964    $      (5,864)          150.5%
</TABLE>


The loss in 2006  principally  reflects  startup costs that offset fee income as
the business was  launched in the middle of the year.  The 2007 results  reflect
the full year of  operations  and the  increased  revenue  streams as  described
above.

Credit Risk Products CAD
------------------------

The  increase  in CAD  results  is due to  expansion  of  operations  since  the
inception of the business in mid-2006.  As we continue to seek  opportunities to
provide services  external to Centerline,  we expect revenues and CAD to benefit
accordingly.

See Note 24 to the  consolidated  financial  statements for a description of CAD
and a reconciliation to net income.

CONSOLIDATED PARTNERSHIPS

The results of Consolidated  Partnerships  reflected entities in which we have a
substantive  controlling  general  partner or management  member  interest or in
which we have concluded we are the primary  beneficiary  of a variable  interest
entity in accordance with FIN 46(R). With respect to the LIHTC Fund Partnerships
and LIHTC Property  Partnerships,  we have no equity interest or, in the case of
37 partnerships, an insignificant equity interest. With respect to the CMBS Fund
Partnerships and the High-Yield Debt Fund  Partnership,  we have ownership of up
to 25.0% and also receive additional equity income allocations as manager.

A summary of the impact the Consolidated  Partnerships  have on our consolidated
statement of operations is as follows:
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                      ----------------------------------------------------------------------------------------------------------
                                          2007                                           2006                          2005
                       ------------------------------------------   ---------------------------------------------   ------------
                                       CMBS and                                      CMBS and
                        LIHTC Fund     High-Yield                    LIHTC Fund      High-Yield                      LIHTC Fund
                       and Property    Debt Fund                    and Property     Debt Fund                      and Property
(IN THOUSANDS)         Partnerships   Partnerships      Total       Partnerships   Partnerships(1)      Total       Partnerships
--------------------   ------------   ------------   ------------   ------------   ---------------   ------------   ------------
<S>                    <C>            <C>            <C>            <C>            <C>               <C>            <C>
Revenues               $     76,645   $    181,376   $    258,021   $     48,338   $        41,318   $     89,656   $     27,956
Interest expense            (19,245)       (81,076)      (100,321)       (25,989)          (21,937)       (47,926)       (26,322)
Other expenses             (106,360)        (6,671)      (113,031)       (81,704)             (438)       (82,142)       (53,028)
Partnership expenses
  eliminated in
  consolidation             (79,651)          (229)       (79,880)       (67,721)               --        (67,721)       (49,519)
Income (loss) on
  investments              (321,798)       (19,309)      (341,107)      (273,892)           (4,340)       278,232)      (247,986)
Allocations to
  limited partners          450,437        (51,544)       398,893        400,680               697        401,377        349,531
                       ------------   ------------   ------------   ------------   ---------------   ------------   ------------

Net impact             $        (28)  $     22,547   $     22,575   $       (288)  $        15,300   $     15,012   $        632
                       ============   ============   ============   ============   ===============   ============   ============
</TABLE>

                                       49
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


(1)  Represents period from date of Centerline Investor's  acquisition in August
     2006.


The net impact represents the equity income we earn on our co-investments  which
is included in our net income.

The following table summarizes the number of Consolidated  Partnerships over the
three year period:
<TABLE>
<CAPTION>
                                                     December 31,
                                      ------------------------------------------
                                          2007           2006           2005
                                      ------------   ------------   ------------
<S>                                            <C>            <C>             <C>
LIHTC Fund Partnerships                        132            113             99
LIHTC Property Partnerships                     54             55             36
CMBS Fund Partnerships                           3              2             --
High-Yield Debt Fund Partnership                 1              1             --
</TABLE>


LIHTC FUND PARTNERSHIPS AND LIHTC PROPERTY PARTNERSHIPS

Our  Affordable  Housing  segment  earns fees from LIHTC Fund  Partnerships  and
interest on mortgage revenue bonds for which LIHTC Property Partnerships are the
obligors.  The LIHTC Fund Partnerships are tax credit equity investment funds we
sponsor and manage.  The LIHTC Property  Partnerships are partnerships for which
we have assumed the role of general partner.

The increased revenue,  expense,  equity loss and allocation amounts in 2007 are
due to the  addition  of 19 LIHTC Fund  Partnerships  over the past year and the
assumption of the general  partner  interests in 22 LIHTC Property  Partnerships
which  occurred in the fourth quarter of 2006. The current year reflected a full
year of activity for these properties.

As third party  investors  hold  virtually all of the equity  interests in these
entities,  we allocate results of operations of these partnerships to such third
party  investors  except for a de minimis  amount which  represents  our nominal
ownership.

CMBS FUND PARTNERSHIPS AND HIGH-YIELD DEBT FUND PARTNERSHIP

The CMBS  Fund  Partnerships  and the  High-Yield  Debt  Fund  Partnership  were
initially included in this segment upon our acquisition of Centerline  Investors
in August 2006. The higher amounts of revenue and expenses associated with these
funds are due to the  inclusion of the results in all of 2007 as compared to the
post-acquisition  period in 2006.  In addition,  the growth of the funds and the
launching of a third CMBS fund in the third quarter of 2007  contributed  to the
current year increase.

Included in income (loss) on investments  in 2007 is a $20.9 million  impairment
charge  recorded in one of our CMBS Fund  Partnerships  associated with retained
CMBS  certificates  as the fund is  scheduled to liquidate in the next two years
and may not hold the assets until recovery.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

A  significant  part of managing our liquidity  includes the ongoing  ability to
accommodate  growth of assets under  management,  fund and maintain  investments
including  ongoing  commitments,  pay  compensation  and other general  business
operations, including our contractual obligations. Liquidity management involves
forecasting funding requirements and maintaining  sufficient capital to meet the
fluctuating  needs inherent in our business  operations as well as unanticipated
events.

We fund our short-term  business needs  (including  investments)  primarily with
cash  provided  by  operations,   securitization   of  investments,   repurchase
agreements and revolving or warehouse credit facilities.  Our primary sources of
capital to meet long-term liquidity needs (including  acquisitions) are debt and
various types of equity offerings, including equity of our subsidiaries.

Turbulence  in  credit   markets  that  began  in  2007  has  led  to  decreased
availability  of many forms of financing.  Specifically,  since mid-2007 we have
experienced  a sharp  decline in our  common  share  price and more  constrained
credit in the following areas:

     o    for our new corporate credit facility, the terms include a higher rate
          of interest, a more rapid amortization of principal and more stringent
          covenants than were the norm in prior periods;

                                       50
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     o    with  respect  to short  term  repurchase  financing,  which we use to
          accumulate  CMBS  investments in our Commercial  Real Estate Group and
          CMBS Fund Partnerships within the Consolidated  Partnerships  segment,
          advance  rates for such  agreements  have  declined,  compounding  the
          effect on borrowing  as market  values of the  collateral  assets have
          declined.  Additionally,  the market for  issuing  CDO  financing  has
          deteriorated, impeding our ability to replace the repurchase financing
          with more cost effective permanent financing; and
     o    lenders for our mortgage loan  warehouse line (some of which have also
          experienced  recent  credit  restrictions)  have sought to lower their
          exposure to specific borrowers or collateral types, resulting in lower
          borrowing capacity for us.

We believe  that our  existing  financing  capacity  and cash flow from  current
operations   are  adequate  to  meet  our  immediate  and  long  term  liquidity
requirements  with respect to our  operations.  Nonetheless,  as business  needs
warrant,  we may issue  other  types of debt or equity in the  future,  although
current market conditions could make such forms of financing very costly.

Our access to capital markets can be affected by factors outside our control, as
discussed above. In addition, with respect to both short- and long-term business
needs, access to capital markets is impacted by market conditions and the short-
and long-term debt ratings assigned by independent  rating  agencies.  The table
below summarizes the credit ratings for us and our consolidated  subsidiaries as
of December 31, 2007:

                              Centerline         Centerline
                            Holding Company     Financial LLC     Equity Issuer
                                Rating             Rating            Rating
                            ----------------   ---------------   ---------------

Moody's Investor Services
  Corporate credit                Ba3                --                --
  Senior debt                     Ba3               Aaa                --
  Mezzanine debt                  --                 A1                --
  Preferred shares                --                 --               Aaa

Standard & Poor's
  Corporate credit                BB                AAA
  Senior debt                     BB                AAA                --
  Mezzanine debt                  --                 A+                --


We believe  that our credit  ratings  provide us adequate  access to the capital
markets given our current expected cash needs.

CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)                             2007           2006           2005
------------------------------------   -----------    -----------    -----------
<S>                                    <C>            <C>            <C>
Cash provided by (used in) operating
  activities                           $   259,884    $   103,309    $    (3,553)
Cash provided by (used in) investing
  activities                             1,218,354       (540,583)      (368,755)
Cash (used in) provided by financing
  activities                            (1,519,940)       454,792        462,316
                                       -----------    -----------    -----------
Net change in cash                     $   (41,702)   $    17,518    $    90,008
                                       ===========    ===========    ===========
</TABLE>


Operating Activities
--------------------
Despite the net loss in 2007, our cash flows from operations  increased over the
2006 level. As much of the net loss was caused by non-cash charges (such as fair
value  changes in interest  rate  derivatives,  impairment  charges and non-cash
compensation) and realized losses from investing activities (such as the loss on
the mortgage revenue bond re-securitization) those amounts are excluded from the
calculation  of operating cash flows.  The underlying  increase in cash flows in
this category was due to increased  liability  balances and receipts of fees and
markedly lower  receivable  balances at the end of 2007 as compared to the prior
year.

Operating  cash flows in 2006 were higher than in 2005 due  primarily to a sharp
reduction in the level of mortgage loans  receivable  during 2006 as a result of
the high level of December 2005  originations that were not sold until the first
quarter  of  2006.  Conversely,  in the 2005  period,  the  increasing  level of

                                       51
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


mortgage  loan  originations  resulted in a net  addition  to the asset  balance
during that period. In addition,  liabilities  increased in the 2006 period to a
greater extent than in 2005 due to higher  collections  of deferred  revenues in
connection with fund origination activity. These increases were partially offset
by increased  collateral  deposits in connection with commencement of our Credit
Risk Products Group and higher receivable balances, particularly with respect to
advances to partnerships.

Investing Activities
--------------------
Investing  inflows  were  principally  due to the cash  received in the mortgage
revenue  bond  re-securitization  transaction  coupled  with a  lower  level  of
mortgage  revenue bond  origination  activity prior to the transaction and lower
levels of net investing activity in our other businesses. Additionally, outflows
in the 2006 period  included the  acquisition  of  Centerline  Investors.  These
factors  were offset by a higher level of net cash placed as  collateral  due to
escrow requirements associated with the re-securitization and the replacement of
investment  assets  collateral  with cash following the  transaction and a $62.7
million increase in our loan to AMAC.

Cash  used in  investing  activities  was  higher  in 2006 as  compared  to 2005
primarily  due to the  Centerline  Investors  acquisition,  offset in part by an
investment  sold to AMAC in April  2006,  a decrease in  restricted  cash due to
reduced  restricted cash  requirements  when we restructured our  securitization
programs  and  returns  of  capital  from  Centerline  Investors  prior  to  our
acquisition.

Financing Activities
--------------------
Financing outflows in 2007 were primarily associated with the  re-securitization
transaction whereby we repaid virtually all of our existing securitization debt.
Additionally,  we repaid a  substantial  portion of our credit  facility debt as
part of the  transaction  while 2006 included an increase due to the  Centerline
Investors  acquisition.  Contributing to the decrease in outflows was the higher
level of share  repurchases in the first half of 2007.  Offsetting these factors
was the cash  received in the  resecuritization  transaction  that  pertained to
mortgage revenue bonds treated as financed rather than sold.

Financing  inflows in the 2006 period were lower than in 2005. While we borrowed
through a new credit facility to finance the Centerline  Investors  acquisition,
the level of financing  inflows was offset by the  repayment  of warehouse  line
borrowings  associated  with 2006 mortgage loan sales as noted in the discussion
of operating  cash flows above.  Also included in financing  activities  are the
proceeds  and  repayments  related to the  restructuring  of our  securitization
programs and  borrowings to  capitalize  our Credit Risk  Products  Group.  Also
contributing to the overall decrease in financing activities were treasury stock
purchases made during the year.

LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2007
<TABLE>
<CAPTION>
                                              (IN THOUSANDS)
                                              --------------
       <S>                                    <C>
       Common/CRA shareholders                $       24,879
       SCU/SCI holders                                 8,663
       4.4% CRA Preferred shareholders                 1,193
       Equity Issuer Preferred shareholders            6,281
                                              --------------

          Total                               $       41,016
                                              ==============
</TABLE>


In January 2008, we loaned $20.2 million (in addition to $13.5 million  advanced
prior to December  31,  2007) to a CMBS Fund  Partnership  that we  sponsored to
allow it to cover margin calls for its repurchase  facility  borrowings.  In the
first quarter of 2008,  investors in the fund provided bridge loans to allow the
fund to fully repay its repurchase  facility borrowings and we expect to recover
a portion of the loans. The remainder will remain as loans due from the fund, of
which $22.3 million will be a two-year loan earning 14% interest.

A portion of the cash  received from the mortgage  revenue bonds  re-securitized
with  Freddie  Mac (see Note 4 to the  consolidated  financial  statements)  was
required to be placed in escrow in connection  with  stabilization  requirements
for certain  properties  securing  some of the mortgage  revenue  bonds.  Of the
required  amount,  $50.0 million was unfunded as of December 31, 2007,  although
the required amount will decrease as the associated bonds satisfy  stabilization

                                       52
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


requirements.  Also in connection with the transaction,  we incurred transaction
costs of $35.3  million  that were not paid at the time of  closing.  The escrow
amount will be funded and the  transaction  fees paid upon receiving  additional
commitments  for our  new  credit  facility,  with  the  escrow  funding  taking
precedence.

Management is not aware of any trends or events,  commitments or  uncertainties,
which  have not  otherwise  been  disclosed,  that will or are  likely to impact
liquidity in a material way (see also COMMITMENTS AND CONTINGENCIES below).

CAPITAL RESOURCES

FINANCING OBLIGATIONS
<TABLE>
<CAPTION>
                                                                                December 31, 2007
                                                                           ---------------------------
                                                                           Available to     Maximum
(IN THOUSANDS)                                    2007           2006         Borrow       Commitment
-----------------------------------------    ------------   ------------   ------------   ------------
<S>                                          <C>            <C>            <C>            <C>
Credit Facilities:
  Term loan                                  $    140,000   $    249,375   $         --   $    140,000
  Revolving credit facility                       210,000        177,500         15,000        225,000

Other Notes Payable:
  CMC warehouse line                               32,302        122,459        117,698        150,000
  Multifamily ASAP plus facility                   58,413             --            N/A            N/A
  Commercial Real Estate repurchase lines          56,912         41,598             --             --
  Syndicated corporate debt warehouse Line          5,423             --         94,577        100,000
  Other                                             2,838            233            N/A            N/A

Financing Arrangements:
  P-FLOATs/RITES                                   14,275        403,381            N/A            N/A
  Floats/Residuals                                     --        944,799            N/A            N/A
  Fixed-Rate Securitizations                           --        452,990            N/A            N/A
  Secured Financing                               548,227             --            N/A            N/A
                                             ------------   ------------   ------------   ------------

Capital Structure (excluding Consolidated
  Partnerships)                              $  1,068,390   $  2,392,335   $    227,275   $    615,000

Consolidated Partnerships                       1,997,332      1,547,651            N/A            N/A
                                             ------------   ------------   ------------   ------------
  Total                                      $  3,065,722   $  3,939,986   $    227,275   $    615,000
                                             ============   ============   ============   ============
</TABLE>


Credit Facilities
-----------------
In connection with the  re-securitization of our mortgage revenue bond portfolio
in December 2007, we terminated our existing credit  facilities and entered into
a Revolving Credit and Term Loan Agreement (the "Credit Facilities"). The Credit
Facilities provide us with:

     1.   a $140.0  million  term loan  (subject  to an  increase of up to $10.0
          million  upon  additional  lenders'  commitments),  which  matures  on
          December 26, 2008 (the "Term Loan"); and
     2.   a $225.0 million  revolving credit facility (subject to an increase of
          up to $75.0 million upon additional  lenders'  commitments and subject
          to a step-down to $275.0  million on March 30,  2009).  The  revolving
          credit  facility  matures on June 26,  2009,  subject  to a  six-month
          extension at our option (the "Revolving Credit Facility").

The Credit Facilities bear interest at a rate of LIBOR plus a margin of 3.00% or
a rate based on the prime rate.

Our Credit  Facilities  are available for general  corporate  needs,  with up to
$25.0  million  (increasing  to $50.0  million  at such  time  Revolving  Credit
Facility  lender  commitments  exceed $275.0 million)  exclusively  allocated to
funding equity partnership investments of our Affordable Housing segment.

Our  Credit  Facilities  require  us to  satisfy  certain  financial  and  other
covenants including (as defined in the agreement):

     o    a minimum level of consolidated net worth;
     o    a minimum ratio of consolidated EBITDA to fixed charges;

                                       53
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     o    a minimum ratio of funded debt to consolidated EBITDA; and
     o    certain  limitations  on  distributions  (including  distributions  to
          minority interest holders).

As of December 31, 2007, we believe we were in compliance  with all covenants of
our Credit Facilities.

For more information see Note 11 to the consolidated financial statements.

Other Notes Payable
-------------------
Other notes payable consist  principally of asset backed debt arrangements.  The
CMC  warehouse  line the  Multifamily  ASAP Plus  facility are  warehouse  lines
utilized  by our  Commercial  Real  Estate loan  originations  business  and are
collateralized by loans for which we have  pre-arranged sale commitments.  Other
credit lines support the syndicated  corporate debt investing  business included
within our Credit Risk Products segment and repurchase facilities for Commercial
Real Estate  investments  we hold for our own account or held prior to placement
in CMBS Funds.

Our repurchase  facilities  provide us with liquidity based on specified advance
rates and the fair value of collateral assets. Although we may experience margin
calls in the  ordinary  course of  business  due to  fluctuations  in those fair
values,  as of the date of this filing we have not  experienced  any significant
additional margin calls despite recent turbulence in the credit markets.

For more information see Note 11 to the consolidated financial statements.

Financing Arrangements and Secured Financing
--------------------------------------------
In December  2007,  we completed the  re-securitization  of most of our mortgage
revenue bond  portfolio.  As a result,  we  terminated  all  existing  financing
arrangements with the exception of one  securitization  under our P-FLOATs/RITES
program. For certain bonds included in the re-securitization, we have continuing
involvement which precluded sale treatment despite  consideration  received from
Freddie Mac. For such mortgage revenue bonds, we established a liability for the
amount  received  pursuant to the  re-securitization  from Freddie Mac. For more
information see Notes 4 and 12 to the consolidated financial statements.

Consolidated Partnerships
-------------------------
The capital structure of our Consolidated Partnerships comprises debt facilities
that are non-recourse to us, including:

     o    three CDO financing arrangements of the CMBS Fund Partnerships;
     o    notes payable by LIHTC Fund Partnerships  collateralized either by the
          funds' limited  partners'  equity  subscriptions  or by the underlying
          investments of the funds; and
     o    repurchase   agreements  for  the  CMBS  Fund   Partnerships  and  the
          High-Yield Debt Fund Partnership.

The funds we manage may and, due to recent market  conditions,  have experienced
margin calls in the  ordinary  course of business  due to  fluctuations  in fair
values.  As  manager,  we are not  obligated  to  provide  liquidity  or capital
resources outside of those available within the fund to cover such margin calls;
however, we may choose to provide financing, generally in the form of short-term
loans, to fund the margin call. In addition, we generally have the right to call
capital  from the  investors,  which  would also  result in  additional  capital
required by us to the extent we have a  co-investment  in the impacted fund. For
more information see Note 23 to the consolidated financial statements.

For the year ended December 31, 2007, our CMBS Fund  Partnerships  made net cash
payments due to margin  calls/margin  receipts on repurchase  facilities.  These
margin calls  increased in 2008 due to volatility in CMBS markets and tightening
of credit by many lenders, leading us to secure bridge financing from one fund's
investors (including our subsidiary) in the first quarter of 2008 to replace the
existing repurchase  facilities.  Upon securing this bridge financing,  and upon
the termination of a subscription  line in our High-Yield Debt Fund Partnership,
our Consolidated Partnerships will no longer be subject to such margin calls.

                                       54
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


EQUITY

Other than our common  shares,  we have several  classes of equity  outstanding,
provided in the table below, with varying claims upon our income and cash flows:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                2007           2006
                                          ------------   ------------
<S>                                       <C>            <C>
Mezzanine equity:
Minority interests in subsidiaries        $    176,716   $    247,390
Preferred shares of subsidiary
  (not subject to mandatory repurchase)        104,000        104,000
Redeemable CRA Shares                           69,888             --

Permanent equity:
CRA Shares                                     118,160        203,101
</TABLE>

Minority Interests in Subsidiaries
----------------------------------
Minority  interests in subsidiaries  as of December 31, 2007,  consisted of SCUs
and SCIs both of which were issued in connection with acquisitions. SCUs entitle
their  holders  to a claim on the  income  and  cash  flows  of  certain  of our
subsidiaries through which we operate our LIHTC fund sponsorship  business,  are
convertible  into  common  shares on a  one-for-one  basis and are  entitled  to
tax-adjusted  dividends  based on the common  dividend  rate.  SCI  holders  are
entitled to distributions at the same time as, and only if, we pay distributions
on our common shares. As of December 31, 2007, SCI distributions  were $1.72 per
year, subject to an adjustment in the amount of 95% of the percentage  increases
or  decreases in the  dividends  paid by us on our common  shares.  The SCIs are
convertible  into common shares on a  one-for-one  basis.  In December  2007, we
announced  our  intention to pay dividend on our common share at a rate of $0.60
per share on an annualized basis in 2008, subject to declaration and approval by
our Board of Trustees.

SMUs (which were  economically  similar to SCIs but were associated with another
subsidiary) were all redeemed or converted prior to December 31, 2007.

For more information see Note 15 to the consolidated financial statements.

Preferred shares of subsidiary
------------------------------
As of December 31, the preferred  shares of Equity Issuer  entitle their holders
to a claim  on  certain  residual  interests  retained  in  connection  with the
re-securitization  of the Affordable Housing bond portfolio in December 2007. As
the  interest  income we will earn from those  retained  interests  matches  the
preferred dividend requirement of the shares and the principal amounts and terms
of the certificates and preferred shares are equivalent,  the preferred interest
are effectively matched funded for economic purposes. They have no voting rights
with  respect  to  Centerline  Holding  Company  and  are not  convertible  into
Centerline  Holding Company common shares.  See also Note 15 to the consolidated
financial statements.

Community Reinvestment Act Shares
---------------------------------
Community Reinvestment Act ("CRA") shares consist of:

     o    Convertible CRA Preferred Shares ("Convertible CRA Shares"); and
     o    4.4% Perpetual Convertible CRA Preferred Shares ("4.4% Convertible CRA
          Shares").

Certain of the holders of Convertible CRA Shares and 4.4% Convertible CRA Shares
have exercised options allowing them to redeem the shares at an unspecified time
in the future. These are collectively referred to as "Redeemable CRA Shares".

The  Convertible  CRA Shares are  economically  equivalent to our common shares,
receiving the same dividend. Unlike the common shares, however, these shares are
not publicly traded and do not have voting rights. Our CRA shares were initially
intended to entitle the holders to "credit" under the US government's  Community
Reinvestment Act. As a result of the re-securitization  transaction with Freddie
Mac in December  2007,  we do not  believe  that these  shares will  continue to
qualify for credits  under the  Community  Reinvestment  Act.  These  shares are
convertible into common shares at the holders'  option,  mostly on a one-for-one
basis. We first issued Convertible CRA Shares during 2000 and the program became
popular  with a broad  range of banks that  invest in our shares to both make an
investment in us and to make qualifying Community Reinvestment Act investments.

                                       55
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


The 4.4%  Convertible  CRA Shares are similar to the  Convertible  CRA Shares in
that they  entitle the holder to CRA "credit"  and are  convertible  into common
shares without having voting rights prior to conversion.  Unlike the Convertible
CRA  Shares;  however,  these  shares  carry a fixed  dividend  and each will be
convertible  into common  shares at the option of the  shareholder  at a rate of
approximately  1.81:1  beginning  in July  2008 (a total of 2.1  million  common
shares,  subject to  adjustment).  Also  beginning  July 2008, we may redeem the
shares at a price equal to their liquidation  amount plus any accrued and unpaid
distributions.

The Redeemable CRA Shares retain the economic  characteristics  described  above
except that some  holders have  forfeited  their rights to convert the shares to
common shares and the redeemable  4.4%  Redeemable  Convertible  CRA Shares have
increased the dividend  rate to 5.2%.  All of the  Redeemable  CRA Shares can be
redeemed (at the holders' option) for the original issuance price of the shares.
Due to the  redemption  feature no associated  with these  shares,  they are now
classified as temporary or "mezzanine" equity.

PREFERRED SHARES

In January 2008, we issued 11.2 million 11.0% Cumulative  Convertible  Preferred
Shares, Series A-1 ("11.0% Preferred Shares") in a private placement. The entire
issue was  purchased  by an affiliate  of TRCLP.  The shares have a  liquidation
preference of $11.70 per share,  are convertible into 12.2 million common shares
and are entitled to voting rights as if converted into common shares. In January
2008,  we announced a rights  offering that  entitles  shareholders  to purchase
these shares from the TRCLP  affiliate,  and the TRCLP affiliate will retain any
shares not purchased as part of the rights offering, which we expect to complete
in April 2008.

SHELF REGISTRATION

In October  2004, we filed a shelf  registration  with the SEC providing for the
issuance of up to $400.0  million in common  shares,  preferred  shares and debt
securities.  The shelf  registration was declared effective on March 1, 2005 and
was available for use beginning April 1, 2006.

Further information about our equity instruments is included in Notes 15, 16 and
17 to the consolidated financial statements.

                                       56
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


COMMITMENTS AND CONTINGENCIES

CONTRACTUAL OBLIGATIONS

The following  table  provides our  commitments as of December 31, 2007, to make
future payments under our debt agreements and other contractual obligations:
<TABLE>
<CAPTION>
                                                                  Payments due by period
                                          -----------------------------------------------------------------------
(IN THOUSANDS)                                             Less than                                  More than
                                              Total         1 year       1-3 years      3-5 years      5 years
---------------------------------------   ------------   ------------   -----------   ------------   ------------
<S>                                       <C>            <C>            <C>           <C>            <C>
Financing arrangements and secured
  financing (1)(2)                        $    562,502   $      4,660   $    13,513   $     14,275   $    530,054
Notes payable (1)(2)                           505,888        295,888       210,000             --             --
Operating lease obligations                     71,562          8,688        17,017         14,413         31,444
Subleases                                       (6,809)        (1,359)       (2,514)        (2,634)          (302)
Unfunded investment commitments (3)            308,445        137,418       171,027             --             --
Preferred shares of subsidiary (subject
  to mandatory repurchase)                     273,500             --            --             --        273,500
                                          ------------   ------------   -----------   ------------   ------------

  Subtotal before Consolidated
    Partnerships                             1,715,088        445,295       409,043         26,054        834,696

Notes payable of consolidated
  partnerships (4)                             458,367        262,153        35,527        159,675          1,012
Financing arrangements of consolidated
  partnerships                               1,128,376          5,471            --        298,500        824,405
Repurchase agreements of consolidated
  partnerships                                 410,589        410,589            --             --             --
Consolidated Partnership unfunded
  investment commitments (5)                   970,602        294,804       458,147        217,651             --
                                          ------------   ------------   -----------   ------------   ------------

  Subtotal of Consolidated Partnerships      2,967,934        973,017       493,674        675,826        825,417
                                          ------------   ------------   -----------   ------------   ------------

  Total                                   $  4,683,022   $  1,418,312   $   902,717   $    701,880   $  1,660,113
                                          ============   ============   ===========   ============   ============
</TABLE>

(1)  The amounts included in each category reflect the current expiration, reset
     or renewal date of each facility or security  certificate.  Management  has
     the intent and believes it has the ability to renew,  refinance or remarket
     the   borrowings   beyond  their  current  due  dates.   Of  the  financing
     arrangements and secured  financing  balance,  $548.2 million  represents a
     liability  established related to mortgage revenue bonds  re-securitized in
     December  2007  which  was not  accounted  for as a sale due to  continuing
     involvement with the underlying assets. Amounts are based upon the expected
     repayment  dates  of  the  underlying  bonds  (see  Notes  6 and  12 to the
     consolidated financial statements).
(2)  Recourse  debt  represents  principal  amount only.  The  weighted  average
     interest rate at period end, including the impact of swaps, was 6.63%.
(3)  Of  this  amount,  $292.3  million  represents  mortgage  loan  origination
     commitments with corresponding  sale commitments.
(4)  Of the notes  payable of  consolidated  partnerships,  $256.0  million  are
     collateralized  by equity  subscriptions  of certain equity partners of the
     investment funds. Under the partnership agreements, the equity partners are
     also  obligated  to pay the  principal  and  interest on the notes.  Of the
     remaining  balance,  $167.0 million is  collateralized  with the underlying
     properties of the consolidated operating partnerships.  All of this debt is
     non-recourse to us.

(5)  To be  funded  from  capital  of  Consolidated  Partnerships.  Payments  of
     investment  commitments  are based on property  performance  thresholds  as
     defined in the partnership agreements. The estimated scheduled payments can
     vary based on the actual performance of the properties.


                                       57
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


Off Balance Sheet Arrangements
------------------------------

The following table reflects our maximum exposure and the carrying amounts as of
December 31, 2007 for guarantees we and our  subsidiaries  have entered into and
other contingent liabilities:
<TABLE>
<CAPTION>
                                                   Maximum         Carrying
(IN THOUSANDS)                                     Exposure         Amount
---------------------------------------------   -------------   -------------
<S>                                             <C>             <C>
Development deficit guarantees (1)              $      18,421   $         431
Operating deficit guarantees (1)                        7,567             126
ACC transition guarantees (1)                           3,245              --
Recapture guarantees (1)                              147,246              --
Replacement reserve (1)                                 3,132             126
Guarantee of payment (1)                               19,620              36
LIHTC credit intermediation (2)                     1,519,095          44,296
Mortgage banking loss sharing agreements (3)          834,726          13,116
Centerline Financial credit default swaps (4)          44,015           1,223
                                                -------------   -------------

                                                $   2,597,067   $      59,354
                                                =============   =============
</TABLE>

(1) Generally   relate  to  business   requirements  for  developers  to  obtain
    construction  financing.  As part of our  role as  co-developer  of  certain
    properties,  we issue  these  guarantees  in order to secure  properties  as
    assets for the funds we manage.  To date,  we have had  minimal  exposure to
    losses  under  these   guarantees  and  anticipate  no  material   liquidity
    requirements in satisfaction  of any guarantee  issued.  The carrying values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize as the fair values.

(2) We see these  transactions as opportunities to expand our Affordable Housing
    business by offering broad capital solutions to customers.  To date, we have
    had  minimal  exposure  to  losses  and  anticipate  no  material  liquidity
    requirements  in  satisfaction  of  any  arrangement.  The  carrying  values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize as the fair values.

(3) The loss  sharing  agreements  with  Fannie Mae and Freddie Mac are a normal
    part of the DUS and DUI lender  programs  and afford a higher  level of fees
    than we earn for  other  comparable  funding  sources.  The  carrying  value
    disclosed above is our estimate of potential  exposure under the guarantees,
    although  any  funding  requirements  for  such  exposure  is  based  on the
    contractual  requirements of the underlying  loans we sell to Fannie Mae and
    Freddie  Mac,  which vary as to amount and  duration,  up to a maximum of 30
    years.

(4) We see these  transactions  as  opportunities  to  expand  our  Credit  Risk
    Products business by offering broad capital solutions to customers. To date,
    we have had minimal exposure to losses and anticipate no material  liquidity
    requirements  in  satisfaction  of  any  arrangement.  The  carrying  values
    disclosed  above relate to the fees we earn for the  transactions,  which we
    recognize at their fair values.


The maximum  exposure  amount is not indicative of our expected losses under the
guarantees.  For details of these transactions,  see Note 25 to the consolidated
financial statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are based on the selection and application
of GAAP,  which  requires us to make estimates and  assumptions  that affect the
reported amounts of assets, liabilities,  revenues and expenses. These estimates
and assumptions  sometimes  involve future events that cannot be determined with
absolute certainty.  Therefore,  our determination of estimates requires that we
exercise judgment.  While we have used our best estimates based on the facts and
circumstances  available to us at the time, different results may actually occur
and any  such  differences  could  be  material  to our  consolidated  financial
statements.  Unless otherwise noted, we applied our critical accounting policies
and estimation methods consistently in all material respects and for all periods
presented, and have discussed such policies with our Audit Committee.

We believe the  following  policies may involve a higher  degree of judgment and
complexity  and  represent  the  critical  accounting   estimates  used  in  the
preparation of our consolidated financial statements.

                                       58
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


FAIR VALUE

Fair value  measurements  are an integral part of the  preparation  of financial
statements in accordance with GAAP. In determining  fair value, the selection of
the  appropriate  valuation  technique  as  well  as  determination  of  inputs,
assumptions  and estimates for each  technique  requires  significant  judgment.
Although  we  believe  that the  inputs  used in our  valuation  techniques  are
reasonable  as of the  measurement  date,  a change in one or more of the inputs
could  result in an increase or decrease in the fair value of certain  assets or
liabilities.  Either  instance  would  have an impact  both on our  consolidated
financial statements.

Provided below are those instances where the  determination  of fair value could
have the most  significant  impact on our  financial  condition  or  results  of
operations:

     VALUATION  OF  INVESTMENTS  IN  MORTGAGE  REVENUE  BONDS.   SFAS  No.  115,
     ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,  provides
     guidance on  determining  the valuation of investments  owned.  The initial
     classification  of our  investments  in the  "available-for-sale"  category
     rather  than as "held to  maturity"  is due to a  provision  in most of the
     mortgage  revenue  bonds under which we have a right to require  redemption
     prior to  maturity,  although we can and may elect to hold them up to their
     maturity dates unless otherwise  modified,  and the ability of the borrower
     to prepay the bond after a lockout period.  Because of this classification,
     we must carry our  investments at fair value. We base the fair value of our
     mortgage  revenue  bonds  on  observable  market  transactions,  which  may
     indicate a fair value  approximating the unpaid principal balance.  Because
     mortgage  revenue bonds typically have a limited market,  in the absence of
     observable  market  transactions  we must exercise  judgment in determining
     what constitutes  "fair value".  In those  instances,  we estimate the fair
     value by calculating  the present value of expected future cash flows under
     the bonds using a discount rate dependent upon whether the bonds is secured
     by a non-stabilized or stabilized property. For non-stabilized  properties,
     the discount  rate is based upon the average rate of new  originations  for
     the  quarter  leading  up to the  valuation  date.  For  bonds  secured  by
     stabilized  properties,  the  discount  rate  is  reflective  of the  lower
     inherent  risk.  If  the  property  underlying  the  bond  has  substandard
     performance,  a  factor  is  added to the  discount  rate to allow  for the
     additional risk. Conversely,  if the underlying property is performing much
     better than  expected,  the  discount  rate may be reduced to allow for the
     reduced risk.

     In making these determinations, we evaluate, among other factors:

          o    issues regarding timely completion of the  construction,  even if
               there is no apparent risk of financial loss.
          o    whether stabilization requirements (i.e., minimum occupancy level
               and debt service  coverage for specified  periods) not yet met;
          o    whether  weaknesses  exist calling into question the viability of
               the project in the near to intermediate term; or
          o    whether project viability is in question and defaults exist.

     We use these criteria to assess all of our mortgage  revenue bonds and, any
     bonds meeting these criteria are assessed for risk of  other-than-temporary
     impairment.   If  our  analysis  indicates  that  no   other-than-temporary
     impairment  has occurred,  the fair value of a bond is considered to be the
     lower of  outstanding  face amount or the present value of expected  future
     cash flows,  with the discount rate adjusted to provide for the  applicable
     risk factors.

     VALUATION OF SERIES B FREDDIE MAC CERTIFICATES.  We determine fair value of
     the  Series B  Freddie  Mac  Certificates,  which  represent  the  residual
     interests of the  re-securitized  portfolio,  based upon a discounted  cash
     flow model. The assumptions include:

          o    estimating  the  default  and  prepayment  rates of the  mortgage
               revenue bonds in the managed portfolio, which estimates are based
               on our  historical  experience  and industry  studies  related to
               properties comparable to those underlying the bonds; and
          o    applying  an  appropriate  discount  rate,  which we  consider in
               comparison   to   comparable   residual   interests   secured  by
               multifamily  loans,  along  with  consideration  of the tax  free
               nature of the associated income.

     VALUATION  OF  MORTGAGE  SERVICING  RIGHTS.  SFAS No. 140,  ACCOUNTING  FOR
     TRANSFERS  AND  SERVICING  OF  FINANCIAL  ASSETS  AND   EXTINGUISHMENTS  OF
     LIABILITIES,  as amended,  requires  that  servicing  rights  retained when
     mortgage  loans are sold be recorded as assets at fair value and  amortized
     in proportion to, and over the period of,  estimated net servicing  income.
     Significant judgment is required in accounting for these assets, including:

          o    Determining  the  fair  value  of the  asset  retained  when  the
               associated mortgage is sold and in subsequent  reporting periods,
               including  such  factors  as  costs to  service  the  loans,  the
               estimated rate of prepayments,  the estimated rate of default and
               an  appropriate  discount  rate to calculate the present value of
               cash flows; and
          o    Estimating the  appropriate  proportion and period for amortizing
               the asset.

                                       59
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


     Changes in these  estimates and  assumptions  could  materially  affect the
     determination of fair value.

     We assess our mortgage  servicing  rights for impairment  based on the fair
     value of the assets as compared to carrying  values.  We estimate  the fair
     value by  obtaining  market  information  from one of the primary  mortgage
     servicing rights brokers. To determine  impairment,  the mortgage servicing
     portfolio  is  stratified  by the risk  characteristics  of the  underlying
     mortgage  loans and we compare the estimated  fair value of each stratum to
     its carrying value.  With respect to our primary  servicing  portfolio,  we
     have determined that the predominant risk  characteristic  is interest rate
     and type of loan.  For our other  servicing  portfolios we have  determined
     that the  predominant  risk  characteristic  is the  ability to  generate a
     consistent income stream per loan due to the short-term nature of the loans
     being serviced or due to the fact that certain  servicing  revenues are not
     recurring.

     When  the  carrying  value of  servicing  assets  exceeds  fair  value,  we
     recognize impairment through a valuation allowance; fair value in excess of
     the amount capitalized is not recognized.

     IMPAIRMENT OF GOODWILL AND INTANGIBLE  ASSETS.  SFAS No. 142,  GOODWILL AND
     OTHER INTANGIBLE ASSETS, requires that goodwill be tested for impairment at
     the reporting unit level (operating segment or one level below an operating
     segment) on an annual basis and between  annual tests if an event occurs or
     circumstances  change that would more likely than not reduce the fair value
     of a reporting unit below its carrying value. These events or circumstances
     could include a significant change in the business climate,  legal factors,
     operating  performance  indicators,  competition,  sale or disposition of a
     significant  portion  of a  reporting  unit.  Application  of the  goodwill
     impairment  test  requires  judgment  regarding  the  fair  value  of  each
     reporting unit which is estimated using a discounted cash flow methodology.
     This,  in turn,  requires  significant  judgments  including  estimation of
     future cash flows, which is dependent on internal forecasts,  estimation of
     the long-term  rate of growth for our business and the life over which cash
     flows  will  occur.  Changes  in  these  estimates  and  assumptions  could
     materially   affect  the   determination  of  fair  value  and/or  goodwill
     impairment.

     In addition,  should we determine that goodwill is impaired,  we would also
     review  intangible  assets for the same  business to determine if they were
     also impaired. As with goodwill, any indicators of impairment of a specific
     intangible  asset  would  also  lead  to  a  review.  As  the  methods  for
     determining  fair  values of  intangible  assets  are  similar to those for
     determining   the  fair  value  of  goodwill,   the  same   judgments   and
     uncertainties apply to these determinations as well.

     Our  impairment  analysis,  which is performed  annually  during the fourth
     quarter,  did not result in an impairment charge for goodwill or indefinite
     lived intangible assets in the years presented.

ACCOUNTING FOR INCOME TAXES

SFAS 109 establishes financial accounting and reporting standards for the effect
of income taxes.  The objectives of accounting for income taxes are to recognize
the amount of taxes payable or refundable  for the current year and deferred tax
liabilities and assets for the future tax  consequences of events that have been
recognized  in an entity's  financial  statements  or tax  returns.  Judgment is
required  in  assessing  the future tax  consequences  of events  that have been
recognized in our  consolidated  financial  statements or tax returns as well as
the  recoverability  of  amounts  we  record,  including  deferred  tax  assets.
Furthermore,  these projected future tax consequences  include our assumption as
to the continuing  tax-free  nature of a portion of our earnings.  Variations in
the actual outcome of these future tax consequences  could materially impact our
financial  position or our results of operations.  In addition,  determining our
exposure in connection  with  uncertain tax positions in accordance  with FIN 48
requires  judgment by management  including  determination of whether it is more
likely than not that a position would withstand audit and the measurement of the
tax position and related interest and penalties if challenged.

CONSOLIDATION

Our consolidated  financial statements include the accounts of the parent trust,
its wholly owned and majority  owned  subsidiary  and  statutory  trusts,  other
non-trust subsidiary companies it controls and entities consolidated pursuant to
FIN 46(R) or other similar accounting  pronouncements  including those governing
partnerships.  The analysis as to whether to consolidate an entity is subject to
significant judgment. Some of the criteria we are required to consider include:

     o    determination  of degree  of  control  over an  entity by its  various
          equity holders;
     o    design of the entity;

     o    relationships between equity holders;
     o    determination of primary beneficiary; and
     o    ability to replace general partners, among others.

                                       60
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


These analyses involve  estimates,  probability  weighting of subjective factors
included  within cash flow models,  and other estimates based on the judgment of
management.

Our consolidated financial statements reflect the assets, liabilities,  revenues
and expenses of the Consolidated Partnerships on a gross basis. The interests of
investors in these funds, which comprise the majority ownership  interest,  have
historically  been  reflected as limited  partners'  interests  in  consolidated
partnerships.  As a result of consolidation,  management fees and incentive fees
earned by other segments  related to the Consolidated  Partnerships  segment are
eliminated in consolidation;  however,  our allocated share of the net income is
adjusted accordingly such that the consolidation has no effect on our net income
or loss. The deconsolidation of the funds would have the impact of significantly
lowering our revenues and related  expenses and  restoring the  presentation  of
management fees, including incentive fees that had previously been eliminated in
consolidation.

In addition,  we use the equity method to account for  investments  for which we
have the ability to exercise significant  influence over operating and financial
policies.  Our  consolidated  net income  includes  our share of net earnings of
these companies.  Our judgment regarding the level of influence over each equity
method  investment  includes  the  consideration  of key factors  such as voting
interest,   representation   on  the  board  of  directors,   participation   in
policy-making decisions and materiality of intercompany transactions.

RELATED PARTY TRANSACTIONS

AMERICAN MORTGAGE ACCEPTANCE COMPANY

Through one of our subsidiaries,  we manage the operations of AMAC. In addition,
in March 2007, we entered into a share purchase plan under Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended,  whereby we may purchase up to 9.8%
of the  outstanding  common  shares of AMAC in  open-market  purchases  based on
pre-determined  parameters.  Through December 31, 2007, we purchased 0.6 million
common  shares (for $5.3 million)  under this plan,  or 6.9% of the  outstanding
common shares of beneficial  interest.  Furthermore,  in July 2007, we purchased
0.3 million  shares of 7.25% Series A Cumulative  Convertible  Preferred  Shares
issued by AMAC for $7.0 million in  connection  with AMAC's  public  offering of
such shares.  We account for these  investments  on the equity  method as we can
exercise significant  influence over AMAC's financial and operating policies via
our advisory agreement.

In April 2007,  we increased the capacity of the  revolving  credit  facility to
AMAC from $50.0 million to $80.0 million and extended the term to June 2008 with
a one year optional  extension.  This facility,  bearing  interest at LIBOR plus
3.0%,  is used by AMAC to purchase  new  investments  and for general  corporate
purposes and had a balance of $77.7  million as of December 31, 2007.  Income we
earn  from  this  facility  is  included  in  "Other  interest  income"  in  the
Consolidated Statements of Operations.  In the opinion of management,  the terms
of this facility are consistent with similar transactions with independent third
parties.

Although  AMAC has notified us that it is in default  under the covenants of the
line of  credit,  we have not  exercised  our rights to demand  repayment  as we
believe the advances are recoverable.

THE RELATED COMPANIES L.P.

Subsequent to December 31, 2007, we issued and sold 11.2 million 11.0% Preferred
Shares to a company affiliated with TRCLP in a private offering for an aggregate
purchase price of $131.2  million.  The shares have a liquidation  preference of
$11.70  per share and are  convertible  into 12.2  million  common  shares.  The
convertible  preferred shares pay cash distributions,  subject to declaration by
our Board of Trustees.  To the extent distributions are not declared,  they will
accrue.

The issuance of the shares was a condition to obtaining the new credit  facility
into which we entered at the time we  re-securitized  our mortgage  revenue bond
portfolio.  While other buyers were considered for the share issuance, the terms
desired by those parties would have resulted in a  significantly  higher cost of
capital.

Subsequently,  we initiated a rights offering to allow  shareholders  (excluding
TRCLP and its  affiliates)  to  purchase  the  shares  that the TRCLP  affiliate
purchased.  The TRCLP affiliate will "backstop" the rights offering by retaining
any of the 11.0% Preferred  Shares that are not purchased by participants in the
rights offering.

RECENT PRONOUNCEMENTS

In  December  2007,  FASB  issued  SFAS No.  160,  NONCONTROLLING  INTERESTS  IN
CONSOLIDATED  FINANCIAL  STATEMENTS - AN  AMENDMENT OF ARB NO. 51 ("SFAS  160").
SFAS 160 requires that a noncontrolling  interest in a subsidiary be reported as
equity and the amount of consolidated  net income  specifically  attributable to
the  noncontrolling   interest  be  identified  in  the  consolidated  financial

                                       61
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (continued)


statements.  It also calls for consistency in the manner of reporting changes in
the  parent's  ownership  interest and requires  fair value  measurement  of any
noncontrolling  equity  investment  retained in a  deconsolidation.  SFAS 160 is
effective for us on January 1, 2009. We are currently  evaluating  the impact of
adopting SFAS 160 on our consolidated financial condition, results of operations
and cash flows.

In  December  2007,  the FASB  issued  SFAS No.  141  (revised  2007),  BUSINESS
COMBINATIONS  ("SFAS  141(R)").  SFAS 141(R)  broadens the guidance of SFAS 141,
extending its  applicability  to all  transactions and other events in which one
entity obtains control over one or more other  businesses.  It broadens the fair
value  measurement and recognition of assets acquired,  liabilities  assumed and
interests transferred as a result of business combinations.  SFAS 141(R) expands
on required  disclosures to improve the statement  users'  abilities to evaluate
the nature  and  financial  effects of  business  combinations.  SFAS  141(R) is
effective  for us on  January 1, 2009.  We do not  expect the  adoption  of SFAS
141(R)  to  have a  material  effect  on our  financial  condition,  results  of
operations or cash flows.

In  February  2007,  the FASB issued  SFAS No.  159,  THE FAIR VALUE  OPTION FOR
FINANCIAL ASSETS AND FINANCIAL  LIABILITIES.  This statement was issued with the
intent to provide an  alternative  measurement  treatment for certain  financial
assets and liabilities.  The alternative  measurement would permit fair value to
be used for both initial and subsequent measurement,  with changes in fair value
recognized in earnings as those changes  occur.  We did not elect the fair value
option for any of our existing  financial  statements on the effective  date and
have not  determined  whether or not we will elect this option for any  eligible
financial instruments we acquire in the future.

In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS  ("SFAS
157").  SFAS 157 define fair value,  establishes a framework for measuring  fair
value  with   respect  to  GAAP  and  expands   disclosures   about  fair  value
measurements.  SFAS 157 is effective for our financial assets and liabilities on
January 1, 2008.  The FASB has deferred the  provisions  of SFAS 157 relating to
nonfinancial  assets and  liabilities to January 1, 2009. Due to the requirement
to  consider   nonperformance   factors  in  determining   the  fair  value  for
liabilities,  and based on our evaluation to date, we do not expect the adoption
of SFAS 157 to have a material  effect on our financial  position and results of
operations. This statement, however, will require additional disclosures.

In November 2007, the SEC issued Staff Accounting Bulletin No. 109, WRITTEN LOAN
COMMITMENTS  RECORDED  AT FAIR  VALUE  THROUGH  EARNINGS  ("SAB  109").  SAB 109
rescinds an existing  prohibition on inclusion of expected net future cash flows
related to loan servicing  activities in the fair value measurement of a written
loan  commitment.  SAB 109 also applies to any loan  commitments  for which fair
value  accounting is elected under SFAS 159. SAB 109 is effective as of our 2008
fiscal year.  We are currently  assessing the financial  impact of adopting this
pronouncement.

                                       62
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

We invest in certain financial instruments, primarily mortgage revenue bonds and
other  investments  that are subject to various forms of market risk,  including
interest rate risk. We seek to prudently and actively  manage such risks to earn
sufficient compensation to justify the undertaking of such risks and to maintain
capital levels which are commensurate with the risks we undertake.

The  assumptions  related to the  following  discussion  of market risk  involve
judgments   involving  future  economic  market  conditions,   future  corporate
decisions and other interrelating  factors, many of which are beyond our control
and all of which are difficult or  impossible to predict with precise  accuracy.
Although  we  believe  that  the  assumptions   underlying  the  forward-looking
information  are  reasonable,  any of the  assumptions  could be inaccurate and,
therefore,  there  can be no  assurance  that  the  forward-looking  information
included herein will prove to be accurate. Due to the significant  uncertainties
inherent in  forward-looking  information,  the  inclusion  of such  information
should not be regarded as our representation that our objectives and plans would
be achieved.

Interest Rate Risk
------------------

The nature of our  investments  and the  instruments  used to raise  capital for
their acquisition expose us to income and expense volatility due to fluctuations
in market  interest rates.  Market  interest rates are highly  sensitive to many
factors,  including governmental  policies,  domestic and international economic
and  political  considerations  and other factors  beyond our control.  A rising
interest rate environment could reduce the demand for multifamily tax-exempt and
taxable  financing,  which could limit our ability to invest in mortgage revenue
bonds or to  structure  transactions.  Conversely,  falling  interest  rates may
prompt historical renters to become homebuyers, in turn potentially reducing the
demand for multifamily housing.

IMPACT ON EARNINGS

Many of our  investments  bear interest at fixed rates, or pay interest which do
not fluctuate with changes in market interest rates.

In contrast,  we have  variable-rate  debt  related to our credit and  warehouse
facilities,  with rates based on LIBOR. Other long-term sources of capital, such
as our preferred shares of our subsidiary and our 4.4% Convertible CRA preferred
shares,  carry a fixed dividend rate and as such, are not impacted by changes in
market interest rates.

Of the  December  31,  2007,  total  amount of our  liabilities  labeled  on our
Consolidated Balance Sheet as "Financing Arrangements and Secured Financing" and
"Notes  Payable",  $512.4  million  is  variable  rate debt and not  hedged  via
interest rate swap agreements.  We also have large escrow balances maintained by
our  Portfolio  Management  Group and we are entitled to the interest  earned on
those balances.  A 1.0% increase in interest rates would  therefore  result in a
net decrease of our pre-tax income by $11.1 million.

We manage this risk through the use of interest  rate swaps as described in Note
14 to the consolidated financial statements. In addition, we manage our exposure
by striving for  diversification  in our businesses,  including  analysis of our
susceptibility to interest rate changes and by managing our leverage.

Credit Spread and Margin Risk
-----------------------------

Credit spreads  measure the yield demanded on loans and securities by the market
based on their  credit  relative  to U.S.  Treasuries,  for fixed rate credit or
LIBOR, for floating rate credit.  Our fixed rate loans and securities are valued
based on a  market  credit  spread  over the rate  payable  on fixed  rate  U.S.
Treasuries of like maturity. Our variable rate investments are valued based on a
market credit spread over LIBOR.  Excessive  supply of such loans and securities
combined with reduced demand will generally cause the market to require a higher
yield on such loans and securities,  resulting in the use of higher (or "wider")
spread over the benchmark rate used to value them.

Widening  credit  spreads  would result in higher  yields being  required by the
marketplace on loans and securities. This widening would reduce the value of the
loans and securities we hold at the time because higher  required  yields result
in lower prices on existing securities in order to adjust their yields upward to
meet the market.

At December 31, 2007, a 1.0%  movement in credit  spreads  would impact the book
value of the applicable  assets by  approximately  5.0%.  Under the terms of our
repurchase agreements,  when the estimated fair value of the existing collateral
declines,  the lenders may demand  additional  collateral  or  repayment of debt
(i.e.,  a margin  call).  This could  result from  principal  reductions  due to
scheduled amortization payments, unscheduled principal payments on the mortgages
underlying our  investments,  changes in market  interest rates and other market
factors.

Should  market  interest  rates  and/or  prepayment  speeds  on our  investments
continue  to  increase,   margin  calls  on  our  repurchase   agreements  could
substantially increase,  causing an adverse change in our liquidity position and
strategy.  The  sources  mentioned  above  may not be  sufficient  to  meet  our
obligations,  including  margin  calls,  as they come due; as a result,  further
margin calls may result in additional asset sales.

                                       63
<PAGE>







                   MANAGEMENT'S REPORT ON THE EFFECTIVENESS OF
                    INTERNAL CONTROL OVER FINANCIAL REPORTING




The management of Centerline Holding Company and subsidiaries (the "Company") is
responsible for  establishing  and maintaining  adequate  internal  control over
financial  reporting.  Our  internal  control  system  was  designed  to provide
reasonable  assurance  to our  management  and Board of Trustees  regarding  the
preparation and fair presentation of published financial statements.

All  internal  control  systems,  no matter  how well  designed,  have  inherent
limitations.  Therefore,  even those  systems  determined  to be  effective  can
provide  only   reasonable   assurance  with  respect  to  financial   statement
preparation and presentation.

Centerline  management  assessed the  effectiveness  of the  Company's  internal
control  over  financial  reporting  as of  December  31,  2007.  In making this
assessment,  management  used  the  criteria  set  forth  by  the  Committee  of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control
-  Integrated  Framework.  Based  upon our  assessment  we believe  that,  as of
December 31, 2007, our internal control over financial reporting is effective in
accordance with those criteria.

Deloitte & Touche LLP, our independent  registered  public accounting firm, have
issued  an  audit  report  on the  Company's  internal  control  over  financial
reporting,  which appears on page 65 and which expresses an unqualified  opinion
on the  effectiveness  of our internal  control over  financial  reporting as of
December 31, 2007.




/s/ Marc D. Schnitzer                                   /s/ Robert L. Levy
---------------------                                   ------------------
Marc D. Schnitzer                                       Robert L. Levy
Chief Executive Officer                                 Chief Financial Officer
March 5, 2008                                           March 5, 2008


                                       64
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Trustees and Shareholders of
Centerline Holding Company
New York, New York


We have audited the  internal  control over  financial  reporting of  Centerline
Holding Company and subsidiaries  (the "Company") as of December 31, 2007, based
on criteria  established in INTERNAL  CONTROL -- INTEGRATED  FRAMEWORK issued by
the  Committee  of  Sponsoring  Organizations  of the Treadway  Commission.  The
Company's  management is responsible for maintaining  effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over  financial  reporting,  included in the  accompanying  MANAGEMENT'S
REPORT ON THE  EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL  REPORTING.  Our
responsibility  is to express an opinion on the Company's  internal control over
financial reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating  effectiveness of internal control based
on the assessed  risk,  and  performing  such other  procedures as we considered
necessary in the circumstances.  We believe that our audit provides a reasonable
basis for our opinion.

A company's internal control over financial  reporting is a process designed by,
or under the  supervision  of, the company's  principal  executive and principal
financial officers, or persons performing similar functions, and effected by the
company's  board of  directors,  management,  and  other  personnel  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  A company's  internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because  of  the  inherent   limitations  of  internal  control  over  financial
reporting,  including  the  possibility  of  collusion  or  improper  management
override of controls,  material  misstatements  due to error or fraud may not be
prevented or detected on a timely basis. Also,  projections of any evaluation of
the  effectiveness  of the internal  control over financial  reporting to future
periods are subject to the risk that the controls may become inadequate  because
of changes in conditions,  or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion,  the Company  maintained,  in all material  respects,  effective
internal control over financial  reporting as of December 31, 2007, based on the
criteria  established in INTERNAL CONTROL -- INTEGRATED  FRAMEWORK issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),   the  consolidated   financial
statements  and  financial  statement  schedules  as of and for the  year  ended
December 31, 2007,  of the Company and our report dated March 5, 2008  expressed
an unqualified opinion on those consolidated  financial statements and financial
statement  schedules,  and  includes  an  explanatory  paragraph  regarding  the
adoption  of  Financial   Accounting  Standards  Board  Interpretation  No.  48,
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN  INTERPRETATION OF FASB STATEMENT
NO. 109, in 2007.




/s/DELOITTE & TOUCHE LLP
New York, New York
March 5, 2008

                                       65
<PAGE>


Item 8.  Financial Statements and Supplementary Data.
         --------------------------------------------
                                                                            PAGE
(a) 1.   Financial Statements

         Report of Independent Registered Public Accounting Firm              67

         Consolidated Balance Sheets as of December 31, 2007 and 2006         68

         Consolidated Statements of Operations for the years ended
           December 31, 2007, 2006 and 2005                                   69

         Consolidated Statements of Shareholders' Equity for the
           years ended December 31, 2007, 2006 and 2005                       70

         Consolidated Statements of Cash Flows for the years ended
           December 31, 2007, 2006 and 2005                                   71

         Notes to Consolidated Financial Statements                           73

                                       66
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Trustees and Shareholders of
Centerline Holding Company
New York, New York

We have  audited the  accompanying  consolidated  balance  sheets of  Centerline
Holding  Company and  subsidiaries  (the  "Company") as of December 31, 2007 and
2006,  and the related  consolidated  statements  of  operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2007. Our audits also included the financial  statement  schedules listed in
the Index at Item 15(a)2.  These  financial  statements and financial  statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial  statements  and  financial  statement
schedules based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of Centerline  Holding  Company and
subsidiaries  as of  December  31,  2007  and  2006,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting  principles  generally accepted
in the United States of America.  Also, in our opinion, such financial statement
schedules,  when  considered  in  relation to the basic  consolidated  financial
statements  taken as a whole,  present  fairly,  in all material  respects,  the
information set forth therein.

As discussed in Notes 1 and 20 to the  consolidated  financial  statements,  the
Company adopted  Financial  Accounting  Standards Board  Interpretation  No. 48,
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN  INTERPRETATION OF FASB STATEMENT
NO. 109, in 2007.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States), the Company's internal control over
financial  reporting as of December 31, 2007, based on the criteria  established
in INTERNAL  CONTROL-INTEGRATED  FRAMEWORK issued by the Committee of Sponsoring
Organizations  of the  Treadway  Commission  and our report  dated March 5, 2008
expressed  an  unqualified  opinion  on  the  Company's  internal  control  over
financial reporting.




/s/DELOITTE & TOUCHE LLP
New York, New York
March 5, 2008

                                       67
<PAGE>

                           CENTERLINE HOLDING COMPANY
                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                December 31,
                                                                        --------------------------
                                                                            2007           2006
                                                                        -----------    -----------
<S>                                                                     <C>            <C>
                                     ASSETS

Cash and cash equivalents                                               $   137,111    $   178,813
Restricted cash                                                              32,548         14,937
Investments:
  Available-for-sale (Note 6)                                               938,378      2,501,560
  Equity method (Note 7)                                                     38,760         40,546
  Other (Note 8)                                                            184,200        191,486
Investments in and loans to affiliates (Note 22)                            107,175         65,181
Goodwill and intangible assets, net (Note 9)                                504,273        541,050
Deferred costs and other assets, net (Note 10)                              140,902        107,969
Consolidated partnerships (Note 23):
  Investments
    Available-for-sale                                                    1,782,543      1,317,136
    Equity method                                                         4,178,206      3,598,009
    Other                                                                   414,377        176,502
  Land, buildings and improvements                                          661,380        617,914
  Other assets                                                              371,735        336,868
                                                                        -----------    -----------

Total assets                                                            $ 9,491,588    $ 9,687,971
                                                                        ===========    ===========

                             LIABILITIES AND EQUITY

 Liabilities:
  Notes payable (Note 11)                                               $   505,888    $   591,165
  Financing arrangements and secured financing (Note 12)                    562,502      1,801,170
  Accounts payable, accrued expenses and other liabilities
    (Note 13)                                                               313,252        213,799
  Preferred shares of subsidiary (subject to mandatory
    repurchase) (Note 15)                                                   273,500        273,500
  Consolidated partnerships (Note 23):
    Financing arrangements                                                1,128,376        687,719
    Notes payable                                                           458,367        615,977
    Repurchase agreements                                                   410,589        243,955
    Due to property partnerships                                            970,602        971,864
    Other liabilities                                                       193,020        180,639
                                                                        -----------    -----------

 Total liabilities                                                        4,816,096      5,579,788


 Minority interests in subsidiaries, net of tax (Note 15)                   176,716        247,390
 Preferred shares of subsidiary (not subject to mandatory
 repurchase) (Note 15)                                                      104,000        104,000
 Redeemable securities (Note 16)                                             69,888             --
 Limited partners' interests in consolidated partnerships (Note 23)       3,782,912      2,806,661


 Commitments and contingencies (Note 25)

 Shareholders' equity (Note 17):
  Beneficial owners' equity:
    4.4% Convertible CRA preferred shares; no par value; 1,060 shares
      issued and outstanding in 2007 and 2,160 shares issued and
      outstanding in 2006                                                    51,281        104,498
    Convertible CRA shares; no par value; 5,306 shares issued
      and outstanding in 2007 and 6,552 shares issued and outstanding
      in 2006                                                                66,879         98,603
    Special preferred voting shares; no par value; 14,298
      shares issued and outstanding in 2007 and 14,825 shares issued
      and outstanding in 2006                                                   143            148
    Common shares; no par value; 160,000 shares authorized;
      53,943 issued and 50,567 outstanding in 2007 and 52,746 issued
      and 51,343 outstanding in 2006                                        592,505        708,038
    Treasury shares of beneficial interest - common, at cost;
      3,376 shares in 2007 and 1,403 shares in 2006                         (64,312)       (28,018)
  Accumulated other comprehensive (loss) income                            (104,520)        66,863
                                                                        -----------    -----------
 Total shareholders' equity                                                 541,976        950,132
                                                                        -----------    -----------

 Total liabilities and  equity                                          $ 9,491,588    $ 9,687,971
                                                                        ===========    ===========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       68
<PAGE>

                           CENTERLINE HOLDING COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                     -----------------------------------
                                                                        2007         2006         2005
                                                                     ---------    ---------    ---------
<S>                                                                  <C>          <C>          <C>
Revenues:
  Mortgage revenue bond interest income                              $ 150,609    $ 156,500    $ 146,024
  Other interest income                                                 58,988       34,159       16,162
  Fee income                                                            94,290       90,946       90,047
  Other                                                                 11,019       15,998       14,908
  Consolidated partnerships (Note 23):
    Interest income                                                    195,203       51,728        5,129
    Fee income                                                             738          100           --
    Rental income                                                       55,541       30,701       18,824
    Other                                                                6,539        7,127        4,003
                                                                     ---------    ---------    ---------
      Total revenues                                                   572,927      387,259      295,097
                                                                     ---------    ---------    ---------

Expenses:
  Interest                                                             145,236       97,853       57,098
  Interest - consolidated partnerships (Note 23)                       100,321       47,926       26,322
  Interest - distributions to preferred shareholders of subsidiary      18,898       18,898       18,898
  General and administrative (Note 18)                                 182,484      160,786      125,395
  Depreciation and amortization                                         45,099       45,395       43,795
  Write-off of goodwill and intangible assets                            7,226        2,644       22,567
  Impairment of mortgage revenue bonds and other assets                 20,008        5,003        4,555
  Other expenses of consolidated partnerships (Note 23)                113,031       82,142       53,028
                                                                     ---------    ---------    ---------
      Total expenses                                                   632,303      460,647      351,658
                                                                     ---------    ---------    ---------

Loss before other income                                               (59,376)     (73,388)     (56,561)

Other income (loss):
  Equity and other income (loss)                                        (5,165)       1,978        7,037
  Repayment of mortgage revenue bonds and sales of other assets         11,151       18,370        8,062
  Loss on re-securitization of mortgage revenue bonds (Note 4)         (77,903)          --           --
  Investments held by consolidated partnerships, net (Note 23)        (341,107)    (278,232)    (247,986)
                                                                     ---------    ---------    ---------

Loss before allocations                                               (472,400)    (331,272)    (289,448)

(Income)/Loss allocations:
  Preferred shares of subsidiary                                        (6,225)      (6,225)      (6,225)
  Minority interests in subsidiaries, net of tax (Note 15)              24,111      (16,094)     (23,421)
  Limited partners of consolidated partnerships, net (Note 23)         398,893      401,377      349,531
                                                                     ---------    ---------    ---------
                                                                       (55,621)      47,786       30,437
(Loss) income before income taxes
Income tax (provision) benefit (Note 20)                                (4,507)      (6,492)      28,577
                                                                     ---------    ---------    ---------

Net (loss) income                                                      (60,128)      41,294       59,014

Preferred dividend requirements                                         (4,757)      (4,752)      (2,020)
                                                                     ---------    ---------    ---------

Net (loss) income available to Common/CRA shareholders               $ (64,885)   $  36,542    $  56,994
                                                                     =========    =========    =========

Net (loss) income per share (Note 21):
  Basic                                                              $   (1.19)   $    0.63    $    0.98
                                                                     =========    =========    =========
  Diluted                                                            $   (1.19)   $    0.62    $    0.98
                                                                     =========    =========    =========

Weighted average shares outstanding (Note 21):
  Basic                                                                 57,175       58,154       58,018
                                                                     =========    =========    =========
  Diluted                                                               57,175       58,711       58,291
                                                                     =========    =========    =========

Dividends declared per share                                         $    1.68    $    1.68    $    1.65
                                                                     =========    =========    =========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       69
<PAGE>

                           CENTERLINE HOLDING COMPANY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                    4.4%
                                 Convertible                            Special
                                    CRA             Convertible        Preferred
                                 preferred          CRA Shares        Voting Shares               Common Shares
                               ---------------    ---------------    ---------------    ----------------------------------
                                                                                            Shares
<S>                            <C>                <C>                <C>                         <C>       <C>
JANUARY 1, 2005                $            --    $       109,849    $           152             51,229    $       764,139
  Net income                             2,020              6,436                 --                                50,558
  Unrealized gains                          --                 --                 --                 --                 --
  Share based compensation                  --                 --                 --                659             12,949
  Conversions or redemptions                --                 --                 (2)               287              4,818
  Issuance                             104,498                 --                 --                 --                 --
  Treasury shares                           --                 --                 --               (187)                --
  Distributions                         (2,020)           (10,812)                --                 --            (85,719)
                               ---------------    ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2005                      104,498            105,473                150             51,988            746,745


  Net income                             4,752              4,137                 --                                32,405
  Unrealized losses                         --                 --                 --                 --                 --
  Share based compensation                  --                 --                 --                417             15,848
  Conversions or redemptions                --                 --                 (2)                20              1,954
  Treasury shares                           --                 --                 --             (1,082)                --
  Distributions                         (4,752)           (11,007)                --                 --            (88,914)
                               ---------------    ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2006                      104,498             98,603                148             51,343            708,038


  Net income (loss)                      4,757             (7,436)                --                 --            (57,449)
  Unrealized losses                         --                 --                 --                 --                 --
  Share based compensation                  --                 --                 --                918             29,999
  Adoption of FIN 48                        --                 --                 --                 --             (1,161)
  Conversions or redemptions                --                 --                 (5)               278              5,139
  Reclassification to
    redeemable securities              (53,217)           (13,281)                --                 --             (3,390)
  Treasury shares                           --                 --                 --             (1,972)                --
  Distributions                         (4,757)           (11,007)                --                 --            (88,671)
                               ---------------    ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2007              $        51,281    $        66,879    $           143             50,567    $       592,505
                               ===============    ===============    ===============    ===============    ===============

<CAPTION>
                                                    Accumulated
                                                       Other
                                                   Comprehensive                         Comprehensive
                               Treasury Shares     Income/(loss)          Total          Income/(loss)
                               ---------------    ---------------    ---------------    ---------------
<S>                            <C>                <C>                <C>                <C>
JANUARY 1, 2005                $        (2,970)   $        11,552    $       882,722    $            --
  Net income                                --                 --             59,014             59,014
  Unrealized gains                          --             88,552             88,552             88,552
  Share based compensation                  --                 --             12,949                 --
  Conversions or redemptions                --                 --              4,816                 --
  Issuance                                  --                 --            104,498                 --
  Treasury shares                       (4,165)                --             (4,165)                --
  Distributions                             --                 --            (98,551)                --
                               ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2005                       (7,135)           100,104          1,049,835    $       147,566
                                                                                        ===============

  Net income                                --                 --             41,294    $        41,294
  Unrealized losses                         --            (33,241)           (33,241)           (33,241)
  Share based compensation                  --                 --             15,848                 --
  Conversions or redemptions                --                 --              1,952                 --
  Treasury shares                      (20,883)                --            (20,883)                --
  Distributions                             --                 --           (104,673)                --
                               ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2006                      (28,018)            66,863            950,132    $         8,053
                                                                                        ===============

  Net income (loss)                         --                 --            (60,128)   $       (60,128)
  Unrealized losses                         --           (171,383)          (171,383)          (171,383)
  Share based compensation                  --                 --             29,999                 --
  Adoption of FIN 48                        --                 --             (1,161)                --
  Conversions or redemptions                --                 --              5,134                 --
  Reclassification to
    redeemable securities                   --                 --            (69,888)                --
  Treasury shares                      (36,294)                --            (36,294)                --
  Distributions                             --                 --           (104,435)                --
                               ---------------    ---------------    ---------------    ---------------
DECEMBER 31, 2007              $       (64,312)   $      (104,520)   $       541,976    $      (231,511)
                               ===============    ===============    ===============    ===============
</TABLE>

           See accompanying notes to consolidated financial statements

                                       70
<PAGE>

                           CENTERLINE HOLDING COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                     -----------------------------------------
                                                                         2007           2006           2005
                                                                     -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                                  $   (60,128)   $    41,294    $    59,014
  Reconciling items:
    Gain on repayment of mortgage revenue bonds and other assets            (803)        (1,055)        (1,561)
    Impairment of mortgage revenue bonds and other assets                 20,008          5,003          4,555
    Loss on re-securitization of mortgage revenue bonds                   77,903             --             --
    Depreciation and amortization                                         45,099         45,395         43,795
    Equity in unconsolidated entities                                      5,165         (1,979)        (7,037)
    Distributions received from equity investees                             149          4,469          3,702
    Write-off of goodwill and intangible assets                            7,226          2,644         22,567
    Income allocated to preferred shares of subsidiary                     6,225          6,225          6,225
    Income (loss) allocated to minority interests in subsidiaries        (24,111)        16,094         23,421
    Non-cash compensation expense                                         29,019         15,425          8,751
    Other non-cash expense                                                 9,406            685          2,940
    Deferred taxes                                                         3,147          2,423        (28,178)
    Reserves for bad debt                                                  4,052          6,961          4,986
    Change in fair value of interest rate derivatives                     34,740           (203)           203
    Changes in operating assets and liabilities, net of
      acquisitions:
      Mortgage servicing rights                                          (10,598)        (8,648)        (7,520)
      Mortgage loans held for sale                                        29,002         31,288       (125,797)
      Deferred revenues                                                    8,046         24,167         10,210
      Receivables                                                         40,365        (72,659)       (43,279)
      Other assets                                                         4,659        (18,426)          (140)
      Accounts payable, accrued expenses and other liabilities            31,313          4,206         19,590
                                                                     -----------    -----------    -----------

Net cash flow from operating activities                                  259,884        103,309         (3,553)
                                                                     -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale and repayments of  mortgage revenue bonds                       1,658,900        115,600        133,611
  Acquisition and funding of mortgage revenue bonds                     (226,393)      (419,940)      (443,517)
  Acquisition of mortgage loans held for investment                     (269,102)        (5,473)       (34,401)
  Repayments of mortgage loans held for investment                       299,892         48,939          3,039
  Acquisitions, net of cash acquired                                          --       (262,659)          (290)
  Advances to partnerships                                              (210,209)      (195,044)      (146,977)
  Collection of advances to partnerships                                 221,895        188,711        138,981
  Deferred investment acquisition costs                                   (2,040)        (1,474)        (2,897)
  (Increase) decrease in restricted cash, escrows and other cash
    collateral                                                          (135,144)        19,244            317
  Return of capital from equity investees                                     90         16,667             --
  Purchases of CMBS and other available-for-sale securities             (305,620)          (109)            --
  Sale of CMBS and other securities                                      276,393             --             --
  Loan to AMAC                                                           (62,685)       (15,000)         4,600
  Investment in AMAC shares                                              (12,285)            --             --
  Equity investments and other investing activities                      (15,338)       (30,045)       (21,221)
                                                                     -----------    -----------    -----------

Net cash flow from investing activities                                1,218,354       (540,583)      (368,755)
                                                                     -----------    -----------    -----------
</TABLE>

           See accompanying notes to consolidated financial statements
                                   (CONTINUED)

                                       71
<PAGE>

                           CENTERLINE HOLDING COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

(CONTINUED)
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                     -----------------------------------------
                                                                         2007           2006           2005
                                                                     -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>

CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of financing arrangements                                (2,000,273)    (1,028,533)      (185,369)
  Proceeds from financing arrangements and secured financing             761,605      1,409,098        546,632
  Distributions to shareholders                                         (104,436)      (104,168)       (96,581)
  Distributions to preferred shareholders of subsidiary                   (6,225)        (6,225)        (6,225)
  Distributions to minority interests in consolidated subsidiaries       (37,617)       (35,589)       (34,677)
  (Decrease) increase in notes payable                                   (85,277)       244,679        130,434
  Minority interest contribution                                           3,100          5,250             --
  Proceeds from stock options exercised                                      678            756          3,804
  Retirement of minority interests and special preferred voting
    shares                                                                (3,111)          (724)            (2)
  Treasury stock purchases                                               (36,294)       (20,447)            --
  Issuance of preferred shares                                                --             --        108,000
  Deferred financing costs                                               (12,090)        (9,305)        (3,700)
                                                                     -----------    -----------    -----------

Net cash flow from financing activities                               (1,519,940)       454,792        462,316
                                                                     -----------    -----------    -----------

Net (decrease) increase in cash and cash equivalents                     (41,702)        17,518         90,008
Cash and cash equivalents at the beginning of the year                   178,813        161,295         71,287
                                                                     -----------    -----------    -----------

Cash and cash equivalents at the end of the year                     $   137,111    $   178,813    $   161,295
                                                                     -----------    -----------    -----------

Supplemental information:

  Interest paid                                                      $    22,843    $    94,713    $    55,771

  Taxes paid                                                         $     2,924    $     1,204    $       768

Non-cash investing and financing activities:
  Exchange of mortgage revenue bonds for Freddie Mac certificates    $   442,140    $        --    $        --
  Share grants issued                                                $    28,445    $    41,767    $     3,706
  Conversion of minority interests to common shares                  $     5,161    $     1,954    $     4,818
  Treasury stock purchases via employee withholding                  $     2,953    $       436    $     4,165
  Cancellation of acquisition - related SMUs                         $        --    $    (4,076)   $        --
  Issuance of SMUs in exchange for investment or acquisition         $        --    $        --    $    11,576

Acquisition activity:
--------------------
  Conversion of existing assets                                      $        --    $    14,221    $    70,000
  Issuance of subsidiary equity                                               --          4,859          7,500
  Decrease in minority interest                                               --             --         (4,200)
  Assets acquired                                                             --       (341,248)       (90,530)
  Liabilities assumed                                                         --         59,509         16,940
                                                                     -----------    -----------    -----------
Net cash paid for acquisitions                                       $        --    $  (262,659)   $      (290)
                                                                     ===========    ===========    ===========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       72
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements


NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

A.  DESCRIPTION OF BUSINESS

Centerline  Holding Company,  together with its subsidiaries,  is an alternative
asset  manager  with a core focus on real estate and more than $11.9  billion of
assets under management as of December 31, 2007. We conduct substantially all of
our  business  through  our   subsidiaries,   generally  under  the  designation
Centerline Capital Group. For ease of readership the term "we" (as well as "us",
"our" or "the Company") as used  throughout  this document may mean a subsidiary
or the  business  as a whole,  while  the term  "parent  trust"  refers  only to
Centerline Holding Company as a stand-alone entity.

We manage our operations through six reportable operating segments including two
segments not involved in direct operations. Our four operating segments include:

     AFFORDABLE  HOUSING,  which brings together the users and providers of debt
     and equity capital to the affordable multifamily rental housing industry;

     COMMERCIAL  REAL ESTATE,  which  provides a broad spectrum of financing and
     investment products for multifamily,  office, retail,  industrial mixed-use
     and other properties;

     PORTFOLIO MANAGEMENT,  which comprises activities for monitoring,  managing
     and servicing the Affordable  Housing and Commercial  Real Estate assets we
     own, for funds we manage and for third parties; and

     CREDIT RISK PRODUCTS,  which provides  credit  intermediation,  through our
     subsidiaries,  to affordable housing debt and equity products. Through this
     segment, we also invest in syndicated corporate debt.

We   consolidate   certain  funds  we  control  (see  BASIS  OF   PRESENTATION),
notwithstanding  the fact that we may only have a minority  economic interest in
such entities. For segment purposes, these Consolidated Partnerships include the
investment  fund  partnerships  we originate and manage  through the  Affordable
Housing and Commercial Real Estate segments and certain  property  partnerships,
all of  which  we  are  required  to  consolidate  in  accordance  with  various
accounting  pronouncements.  The fund partnerships  invest in low income housing
tax  credit  ("LIHTC")   properties,   high-yield   commercial  mortgage  backed
securities ("CMBS") and high-yield debt. In addition to these five segments,  we
separately show our Corporate Group, which includes our central  administrative,
financing and acquisition related functions.

B.  BASIS OF PRESENTATION

Our  consolidated  financial  statements are prepared on a basis consistent with
generally  accepted  accounting  principles  of the  United  States  of  America
("GAAP") and  pursuant to the rules of the  Securities  and Exchange  Commission
("SEC").  The consolidated  financial  statements of Centerline  Holding Company
include the parent  trust and its wholly  owned and  majority  owned  subsidiary
statutory trusts, corporations and limited liability companies which we control;
and the  Consolidated  Partnerships  which are those entities in which we have a
substantive  controlling general partner or managing member interest or in which
we have concluded we are the primary  beneficiary of a variable  interest entity
("VIE") in accordance  with the Financial  Accounting  Standards  Board ("FASB")
Interpretation  ("FIN") No. 46 (as revised)  CONSOLIDATION OF VARIABLE  INTEREST
ENTITIES ("FIN 46(R)").

We eliminate from our financial results all intercompany transactions, including
intercompany  transactions  between our operating  segments and our Consolidated
Partnerships.

We adopted  our current  segment  presentation  as of January 1, 2007,  and have
reclassified  our segment  results and other certain amounts in prior periods to
conform to the current year  presentation.  In  addition,  we  reclassified  all
balances ($41.7 million of assets as of December 31, 2006) and income  statement
activity  ($5.9  million of revenues in 2006 and $3.9 million in 2005 as well as
associated   expenses)   related  to  Real  Estate  owned  to  our  Consolidated
Partnerships segment.

Accounting Changes
------------------

STATEMENT  NO. 156. As of January 1, 2007,  we adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 156,  ACCOUNTING  FOR SERVICING OF FINANCIAL
ASSETS ("SFAS 156"). SFAS 156 amends SFAS No. 140,  ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND  EXTINGUISHMENT OF LIABILITIES  ("SFAS 140 "),
stipulating the accounting for mortgage  servicing rights ("MSRs") and requiring

                                       73
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


that such rights be recorded initially at fair value. SFAS 156 also permits, but
does not  require,  that we may  subsequently  record  MSRs at fair  value  with
changes in fair value recognized in the statement of operations.  Alternatively,
we may continue to amortize the MSRs over their projected  service  periods.  We
elected to continue amortization of our MSRs and, therefore, there was no impact
on our consolidated financial statements upon adoption.

FIN NO.  48. As of  January 1, 2007,  we  adopted  FIN No.  48,  ACCOUNTING  FOR
UNCERTAINTY  IN INCOME TAXES AN  INTERPRETATION  OF FASB STATEMENT NO. 109 ("FIN
48").  FIN 48 sets a  standard  for  recognizing  tax  benefits  in a  company's
statement of operations based on a determination  whether it is more likely than
not that the position would withstand  audit,  without regard for the likelihood
of an audit taking place.  Assuming a position meets the  "more-likely-than-not"
threshold,  FIN 48 also prescribes measurement standards requiring determination
of how much of the tax position would  ultimately be allowed if challenged  (see
Note 20 regarding the impact of adoption).


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.  USE OF ESTIMATES

The  preparation of financial  statements in conformity with GAAP requires us to
make  estimates  and  assumptions  that  affect  the  reported  amounts  in  the
consolidated financial statements and accompanying notes.  Significant estimates
that require difficult and subjective  judgments  inherent in the preparation of
the accompanying  consolidated financial statements include the determination of
fair value for mortgage  revenue bonds,  Federal Home Loan Mortgage  Corporation
("Freddie Mac") certificates,  goodwill and intangible  assets;  accounting for
income taxes,  including the potential  outcome of uncertain tax positions;  and
determination of consolidated  entities.  Estimates are based on past experience
and other  considerations  reasonable  under the  circumstances.  Actual results
could differ from those estimates.

B.  CASH AND CASH EQUIVALENTS, RESTRICTED CASH

Cash and cash  equivalents  include cash in banks and  investments in short-term
instruments with an original  maturity date of three months or less.  Restricted
cash includes  collateral for borrowings within our securitization  programs and
in accordance with Fannie Mae and Freddie Mac requirements.

C.  INVESTMENTS

Available-for-Sale
------------------
We account for investments  designated as  available-for-sale in accordance with
SFAS No. 115,  ACCOUNTING FOR CERTAIN  INVESTMENTS IN DEBT AND EQUITY SECURITIES
("SFAS 115"),  and report them at fair value,  with unrealized gains and losses,
net of tax where applicable, recorded in accumulated other comprehensive income.
For certain classes, we accumulate available-for-sale  investments first for our
own  account.  Subsequently,   after  consideration  of  market  conditions  and
investment  strategies,  among other factors,  we either hold the investments or
sell such investments into funds. Our available-for-sale investments,  including
those of Consolidated Partnerships, include:

     MORTGAGE REVENUE BONDS - For our Affordable  Housing segment,  we invest in
     mortgage revenue bonds that are principally tax-exempt. Although we can and
     may  elect to hold  mortgage  revenue  bonds  until  maturity,  we have the
     ability to securitize or otherwise sell such bonds and, in most cases, have
     the ability to require redemption prior to maturity. We base the fair value
     of our mortgage revenue bonds on observable market transactions,  which may
     indicate a fair value  approximating the unpaid principal balance.  Because
     mortgage  revenue bonds typically have a limited market,  in the absence of
     observable  market  transactions,  we estimate  fair value for each bond by
     utilizing the present value of the expected cash flows discounted at a rate
     for  comparable  tax-exempt  investments  and then  comparing  against  any
     similar  market   transactions.   Direct  costs  relating  to  unsuccessful
     acquisitions  and all indirect costs relating to mortgage revenue bonds are
     charged to operations.

     FREDDIE MAC CERTIFICATES - In connection with the  re-securitization of our
     Affordable  Housing  mortgage  revenue bond  portfolio in December 2007, we
     retained interests in the form of Freddie Mac Taxable Multifamily  Variable
     Rate Certificates ("Freddie Mac Certificates").  The Series A-1 Freddie Mac
     Certificates are fixed rate,  credit enhanced  certificates that have terms
     consistent  with preferred  shares of our Centerline  Equity Issuer Trust I
     ("Equity Issuer")  subsidiary (see Note 15). We determine fair value of the
     Series B Freddie Mac Certificates,  which represent the residual  interests
     of the  re-securitized  portfolio,  based upon a discounted cash flow model
     that  follows  the  contractual   provisions  of  the   certificates.   The
     significant  assumptions of the valuation include projecting the cash flows
     of the underlying mortgage revenue bonds and an appropriate discount rate.

                                       74
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


     CMBS AND RETAINED  INTERESTS - For our Commercial Real Estate  segment,  we
     purchase  real  estate  debt   securities   (principally   high-yield  CMBS
     securities)   some  of  which  are   retained   interests   from   previous
     securitization   activities.  In  addition,  our  Consolidated  Partnership
     segment may hold CMBS and retained interests. We classify these investments
     as  available-for-sale  as we may sell  them or  dispose  of them  prior to
     maturity.  We generally  estimate  fair value of CMBS and similar  retained
     interests  based on market  prices  provided by certain  dealers who make a
     market in these  financial  instruments.

     The Company performs additional analysis on prices received based on broker
     quotes.  This process  includes  analyzing the securities  based on vintage
     year,  rating and asset type and converting the price received to a spread.
     The calculated spread is then compared to market information  available for
     securities  of similar  type,  vintage  year and rating (i.e.  CMBX).  This
     process  is used by the  Company  to  validate  the  prices  received  from
     brokers.

     The market for these instruments may lack liquidity and have limited market
     volume.  Accordingly,  the fair  values may reflect  estimates  and may not
     necessarily  be  indicative  of the amounts we or a fund could realize in a
     current market exchange.

     The yield to  maturity on CMBS and  retained  interests  depends on,  among
     other things, the rate and timing of principal  payments,  the pass-through
     rate,  and interest  rate  fluctuations.  Our CMBS  interests  and retained
     interests  are  subordinated  instruments.  Cash  flow  from the  mortgages
     underlying the CMBS interests and retained  interests is allocated first to
     the senior  interests and then among the other CMBS  interests and retained
     interests  in order of  relative  seniority.  To the extent  that there are
     defaults and unrecoverable  losses on the underlying  mortgages that result
     in reduced cash flows, the most  subordinate  interest bear the loss first,
     with excess  losses borne by the  remaining  interests in order of relative
     subordination.

     SYNDICATED  CORPORATE DEBT - Through our Credit Risks Products segment,  we
     invest in syndicated  corporate  debt.  We classify  these  investments  as
     available-for-sale  as we may sell or dispose of them prior to maturity. We
     estimate fair value based on readily available market prices.

     MARKETABLE SECURITIES - From time to time, we may purchase other marketable
     securities, the fair value of which is based upon quoted market prices.

Available-for-sale   securities  are  assessed  for  impairment  quarterly.   To
determine if an impairment  is  other-than-temporary  we generally  consider the
duration of the loss position,  the strength of the underlying  collateral,  the
term, management's intent and other similar information.  We consider a mortgage
revenue bond as impaired  when we determine it is probable that not all required
contractual  payments will be made when due either from  property  operations or
other sources of collection  (such as sale under  foreclosure and syndication of
associated tax credits). Our primary tool to determine which bonds are likely to
incur a loss is to  evaluate  the  debt  service  coverage  ratio  based  on our
historical experience with similar properties,  the frequency of such losses and
current market conditions.

If  we  determine  an  available-for-sale   security  is  other-than-temporarily
impaired,  we write it down to its  estimated  fair  value and record a realized
loss in the consolidated  statements of operations.  The fair value at that time
is then considered the cost basis of the investment and subsequent  increases in
fair value over this new cost basis are included in other comprehensive  income;
subsequent decreases in fair value, if not other-than-temporary  impairment, are
also included in other comprehensive income.

For more information regarding available-for-sale investments see Note 6.

Equity Investments
------------------
For investments in entities we do not control, but for which we have the ability
to exercise significant  influence over operating and financial policies, we use
the equity method. Equity investments consist of:

     PARTNERSHIP  INTERESTS - Partnership  interests  related to the real estate
     equity  investment funds we sponsor.  Typically,  we hold these investments
     for a short period until we establish a new fund.

     AMERICAN MORTGAGE ACCEPTANCE COMPANY - American Mortgage Acceptance Company
     ("AMAC") is a publicly  traded real estate  investment  trust  ("REIT") for
     which we manage the operations.

     CENTERLINE  URBAN  CAPITAL LLC - Centerline  Urban Capital LLC ("CUC") is a
     joint venture equity fund with the California  Public Employees  Retirement
     System ("CalPERS").

Under the equity method, we record our proportionate  share of income or loss as
a component of equity and other income (loss) in the  consolidated  statement of
operations.   Amounts  recognized  include  equity  allocations  for  management

                                       75
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)

services  and  incentive  income  that we earn from  co-investments  in  certain
Consolidated   Partnerships,   although   such   amounts   are   eliminated   in
consolidation.

For more information  regarding  equity  investments with respect to partnership
interests see Note 7; for AMAC and CUC, see Note 22.

Other Investments
-----------------
Other investments consist of the following:

     MORTGAGE  LOANS  HELD FOR SALE -  Mortgage  loans  held for sale  represent
     amounts due for mortgage loans sold under purchase  agreements to permanent
     investors,  but for which we are awaiting  settlement  of funds.  We do not
     retain any interest in these loans  except for MSRs and certain  contingent
     liabilities  pursuant to loss sharing  agreements.  We account for mortgage
     loans held for sale at the lower of cost or fair value in  accordance  with
     SFAS No. 65,  ACCOUNTING FOR CERTAIN  MORTGAGE BANKING  ACTIVITIES,  ("SFAS
     65"). The cost of the loans includes  deferred loan  commitment fee revenue
     net of  direct  costs  associated  with  closing  the  related  loan and we
     recognize these amounts in operations when the loans are sold in accordance
     with SFAS No. 91,  ACCOUNTING FOR  NONREFUNDABLE  FEES AND COSTS ASSOCIATED
     WITH  ORIGINATING  OR ACQUIRING  LOAN AND INDIRECT  COSTS OF LEASES  ("SFAS
     91").

     STABILIZATION  ESCROW - As part of the  re-securitization of our Affordable
     Housing  mortgage  revenue bond  portfolio in December  2007,  certain cash
     consideration  was placed into escrow in connection  with mortgage  revenue
     bonds for which the underlying property was not considered  stabilized.  As
     these properties stabilize,  subject to certain conditions,  we are able to
     recoup  amounts from escrow.  The  stabilization  escrow is carried at fair
     value  based  upon an  evaluation  of the cash  flows  associated  with the
     non-stabilized bonds,  including an evaluation of the debt service coverage
     ratio ("DSCR") based on our historical  experience with similar  properties
     and the frequency of such losses.

     MORTGAGE LOANS HELD FOR INVESTMENT - In accordance  with SFAS 65,  mortgage
     loans held for  investment  are carried at expected net  realizable  value.
     When we believe we will not  collect all amounts due under the terms of the
     loan, we record a specific valuation allowance.

     For  investments  in mortgage  loans,  we follow the provisions of SFAS No.
     114,  ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN ("SFAS 114").  Under
     SFAS 114, a loan is impaired when, based on current information and events,
     it is  probable  that a creditor  will be unable to collect all amounts due
     according to the contractual terms of the loan agreement. SFAS 114 requires
     lenders to measure impaired loans based on:

          o    the present value of expected future cash flows discounted at the
               loan's effective interest rate;
          o    the loan's observable market price; or
          o    the   fair   value   of   the   collateral   if   the   loan   is
               collateral-dependent.

     We  periodically  evaluate  our  portfolio  of mortgage  loans for possible
     impairment to establish appropriate loan loss reserves,  if necessary.  If,
     in our judgment,  we determine that it is probable that we will not receive
     all  contractually  required  payments  when they are due, we deem the loan
     impaired and establish a loan loss reserve.

     CONSTRUCTION  LOANS TO LIHTC PROPERTIES - We invest in affiliated  entities
     that  co-develop  properties.   Development   investments  include  amounts
     invested to fund pre-development and development costs. Investment funds we
     sponsor acquire the limited  partnership  interest in these properties (see
     also C. EQUITY  INVESTMENTS - PARTNERSHIP  INTERESTS  above).  We expect to
     recapture   these  amounts  from  various   sources   attributable  to  the
     properties, including capital contributions of investments funds, cash flow
     from operations, and/or from co-development partners, who in turn have cash
     flow notes  from the  properties.  In  connection  with our  co-development
     agreements,   affiliates  of  Centerline  issue  construction   completion,
     development  deficit  guarantees  and operating  deficit  guarantees to the
     lender  and  investment   funds  (for  the  underlying   financing  of  the
     properties) on behalf of our subsidiary (see Note 25).

For more information regarding other investments see Note 8.

                                       76
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


D.  GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and Other Intangible Assets
------------------------------------

Goodwill  represents the excess of the purchase price over the fair value of net
assets  acquired,  including  the amount  assigned  to  identifiable  intangible
assets.  We do not  amortize  the  goodwill  balance.  The primary  drivers that
generate  goodwill  are the value of  synergies,  generally  revenue  synergies,
between the acquired entities and the acquired assembled workforce.

We  amortize  other  intangible  assets  on a  straight-line  basis  over  their
estimated useful lives.

Goodwill and  indefinite-lived  intangible assets are tested annually during the
fourth quarter and whenever events or circumstances make it more likely than not
that an impairment  may have occurred,  such as a significant  adverse change in
the  business  climate or a decision to sell or dispose of the unit.  Estimating
fair value is performed  by utilizing  various  valuation  techniques,  with the
primary technique being a discounted cash flow model.  Should goodwill be deemed
impaired,  the  useful  lives of  identified  intangible  assets  may need to be
reassessed and  amortization  accelerated,  or such  intangible  assets could be
deemed impaired as well.

Mortgage Servicing Rights
-------------------------
In  accordance  with SFAS No. 140,  ACCOUNTING  FOR  TRANSFERS  AND SERVICING OF
FINANCIAL ASSETS AND  EXTINGUISHMENT OF LIABILITIES  ("SFAS 140"), as amended by
SFAS 156,  we  recognize  as assets  the rights to  service  mortgage  loans for
others,  whether the MSRs are  acquired  through a separate  purchase or through
loans originated and sold. We record purchased MSRs at cost, which  approximates
fair value.  For originated  loans,  we allocate total proceeds from the sale of
the loan (including the fair value of the MSR retained) and recognize a gain. In
subsequent  periods,  we carry the assets at the  amortized  initial  basis.  In
accordance  with SFAS 140, all MSRs are amortized in proportion to, and over the
period of, estimated net servicing income.

We assess MSRs for impairment  based on the fair value of the assets as compared
to carrying values.  We estimate the fair value by obtaining market  information
from  one of  the  primary  mortgage  servicing  rights  brokers.  To  determine
impairment,   the  mortgage  servicing  portfolio  is  stratified  by  the  risk
characteristics  of the  underlying  mortgage loans and we compare the estimated
fair value of each stratum to its  carrying  value.  When the carrying  value of
capitalized servicing assets exceeds fair value, we recognize impairment through
a valuation  allowance;  fair value in excess of the amount  capitalized  is not
recognized. For the servicing portfolio associated with our mortgage originating
activities,  we have determined that the predominant risk  characteristic is the
interest  rate  and  loan  type.  For our  other  servicing  portfolios  we have
determined that the predominant risk characteristic is the ability to generate a
consistent  income  stream  per loan due to the  short-term  nature of the loans
being  serviced  or due to the fact  that  certain  servicing  revenues  are not
recurring.

In  accordance   with  FIN  No.  45,   GUARANTOR'S   ACCOUNTING  AND  DISCLOSURE
REQUIREMENTS FOR GUARANTEES,  INCLUDING  INDIRECT  GUARANTEES OF INDEBTEDNESS OF
OTHERS ("FIN 45"), we account for exposure to loss under our servicing contracts
with  Fannie Mae and  Freddie Mac as  guarantees  through a  provision  for loan
losses.  The provision  recorded is considered the fair value of the guarantees.
As a portion of the servicing fees we receive  represents  compensation  for our
guarantee,  we record the reserve as a contra-asset  applied to the MSR balance.
The exposure to loss results from  guarantees made to Fannie Mae and Freddie Mac
under  the  Designated   Underwriting   and  Servicing   ("DUS")  and  Delegated
Underwriting  Initiative  ("DUI") programs to share the risk of loan losses (See
Note 25 for more details).  Our determination of the adequacy of the reserve for
losses on loans  serviced is based on an evaluation of the risk  characteristics
and exposure to loss associated with those loans, in accordance with SFAS No. 5,
ACCOUNTING FOR CONTINGENCIES  ("SFAS 5"). Our assessment is based on a number of
factors including, but not limited to, general economic conditions, inability of
the borrower to meet debt service requirements,  or a substantial decline in the
value of the collateral.  For performing  loans, we maintain a general  reserve,
which is based on the  stratification  of the loan servicing  portfolio by DSCR.
The  probability  of default  and loss is higher for loans with lower  DSCRs and
therefore a higher reserve is maintained for such loans. For defaulted loans, we
maintain a loan specific reserve based on an estimate of our share of the loss.

For more information regarding intangible assets, see Note 9.

E. DEFERRED COSTS AND OTHER ASSETS, NET

Significant components of deferred costs and other assets, net include:

     DEFERRED COSTS - We capitalize  costs incurred in connection  with issuance
     of debt and  equity  issued  by our  subsidiaries  and  amortize  them on a
     straight-line basis over the terms of the facilities, or in the case of our
     Equity Issuer subsidiary over the period to the expected repurchase date of
     the shares (which approximates the effective interest method).

                                       77
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


     LAND,  PROPERTY  AND  BUILDINGS  - Our  Consolidated  Partnerships  segment
     includes property partnerships with multifamily  apartment properties.  The
     property partnerships depreciate the costs over seven to 40 year periods.

     DEPOSITS   RECEIVABLE  -  Principally   consist  of  amounts  deposited  as
     collateral  in  connection  with the  December  2007  re-securitization  of
     mortgage  revenue bonds replacing bonds  previously used as collateral (see
     Note 4).

     FURNITURE,  FIXTURES AND LEASEHOLD IMPROVEMENTS,  NET - Furniture, fixtures
     and leasehold  improvements are stated at cost.  Depreciation is calculated
     using the straight-line method.  Leasehold improvements are amortized using
     the straight-line method over the shorter of their useful lives or the life
     of the lease.  Costs associated with repairs and maintenance of property is
     expensed as incurred.

F.  ASSET IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived  assets,  including  finite-lived  intangible  assets, are tested for
impairment whenever events or changes in circumstances indicate that the related
carrying  amounts may not be recoverable.  Determining the extent of impairment,
if any,  typically  requires various  estimates and assumptions,  including cash
flows  directly  attributable  to the asset,  the  useful  life of the asset and
residual  value,  if any. When  necessary,  we use internal cash flow estimates,
quoted market prices and appraisals, as appropriate to determine fair value.

G.  SHARES OF SUBSIDIARIES

The  effects  of any  changes  in our  ownership  interests  resulting  from the
issuance of equity capital by consolidated  subsidiaries or equity  investees to
unaffiliated parties are accounted for as capital  transactions  pursuant to the
SEC Staff Accounting  Bulletin ("SAB") No. 51, ACCOUNTING FOR THE SALES OF STOCK
OF A SUBSIDIARY ("SAB 51"). For more information see Note 15.

H.  SECURITIZATION ACTIVITIES

We, and our Consolidated Partnerships, have engaged in securitization activities
related to financial  assets  including  mortgage revenue bonds and CMBS. In the
future we may continue to engage in similar securitization  transactions as well
as  securitizations  of other assets  including  collateralized  debt obligation
("CDO")  securities and syndicated  corporate  debt  investments.  We may retain
interests in the securitized  financial assets that take several different forms
including,  but not  limited  to, one or more  tranches  of the  securitization,
undivided  seller's  interest and rights to excess cash flows after  payments to
investors  with  contractual  rate of  returns  and  administrative  costs.  The
exposure to credit  losses from  securitized  assets is limited to our  retained
interest,  including any credit intermediation we may provide through our Credit
Risks Products segment. Securitized transactions are accounted for in accordance
with SFAS 140. Retained interests,  which currently include certain CMBS and CDO
investments held within our Commercial Real Estate and Consolidated  Partnership
segments and Freddie Mac  Certificates  held by our Affordable  Housing segment,
are  accounted  for in  accordance  with the  nature  and terms of the  retained
interests.

For more information see Notes 6 and 23.

I.  RESALE AND REPURCHASE AGREEMENTS

We account for transactions  involving  purchases of securities under agreements
to  resell  (reverse  repurchase  agreements  or  reverse  repos)  or  sales  of
securities  under agreements to repurchase  (repurchase  agreements or repos) as
collateralized financing arrangements / agreements.

J.  CREDIT INTERMEDIATION TRANSACTIONS

For guarantees and other credit intermediation transactions issued since January
1, 2003, we record liabilities (included in deferred revenues) equal to the fair
values of the  obligations  undertaken.  For  transactions  for which we receive
fees, we consider the fees received to be fair value, in accordance with FIN 45.
For  completion  and other  guarantees  issued  to  lenders  for the  underlying
financing  of  properties,  as  required by an  investment  fund,  we  generally
recognize  no  liability  upon  inception  of the  guarantee  as the exposure is
considered  minimal and no fee is received.  We monitor our exposure under these
agreements  and,  should we determine a loss is probable,  accrue a liability in
accordance with SFAS 5.

K. FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Our primary objective for holding  derivative  instruments is to manage interest
rate and  certain  equity  market  risks.  We account for  derivative  financial
instruments pursuant to SFAS No. 133, ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND
HEDGING  ACTIVITIES  ("SFAS  133"),  as  amended  and  interpreted.   We  record
derivatives at fair value,  with changes in fair value of those that we classify
as cash flow hedges recorded in accumulated other  comprehensive  income, to the

                                       78
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)

extent  they  are  effective.  If  deemed  ineffective,  we  record  the  amount
considered  ineffective  in the  consolidated  statement  of  operations  if the
ineffectiveness is within the limits allowed by SFAS 133. If the ineffectiveness
exceeds  the  allowable  limit,  we would  record  the  entire  fair  value (and
subsequent  changes)  in our  consolidated  statement  of  operations.  When  we
terminate a derivative  that we have accounted for as a hedge (or determine that
the  hedged  transaction  is no  longer  likely to  occur),  we  reclassify  any
unrealized gain or loss in accumulated other comprehensive  income and recognize
it in our consolidated statements of operations.

We have  determined  that we will  not  apply  hedge  accounting  to fair  value
derivatives and we also may write free-standing  derivatives.  Any change in the
fair value of these derivatives is included in current period net income.

L. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  value of cash and cash  equivalents,  including  restricted  cash,
approximates  fair  value  due to the  short  period  of time to  maturity.  Our
investments in mortgage revenue bonds, Freddie Mac Certificates,  CMBS, CDO, and
syndicated  corporate  debt are carried at estimate  fair values based on either
quoted  market  prices or pricing  models that utilize  current  market data and
discount  of expected  cash flows.  Derivatives  are carried at  estimated  fair
value.  As described  above,  our MSRs are recorded  initially at estimated fair
values and amortized.  We have  determined  that the fair value of our remaining
financial instruments,  including temporary investments, mortgage loans held for
sale,  mortgage  loans held for  investment  and  borrowings  approximate  their
carrying values at December 31, 2007 and 2006, due primarily to their short term
nature or variable rates of interest.  For more  information see Notes 6, 14 and
23.

M.  TREASURY STOCK

We account for treasury stock purchases using the cost method.

N.  REVENUES

Mortgage Revenue Bond Interest Income
-------------------------------------
We recognize  mortgage  revenue bond interest  income using the effective  yield
method based on the actual coupon rate and the outstanding  principal  amount of
the  underlying  mortgages,  taking into account  differences  in interest  rate
during the construction  period as compared to balance of the term, premiums and
discounts,  any fees  received  in  connection  with bond  originations  and the
effects of estimated prepayments in accordance with SFAS 91.

We place bonds on a  non-accrual  status when any  portion of the  principal  or
interest is 90 days past due or earlier when  concern  exists as to the ultimate
collectability  of principal or  interest.  Bonds return to accrual  status when
principal and interest  become  current.  There were seven bonds on  non-accrual
status at  December  31, 2007 and 2006,  with a fair value of $45.8  million and
$35.1 million, respectively.

Other Interest Income
---------------------
We  recognize  income  on  temporary  investments  (such  as cash in  banks  and
short-term  instruments) as well as longer term  investments  (e.g.,  promissory
notes, mortgages receivable) and escrow accounts we manage, on the accrual basis
as earned. We recognize income on retained interest certificates  (including the
Freddie Mac  certificates)  as it  accrues,  provided  collectability  of future
amounts is reasonably  assured.  We adjust the amortized  cost of securities for
accretion   of  discounts  to   maturity.   We  compute   accretion   using  the
effective-interest  method over the expected life of the securities based on our
estimates  regarding  the timing  and  amount of cash flows from the  underlying
collateral.

The Credit Risk Products Group also earns interest on syndicated  corporate debt
investments.  This income is computed using the  effective-interest  method over
the expected life of the securities, including the amortization and accretion of
premiums and discounts.

Fee Income
----------
Fees  related  to  our  LIHTC  Fund  sponsorship  activities,  included  in  the
Affordable  Housing  Segment,   associated  with  sponsoring  tax-credit  equity
investment  funds, for assisting the funds in acquiring assets and for providing
specified yields to investors of certain funds include:

     (i.) ORGANIZATION,   OFFERING  AND  ACQUISITION   ALLOWANCE  FEES  are  for
          reimbursement  of costs we incur for organizing LIHTC investment funds
          and  for  providing  assistance  in  acquiring  the  properties  to be
          included in the funds.  We recognize  the  organization,  offering and
          acquisition   allowance   fee  when  the   investment   funds  acquire
          properties.   The  related   expenses  are  included  in  general  and
          administrative expenses.

                                       79
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


     (ii.) PROPERTY  ACQUISITION  FEES are for services we perform for the LIHTC
          investment  funds to acquire  interests in property  partnerships.  We
          recognize  these fees when the investor  equity is invested and as the
          properties'  limited   partnership   interests  are  acquired  by  the
          investment fund.
     (iii.)  PARTNERSHIP  MANAGEMENT  FEES are for  maintaining  the  books  and
          records  of  LIHTC  investment  funds,  including  requisite  investor
          reporting.  We  recognize  these  fees over the five year  contractual
          service period following the initial closing of the fund.
     (iv.) CONSTRUCTION  SERVICE  FEES from  borrowers  for  servicing  mortgage
          revenue  bonds  during  the  construction   period  are  deferred  and
          amortized into other income over the estimated construction period.
     (v.) ADMINISTRATION  FEES charged to the property  partnerships or to other
          entities we manage are  recorded as the  payments  are received due to
          the uncertainty of collectability.
     (vi.) ASSET  MANAGEMENT  FEES  from  LIHTC  investment  funds,  based  on a
          percentage of each  investment  fund's  invested assets are earned for
          monitoring  the acquired  property  interests and to ensure that their
          development,  leasing  and  operations  comply with LIHTC or other tax
          credit requirements.
     (vii.) BOND ACQUISITION FEES are paid by borrowers when we acquire mortgage
          revenue  bonds.  These fees are  recognized  as yield  adjustments  in
          mortgage  revenue  bond  interest  income  if we  retain  the  bond or
          recognized immediately if we were to sell the bond

Mortgage  origination  fees,  earned by our  Commercial  Real Estate Group,  are
recognized when we settle the sale of a loan to the purchaser.

Servicing  fees related to mortgages  are  recognized on an accrual basis as the
services are performed over the servicing  period by our Commercial  Real Estate
segment.  Our Portfolio Management segment also recognizes servicing fee income,
including  primary and special  servicing.  These fees are generally  based on a
percentage of the balance of loans serviced,  and we record them as earned on an
accrual basis provided that collection is reasonably assured.

Asset  management fees are earned from LIHTC  investment funds by our Affordable
Housing segment and on high-yield debt investment  entities (e.g.,  AMAC, CRESS)
by our Commercial  Real Estate  segment.  These fees are generally  based on the
assets or equity of the managed entity and we recognize them as earned  provided
collectability is assured.

Our Affordable Housing and Credit Risk Products Groups recognize fees related to
credit intermediation activities. Fees for credit intermediation transactions to
provide  specified rates of return for an LIHTC fund,  received in advance,  are
deferred  and  amortized  over  the  applicable   risk-weighted   periods  on  a
straight-line basis. For those pertaining to the construction and lease-up phase
of a pool of properties, the periods are generally one to three years. For those
pertaining  to the  operational  phase of a pool of  properties,  the  period is
approximately 20 years.  Fees for other credit  intermediation  transactions are
received monthly and recognized as income when earned.

Other Revenues
--------------
Other revenues  principally  consist of prepayment  penalties  recognized at the
time of prepayment  of a mortgage  revenue bond and expense  reimbursements  for
amounts  billed  to  investment   funds  and  other   affiliated   entities  for
reimbursement  of salaries and certain  other  ongoing  operating  expenditures,
which we recognize as earned.

Rental Income
-------------
Rental income for property partnerships is accrued as earned based on underlying
lease agreements.

O.  SHARE BASED COMPENSATION

We  record   restricted  share  grants  in  beneficial   owners'  equity  within
shareholders'  equity.  The balance  recorded equals the number of shares issued
(and that we expect  to vest)  multiplied  by the  closing  price of our  common
shares on the grant date. We recognize the value of the awards as expense in our
consolidated  statements  of  operations  on  a  straight-line  basis  over  the
applicable service periods.  For each separately vesting portion of an award, we
record the  expense as if the award  was,  in  substance,  multiple  awards.  We
expense any shares granted with immediate vesting when granted.

Because share-based compensation is based on awards that we ultimately expect to
vest, share-based compensation expense has been reduced to account for estimated
forfeitures.  SFAS No.  123(R),  SHARE-BASED  PAYMENT ("SFAS  123(R)")  requires
forfeitures to be estimated at the time of grant and revised,  if necessary,  in
subsequent periods if actual forfeitures differ from those estimates. In periods
prior to 2006, we accounted for forfeitures as they occurred.

For  share  option  grants,  under  SFAS  123(R),  we are  required  to select a
valuation technique or option pricing model that meets the criteria as stated in
the standard.  At present,  we use the Black-Scholes  model,  which requires the
input of subjective assumptions. These assumptions include estimating the length

                                       80
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


of time employees will retain their vested stock options before  exercising them
("expected term"), the estimated  volatility of the Company's common stock price
over the  expected  term  ("volatility"),  the risk free  interest  rate and the
dividend yield.

For more information see Note 19.

P.  INCOME TAXES

We provide for income  taxes in  accordance  with SFAS No. 109,  ACCOUNTING  FOR
INCOME TAXES ("SFAS 109"), which requires the recognition of deferred tax assets
and  liabilities   for  the  expected  future  tax   consequences  of  temporary
differences  between the financial  statement carrying amounts and the tax basis
of assets and liabilities.  We assess the  recoverability of deferred tax assets
through evaluation of carryback availability, projected taxable income and other
factors as  applicable.  If we  determine  that  deferred  tax assets may not be
recoverable, we record a valuation allowance as appropriate.

We provide for exposure in connection with uncertain tax positions in accordance
with FIN 48 (see Note 1B).

For more information see Note 20.

Q.  EARNINGS PER SHARE

Basic net  income  per share  represents  net  income  allocated  to Common  and
Convertible Community Reinvestment Act ("CRA") shareholders (see Note 16 and 17)
by the weighted average number of Common and Convertible CRA shares  outstanding
during the period.  Diluted net income per share  includes the weighted  average
number of shares outstanding during the period and the dilutive effect of common
share equivalents, calculated using the treasury stock method.

The Convertible  CRA shares  (excluding  redeemable  shares) are included in the
calculation of shares  outstanding  as they share the same economic  benefits as
common  shareholders.  Special  Common  Units  ("SCU"s),  Special  Member  Units
("SMU"s),  Special Common Interests  ("SCI"s) and 4.4% Convertible CRA preferred
shares  (see Notes 15 and 17) are not  included in the  calculation  as they are
anti-dilutive.

R.  COMPREHENSIVE INCOME (LOSS)

Comprehensive  income  (loss)  includes  net income,  gains or losses on certain
derivative   financial    instruments,    unrealized   gains   and   losses   on
available-for-sale  investments and our proportionate share of accumulated other
comprehensive  income of  equity  method  investees.  For more  information  see
Consolidated Statements of Shareholders' Equity and Note 17.


NOTE 3 - RECENT ACCOUNTING STANDARDS

In  December  2007,  FASB  issued  SFAS No.  160,  NONCONTROLLING  INTERESTS  IN
CONSOLIDATED  FINANCIAL  STATEMENTS - AN  AMENDMENT OF ARB NO. 51 ("SFAS  160").
SFAS 160 requires that a noncontrolling  interest in a subsidiary be reported as
equity and the amount of consolidated  net income  specifically  attributable to
the  noncontrolling   interest  be  identified  in  the  consolidated  financial
statements.  It also calls for consistency in the manner of reporting changes in
the  parent's  ownership  interest and requires  fair value  measurement  of any
noncontrolling  equity  investment  retained in a  deconsolidation.  SFAS 160 is
effective for us on January 1, 2009. We are currently  evaluating  the impact of
adopting SFAS 160 on our consolidated financial condition, results of operations
and cash flows.

In  December  2007,  the FASB  issued  SFAS No.  141  (revised  2007),  BUSINESS
COMBINATIONS  ("SFAS  141(R)").  SFAS 141(R)  broadens the guidance of SFAS 141,
extending its  applicability  to all  transactions and other events in which one
entity obtains control over one or more other  businesses.  It broadens the fair
value  measurement and recognition of assets acquired,  liabilities  assumed and
interests transferred as a result of business combinations.  SFAS 141(R) expands
on required  disclosures to improve the statement  users'  abilities to evaluate
the nature  and  financial  effects of  business  combinations.  SFAS  141(R) is
effective  for us on  January 1, 2009.  We do not  expect the  adoption  of SFAS
141(R)  to  have a  material  effect  on our  financial  condition,  results  of
operations or cash flows.

In  February  2007,  the FASB issued  SFAS No.  159,  THE FAIR VALUE  OPTION FOR
FINANCIAL ASSETS AND FINANCIAL  LIABILITIES.  This statement was issued with the
intent to provide an  alternative  measurement  treatment for certain  financial
assets and liabilities.  The alternative  measurement would permit fair value to
be used for both initial and subsequent measurement,  with changes in fair value
recognized in earnings as those changes  occur.  We did not elect the fair value
option for any of our existing  financial  statements on the effective  date and
have not  determined  whether or not we will elect this option for any  eligible
financial instruments we acquire in the future.

                                       81
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS  ("SFAS
157").  SFAS 157 defines fair value,  establishes a framework for measuring fair
value  with   respect  to  GAAP  and  expands   disclosures   about  fair  value
measurements.  SFAS 157 is effective for our financial assets and liabilities on
January 1, 2008.  The FASB has deferred the  provisions  of SFAS 157 relating to
nonfinancial  assets and  liabilities to January 1, 2009. Due to the requirement
to  consider   nonperformance   factors  in  determining   the  fair  value  for
liabilities,  and based on our evaluation to date, we do not expect the adoption
of SFAS 157 to have a material  effect on our financial  position and results of
operations. This statement, however, will require additional disclosures.

In November 2007, the SEC issued Staff Accounting Bulletin No. 109, WRITTEN LOAN
COMMITMENTS  RECORDED  AT FAIR  VALUE  THROUGH  EARNINGS  ("SAB  109").  SAB 109
rescinds an existing  prohibition on inclusion of expected net future cash flows
related to loan servicing  activities in the fair value measurement of a written
loan  commitment.  SAB 109 also applies to any loan  commitments  for which fair
value  accounting is elected under SFAS 159. SAB 109 is effective as of our 2008
fiscal year.  We are currently  assessing the financial  impact of adopting this
pronouncement.


NOTE 4 - RE-SECURITIZATION OF OUR MORTGAGE REVENUE BOND PORTFOLIO

In December  2007,  we completed the  re-securitization  of most of our mortgage
revenue bond portfolio. This re-securitization  transaction allowed us to obtain
a higher  level of liquidity  of the bond  portfolio,  and provides us with long
term  fixed-rate  financing  matched to the duration of the portfolio.  While we
retained a high-yielding residual interest that generates a tax-exempt cash flow
stream, we have eliminated the liquidity and interest rate risks inherent in our
historical securitization programs. It also aligns the structure of this portion
of our business  more  closely with the asset  manager role we have in our other
business  lines as we  remain  the  primary  and  special  servicer  of the bond
portfolio.

This  transaction  (the  "Freddie  Mac  Transaction")   primarily  involved  the
following components:

     o    Termination of existing  securitization  programs, with one exception,
          secured by mortgage revenue bond investments (see Note 12). Associated
          interest rate swap agreements were also terminated (see Note 14).
     o    Exchange  of  mortgage   revenue  bond  investments  for  Freddie  Mac
          Certificates  classified  as Series A,  Series A-1, or Series A-2 (all
          "A" classes  being fixed rate) and Series B  (residual).  The Series B
          Freddie  Mac  Certificates  are  entitled  to all cash  flows from the
          underlying  pool of mortgage  revenue  bonds after payment of interest
          and principal on the other  certificates  and the payment of servicing
          and administration fees.
     o    Sale of all class Series A and Series A-2 Freddie Mac  Certificates to
          Freddie  Mac for cash and  retention  of the  Series  A-1 and Series B
          Freddie Mac Certificates  (see Note 6). A portion of the cash received
          for the  certificates  sold was  placed in escrow in  connection  with
          stabilization requirements for certain properties securing some of the
          bonds (see Note 8).  Another  portion was  deposited as  collateral to
          replace bonds  previously  used as collateral  for other programs (See
          Note 10).

For accounting purposes,  consummation of this transaction constituted a sale of
the mortgage  revenue bond  investments,  with the  exception of those bonds for
which our continuing  involvement precluded sale treatment despite consideration
received from Freddie Mac. For such assets,  a secured  financing  liability was
established (See Note 12).

As a result of the  transaction and the resulting sale treatment for many of the
bond  investments,   certain  sources  of  revenue   associated  with  the  bond
investments  were  treated as earned  immediately  as compared  to the  historic
recognition as yield  adjustments  on the  investments.  In addition,  we act as
primary and special  servicer for the mortgage  revenue bonds,  generating  MSRs
(see Note 9) and an ongoing revenue stream.

                                       82
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The components of the resulting net loss on the transaction are as follows:
<TABLE>
<CAPTION>
                                                       Accounted
                                        Accounted       for as
(IN THOUSANDS)                         for as Sold     Financed         Total
------------------------------------   -----------    -----------    -----------
<S>                                    <C>            <C>            <C>
Proceeds:
  Cash                                 $ 1,721,339    $   541,767    $ 2,263,106
  Retained Interests                       442,140        148,261        590,401
  MSRs                                       2,209            980          3,189
                                       -----------    -----------    -----------
Total proceeds                           2,165,688        691,008      2,856,696

Investment in mortgage revenue bonds    (2,131,645)      (651,653)    (2,783,298)
                                       -----------    -----------    -----------
Gain on sale of bonds                       34,043         39,355         73,398

Transaction costs                          (89,030)            --        (89,030)
Realization of derivative losses           (19,506)            --        (19,506)
Other costs                                 (3,410)            --         (3,410)
                                       -----------    -----------    -----------

Loss on Freddie Mac Transaction        $   (77,903)   $    39,355    $   (38,548)
                                       ===========    ===========    ===========
</TABLE>


The  consideration  we received in the  transaction was based on the outstanding
principal  balance of the mortgage  revenue bonds. As our carrying cost of these
bonds (exclusive of unrealized gains or losses based on fair value measurements)
included  deferred  revenues  associated  with the  acquisition of the bonds and
reductions in the carrying cost due to  impairment  charges we had recorded,  we
realized an aggregate gain with respect to the transaction  prior to transaction
and other costs. With respect to bonds for which the  re-securitization  was not
treated as a sale, we did not recognize a gain,  but we may when sale  treatment
is  ultimately  obtained,   which  depends  on  the  nature  of  the  continuing
involvement.

The gain  described  above was more than  offset by other  costs  recognized  in
connection  with the  transaction,  including  costs of terminating the existing
securitization  programs,  consent  fees with  respect  to the  Equity  Issuer's
preferred shares (see Note 15),  advisory and other  professional  fees, some of
which  remained  unpaid as of December 31, 2007 (see Note 13). In  addition,  we
recognized the cumulative decrease in fair value of interest rate swap contracts
that had historically  been a component of determining the fair value of certain
bonds.  Upon the treatment of this  transaction as a sale,  these swap contracts
are now accounted for as free-standing derivatives.  Additionally, we terminated
interest  rate  swaps  that  we  had  used  to  hedge  the  cash  flows  of  the
securitization programs we terminated (see Note 14).

In connection  with the  transaction,  we repaid the  terminated  securitization
programs ($1.9 billion) and our revolver and term loan facilities  (aggregate of
$770.0 million) and entered into new term loan and credit  facilities (see Notes
11 and 12). We wrote off unamortized  deferred  financing costs  associated with
the  terminated  facilities  and  capitalized  costs  associated  with  the  new
financing (see Note 10). As we receive additional commitments for the new credit
facilities,  the incremental  proceeds from the proceeds must be used to satisfy
any shortfalls in the  stabilization  escrow described above (see Note 8) and to
pay the accrued costs of the transaction (see Note 13). Also, in connection with
the  transaction,  we entered into option  agreements with certain  shareholders
that will  permit  them to redeem  their  shares at a fixed price and which also
revised other terms of the shares (see Note 16).


NOTE 5 - ACQUISITIONS

A.  CENTERLINE INVESTORS I LLC

In August  2006,  we acquired  all of the  membership  interests  in  Centerline
Investors I LLC ("Centerline Investors"),  formerly ARCap Investors, L.L.C, that
we had not previously  owned. We include the results of operations of Centerline
Investors as of the date of acquisition.  Centerline Investors is a fund manager
specializing in the  acquisition,  management and servicing of high-yield  CMBS.
The total purchase price of $275.3 million included:

     o    cash of $263.3 million, including transaction costs;
     o    268,000  Special Common  Interests  ("SCIs") of a subsidiary (see Note
          15) with a value of $4.9 million; and

                                       83
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


     o    the remaining  basis of our prior  investment in Centerline  Investors
          ($7.1 million) which had been reduced by  distributions  accounted for
          as returns of capital.

Of the total purchase price, $22.5 million was placed into escrow, $18.0 million
of which was released in 2007 based on the  occurrence  of certain  events.  The
remaining  balance of $4.5 million  could  revert to us,  should  certain  other
events not under our control occur in 2008.

The cash portion of the acquisition and associated acquisition costs were funded
by a new credit facility. In connection with the acquisition, we also issued 1.7
million  restricted  common shares to Centerline  Investors  employees (see Note
19).

B.  CHARTERMAC REAL ESTATE SECURITIES

In March 2006, we acquired  CharterMac Real Estate Services,  a manager of hedge
funds and other funds,  for $7.3 million.  We accounted for the acquisition as a
purchase  and,  accordingly,  we  included  the  results  of  operations  in the
consolidated  financial  statements from the acquisition  date. We allocated our
cost of the  acquisition on the basis of the estimated fair values of the assets
and  liabilities  assumed.  The excess of the purchase price over the net of the
amounts  assigned to the assets acquired and liabilities  assumed was recognized
as goodwill of $6.1 million.

In October 2006, we decided to cease operations of this business.  In connection
with that decision, certain subsidiary equity units that we had issued (see Note
15) were  returned or cancelled and the  business'  founder  assumed its line of
credit.  We also  recognized  a goodwill  impairment  charge of $1.0  million to
account  for the  portion of our total  investment  that we did not  recover and
wrote-off  the $1.6  million  unamortized  balance  of other  intangible  assets
recognized at the time of the acquisition.


NOTE 6 - AVAILABLE-FOR-SALE INVESTMENTS

At December 31, available-for-sale investments consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)                  2007         2006
-------------------------    ----------   ----------
<S>                          <C>         <C>
Freddie Mac Certificates:
  Series A-1                 $  288,672  $        --
  Series B                      153,468           --
Mortgage revenue bonds          376,432    2,397,738
Retained CMBS certificates       75,328      102,357
CMBS                             13,361           --
Syndicated corporate debt        27,749           --
Marketable securities             3,368        1,465
                             ----------   ----------
                             $  938,378   $2,501,560
                             ==========   ==========
</TABLE>


A.  FREDDIE MAC CERTIFICATES

As previously  discussed in Note 4, we retained  Series A-1 and Series B Freddie
Mac Certificates in connection with December 2007  re-securitization of the bond
portfolio with Freddie Mac. The Series B Freddie Mac  Certificates  are residual
interests.  Key fair value  assumptions  used in  measuring  the  Freddie  Mac B
Certificates at the date of the re-securitization were as follows:

        Weighted average discount rate                          11.0%
        Constant prepayment rate                                90.0%
        Weighted average life                             11.6 years
        Constant default rate                                   2.00%

                                       84
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


At December 31, 2007,  the fair value and the  sensitivity  on the fair value of
residual cash flows to immediate  adverse  changes in those  assumptions  are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------------   -----------
<S>                                                             <C>
Fair value of Freddie Mac B Certificates at December 31, 2007   $   153,468

Constant prepayment rate:
   Fair value after impact of 5% increase                           153,016
   Fair value after impact of 10% increase                          151,533

Discount rate:
   Fair value after impact of 1% increase                           145,556
   Fair value after impact of 2% increase                           138,304

Constant default rate:
   Fair value after impact of 1% increase                           143,470
   Fair value after impact of 2% increase                           134,200
</TABLE>


These  sensitivities  are  hypothetical  changes  in fair  value  and  cannot be
extrapolated  because  the  relationship  of the  changes in  assumption  to the
changes in fair value may not be linear.  Also,  the effect of a variation  in a
particular  assumption  is  calculated  without  changing any other  assumption,
whereas change in one factor may result in changes to another.  Accordingly,  no
assurance can be given that actual results would be consistent  with the results
of these estimates.

As the re-securitization took place at the end of December 2007, the assumptions
used to value the residual  interest were the same on the transaction date as on
December 31, 2007. There were no cash receipts from the securitization  trust in
2007, nor any delinquencies or defaults in the managed portfolio.

                                       85
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


B.  MORTGAGE REVENUE BONDS

The following  tables  summarize our mortgage revenue bond portfolio at December
31, 2007:
<TABLE>
<CAPTION>
                                                                                                   Fair Value at
                                                Units               Face Amount of Bond(1)        December 31, 2007
                                       ------------------------    ------------------------    -----------------------
                                                                                                                           Current
                                                                                                                            Stated
                         Number of                                                                                         Interest
(dollars in thousands)     Bonds         Number      % of Total     $ Amount     % of Total     $ Amount    % of Total       Rate
                         ----------    ----------    ----------    ----------    ----------    ----------   ----------   ----------
<S>                             <C>        <C>            <C>      <C>                <C>      <C>               <C>            <C>
By Property Status:
----------------------
Stabilized                       28         5,017          32.1%   $  236,775          29.6%   $  221,198         28.6%         7.0%
Lease-up                         42         6,760          43.2       378,816          47.3       367,935         47.6          6.7
Construction                      7         1,600          10.2        80,380          10.0        80,061         10.4          6.5
Rehab                            21         2,260          14.5       105,227          13.1       104,127         13.4          6.0
                         ----------    ----------    ----------    ----------    ----------    ----------   ----------   ----------
Subtotal                         98        15,637         100.0%      801,198         100.0%      773,321        100.0%         6.7%
                         ==========    ==========    ==========    ==========    ==========    ==========   ==========   ===========
Eliminations(2)                 (45)       (7,836)                   (409,631)                   (396,889)
                         ----------    ----------                  ----------                  ----------
Total                            53         7,801                  $  391,567                  $  376,432
                         ==========    ==========                  ==========                  ==========
2006 Total                      333        48,434                  $2,417,415                  $2,397,738
                         ==========    ==========                  ==========                  ==========

By State:(3)
Texas                            31         6,082          38.9%   $  330,470          41.2%   $  319,306         41.3%         7.0%
Georgia                          12         3,366          21.5       194,600          24.3       192,690         24.9          6.4
Mississippi                       4           720           4.6        34,605           4.3        34,392          4.4          6.6
Iowa                              4           566           3.6        33,480           4.2        32,497          4.2          6.6
Arkansas                          6           716           4.6        31,415           3.9        29,369          3.8          6.5
All Others                       41         4,187          26.8       176,628          22.1       165,067         21.4          6.6
                         ----------    ----------    ----------    ----------    ----------    ----------   ----------   ----------
Subtotal                         98        15,637         100.0%      801,198         100.0%      773,321        100.0%         6.7%
                                                     ==========                  ==========                 ==========   ==========
Eliminations(2)                 (45)       (7,836)                   (409,631)                   (396,889)
                         ----------    ----------                  ----------                  ----------
Total                            53         7,801                  $  391,567                  $  376,432
                         ==========    ==========                  ==========                  ==========
2006 Total                      333        48,434                  $2,417,415                  $2,397,738
                         ==========    ==========                  ==========                  ==========


By Maturity Date:
----------------------
2008-2010                         7           162           1.0%   $    4,576           0.6%   $    1,735          0.2%        7.83%
2011-2015                         3            --(3)         --         1,410           0.2         1,410          0.2         6.17
2016-2020                         8           343           2.2         9,440           1.2         8,205          1.1         8.12
2021-2025                         2            --(3)         --         2,870           0.4         2,652          0.3         8.59
2026-2030                         5            --(3)         --         7,681           1.0         7,681          1.0         5.69
2031-2035                         2           518           3.3        23,625           2.9        23,352          3.0         6.51
2036-2040                        15         2,601          16.6       120,390          15.0       113,778         14.7         6.97
2041-2045                        41         9,003          57.6       475,171          59.3       458,552         59.3         6.76
2046 and After                   15         3,010          19.3       156,035          19.4       155,956         20.2         6.22
                         ----------    ----------    ----------    ----------    ----------    ----------   ----------   ----------
Subtotal                         98        15,637         100.0%      801,198         100.0%      773,321        100.0%        6.70%
                                                     ==========                  ==========                 ==========   ==========
Eliminations(2)                 (45)       (7,836)                   (409,631)                   (396,889)
                         ----------    ----------                  ----------                  ----------
Total                            53         7,801                  $  391,567                  $  376,432
                         ==========    ==========                  ==========                  ==========
2006 Total                      333        48,434                  $2,417,415                  $2,397,738
                         ==========    ==========                  ==========                  ==========
</TABLE>

(1)  Original principal amount at issuance.
(2)  Certain bonds are recorded as  liabilities on the balance sheets of certain
     consolidated partnerships and therefore eliminated in consolidation.
(3)  Certain properties  collateralize multiple mortgage revenue bonds; only one
     bond is included to avoid duplication.

                                       86
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The  amortized  cost basis of our  portfolio of mortgage  revenue  bonds and the
related unrealized gains and losses were as follows at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                           2007           2006
----------------------------------   -----------    -----------
<S>                                  <C>            <C>
Amortized cost basis                 $   774,594    $ 2,727,372
Gross unrealized gains                     2,351        101,364
Gross unrealized losses                   (3,624)       (33,670)
                                     -----------    -----------
Subtotal/fair value                      773,321      2,795,066
   Less: eliminations (1)               (396,889)      (397,328)
                                     -----------    -----------
Total fair value per balance sheet   $   376,432    $ 2,397,738
                                     ===========    ===========
</TABLE>

(1)  Certain bonds are recorded as  liabilities on the balance sheets of certain
     consolidated partnerships and therefore eliminated in consolidation.


The fair  value  and gross  unrealized  losses of our  mortgage  revenue  bonds,
aggregated  by length of time that  individual  bonds have been in a  continuous
unrealized loss position, is summarized in the table below:
<TABLE>
<CAPTION>
                          Less than     12 Months
(DOLLARS IN THOUSANDS)    12 Months      or More        Total
----------------------   -----------   -----------   -----------
<S>                      <C>           <C>           <C>
December 31, 2007

Number                            18             3            21
Fair value               $   234,248   $    36,559   $   270,807
Gross unrealized loss    $     3,244   $       380   $     3,624

December 31, 2006

Number                            76            60           136
Fair value               $   502,758   $   356,543   $   859,301
Gross unrealized loss    $    22,355   $    11,315   $    33,670
</TABLE>


The unrealized  losses related to these mortgage revenue bonds are due primarily
to unamortized yield adjustments  related to the bonds and are not reflective of
the operating  performance on the assets. For discussion of other-than temporary
impairments, see IMPAIRMENT below.

As of December 31, 2007, one mortgage  revenue bond with an aggregate fair value
of $14.7 million was securitized  (see Note 12). An additional six bonds with an
aggregate  fair value of $51.2 million were pledged as collateral  under our new
Term Loan agreement in December 2007 (see Note 11).

During 2007, we recognized  $19.9  million of mortgage  revenue bond  impairment
charges. Of this amount, $13.7 million, recognized in the first quarter of 2007,
related to the change in our strategy in recovering  investments associated with
troubled  developers (see discussion under PRS/CRG/ERC in Note 25) and resultant
changes  in  cash  flow  assumptions.   The  other  impairments   resulted  from
substandard performance at the underlying properties.

During 2006,  we  recognized  $4.7 million of mortgage  revenue bond  impairment
charges in light of substandard performance at seven underlying properties.  For
one of the properties,  we reached an agreement with the general partner whereby
he relinquished control of the property, and for two others we revised the terms
of the bonds to reduce the interest rates.

During 2005, we determined that construction  should be halted on a property for
which we had assumed  the  general  partner  interest  (see Note 25),  agreed in
principle  to  revise  the  terms  of  another  mortgage  revenue  bond and also
determined  that two bonds  secured  by a property  would  likely  require  term
revisions to reduce the rate of interest.  As a result, we recognized impairment
losses of $4.6 million.

                                       87
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


C.  RETAINED CMBS CERTIFICATES

Retained CMBS  certificates  pertain to our retained  investments in trusts that
hold CMBS investments  sponsored directly, or indirectly through other funds, of
Centerline Investors. The retained CMBS certificates (not including certificates
held at the fund level  detailed in Note 23) were  comprised of the following as
of December 31, 2007:
<TABLE>
<CAPTION>
                                 Face         Accreted        Unrealized      Unrealized         Fair        Percentage of
(DOLLARS IN THOUSANDS)          Amount          Cost            Gain             Loss            Value        Fair Value
-------------------------   -------------   -------------   -------------   -------------    -------------   -------------
<S>                         <C>             <C>             <C>             <C>              <C>                     <C>
Security rating:
  AAA interest only         $          --   $      12,610   $       4,376   $          --    $      16,986            22.5%
  AA+                              26,150          14,447           6,473              --           20,920            27.8
  BBB-                             12,536           5,313           2,208              --            7,521            10.0
  BB+                               8,784           5,504              --          (3,308)           2,196             2.9
  BB                               11,635           4,872           1,550            (737)           5,685             7.6
  BB-                              11,635           3,632           2,201            (686)           5,147             6.8
  B+                                3,871           1,752              --          (1,055)             697             0.9
  B                                17,754           2,868           4,079            (367)           6,580             8.7
  B-                                8,501           1,151           1,281            (284)           2,148             2.9
  CCC+                              9,402             704           1,176              --            1,880             2.5
  CCC                               9,402             393             641              --            1,034             1.4
  CCC-                             18,804             616           1,264              --            1,880             2.5
  Non-rated                        40,216           2,261             134            (384)           2,011             2.7
  Non-rated interest only              --             408             275             (40)             643             0.8
                            -------------   -------------   -------------   -------------    -------------   -------------

  Total                     $     178,690   $      56,531   $      25,658   $      (6,861)   $      75,328           100.0%
                            =============   =============   =============   =============    =============   =============
</TABLE>


At December 31, 2007, the AAA interest only certificate had a notional amount of
$536.5  million and the  non-rated  interest  only  certificates  had a combined
notional amount of $194.7 million.

The decreases in fair value are due to widening  interest rate spreads resulting
from  market  conditions  and are not  reflective  of the credit  quality of the
underlying  assets.  We have the  ability  and intent to hold these  investments
until recovery; as such, we have determined that the decreases in fair value are
temporary.

Fair value of the retained CMBS certificates is determined  assuming no defaults
on the  underlying  collateral  loans and  according to the payment terms of the
underlying  loans,  which  generally  do  not  allow  prepayment  without  yield
maintenance except during the last three months of a loan.

                                       88
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


At December 31, 2007, the remaining key assumptions used in measuring fair value
and the sensitivity of the current fair value of the retained CMBS  certificates
to potential adverse changes are as follows:
<TABLE>
<CAPTION>
                                                                 Expected             Discount Rate Applied to
                                                                Credit Loss                  Cash Flows
                                                         --------------------------  ---------------------------
                                             Discount
                               Weighted       Rate                                       1.0%           2.0%
                               Average      applied to        1%            2%          Adverse       Adverse
(DOLLARS IN THOUSANDS)        Life (yrs)    Cash Flows      CDR (1)       CDR (1)       Change         Change
---------------------------  ------------  ------------  ------------  ------------  ------------  -------------
<S>                                 <C>          <C>          <C>           <C>           <C>            <C>
Security rating:
AAA interest only                    5.9         15.16%       (10.01)%      (10.41)%      (12.70)%       (14.54)%
AA+                                  8.9          8.93         (1.70)        (2.65)        (6.20)        (11.92)
BBB-                                11.0         12.34         (1.61)        (8.79)        (6.51)        (12.44)
BB+                                  9.1         25.43         (9.67)       (20.27)        (4.84)         (9.35)
BB                                  11.0         14.75         (3.55)       (34.09)        (6.23)        (11.91)
BB-                                 11.1         16.21         (4.41)       (54.02)        (6.01)        (11.50)
B+                                  10.0         31.03         (5.88)       (37.39)        (4.25)         (8.20)
B                                   11.5         19.37         (8.86)       (59.16)        (5.51)        (10.56)
B-                                  12.0         25.66        (10.55)       (55.94)        (4.60)         (8.84)
CCC+                                12.4         32.74        (23.47)       (51.75)        (3.45)         (6.67)
CCC                                 13.3         56.54        (17.74)       (38.53)        (1.71)         (3.36)
CCC-                                15.7         62.08        (43.68)       (53.25)        (1.62)         (3.19)
Non-rated                             --         80.27        (26.52)       (34.66)       (18.08)        (19.60)
Non-rated interest only              7.8         20.71        (77.12)       (77.15)         (4.7)         (9.06)
</TABLE>

(1)  Constant Default Rate


These  sensitivities  are  hypothetical  changes  in fair  value  and  cannot be
extrapolated  because  the  relationship  of the  changes in  assumption  to the
changes in fair value may not be linear.  Also,  the effect of a variation  in a
particular  assumption  is  calculated  without  changing any other  assumption,
whereas change in one factor may result in changes to another.  Accordingly,  no
assurance can be given that actual results would be consistent  with the results
of these estimates.

The interest  rates on the  principal  classes range from 4.0% to 5.7% and range
from 0.1% to 1.1% on the interest only classes.  During the years ended December
31, 2007 and 2006, we received  $16.0  million and $6.7  million,  respectively,
from retained CMBS certificates.

Delinquencies on the collateral loans underlying the retained CMBS  certificates
totaled  0.6% at December 31,  2007,  compared to 0.4% at December 31, 2006.  At
December  31,  2007,   actual  losses  to  date  were  7.1%  of  the  underlying
securitizations,  and projected  remaining  losses are estimated at 13.5% of the
underlying  securitizations.  At December 31, 2006,  actual  losses to date were
7.3% of the  underlying  securitizations,  and projected  remaining  losses were
estimated at 13.3% of the underlying securitizations.

D.  CMBS

Purchased CMBS  investments we hold (not including  those held at the fund level
detailed in Note 23) were comprised of the following as of December 31, 2007:

                                       89
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)
<TABLE>
<CAPTION>
                                                                                                            Percentage
                              Face          Accreted       Unrealized      Unrealized          Fair             of
(DOLLARS IN THOUSANDS)       Amount           Cost            Gain            Loss             Value        Fair Value
----------------------    -------------   -------------   -------------   -------------    -------------   -------------
<S>                       <C>             <C>             <C>             <C>              <C>                     <C>
Security rating:
  BB+                     $       3,898   $       2,244   $          --   $        (217)   $       2,027            15.2%
  BB                              3,898           2,097              --            (217)           1,880            14.0
  BB-                             3,898           1,959              --            (119)           1,840            13.8
  B+                             10,395           4,308              --            (121)           4,187            31.3
  B                               2,599             542              --             (15)             527             4.0
  B-                              3,898             813              --             (22)             791             5.9
  Non-rated                      10,395           2,167              --             (58)           2,109            15.8
                          -------------   -------------   -------------   -------------    -------------   -------------

  Total                   $      38,981   $      14,130   $          --   $        (769)   $      13,361           100.0%
                          =============   =============   =============   =============    =============   =============
</TABLE>


The  decreases  in fair value are due to widening  interest  rate spreads and we
believe are not reflective of the credit quality of the  underlying  assets.  We
have the ability and intent to hold these investments  until recovery;  as such,
we have determined that the decreases in fair value are temporary.

E.  SYNDICATED CORPORATE DEBT

During 2007,  our Credit Risk  Products  segment  expanded its product  lines to
include  acquisition of syndicated  corporate  debt. The investments at December
31,  2007  primarily  represent  term loans and have been  funded  through a new
warehouse line (see Note 11).

Information regarding our syndicated corporate debt investments is as follows as
of December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                    2007
----------------------------------            ------------
<S>                                           <C>
Amortized cost basis                          $    27,839
Gross unrealized losses                               (90)
                                              -----------
Total fair value per balance sheet            $    27,749
                                              ===========
</TABLE>


All of the  unrealized  losses have been for periods of less than twelve months.
The  unrealized  losses  relate to recent  fluctuations  in the market for these
securities.  We have the intent and  ability  to hold  these  investments  until
recovery  and have  therefore  concluded  that these  declines in fair value are
temporary. With respect to two assets in the portfolio, we recognized impairment
of $0.1 million due to sale of the investments subsequent to December 31, 2007.


NOTE 7 - EQUITY METHOD INVESTMENTS

Equity method investments consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                          2007             2006
--------------------------------------              -----------      -----------
<S>                                                 <C>              <C>
Equity interests in LIHTC partnerships              $    38,760      $    40,546
</TABLE>


Through a  subsidiary,  we acquire  equity  interests in entities that own LIHTC
properties  on a short-term  basis for  inclusion in future  Affordable  Housing
segment  investment  fund  offerings.  We expect to recapture  our costs in such
investments from the proceeds when the investment fund has closed.

For further  discussion  regarding  AMAC and CUC, for which our interest held is
accounted for under the equity method, refer to Note 22.

                                       90
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 8 - OTHER INVESTMENTS

Other investments consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)                               2007          2006
--------------------------------------   -----------   -----------
<S>                                      <C>           <C>
Mortgage loans held for sale             $    92,987   $   121,989
Mortgage loans held for investment            15,687        46,478
Stabilization escrow                          62,566            --
Construction loans to LIHTC properties         6,379        12,946
Miscellaneous investments                      6,581        10,073
                                         -----------   -----------
                                         $   184,200   $   191,486
                                         ===========   ===========
</TABLE>


A.  MORTGAGE LOANS HELD FOR SALE

Mortgage  loans  held  for  sale  include  originated  loans  typically  sold to
government  sponsored entities,  such as Fannie Mae, Freddie Mac and GNMA within
three months of origination.

B.  STABILIZATION ESCROW

A portion of the cash  received from the mortgage  revenue bonds  re-securitized
with  Freddie  Mac  (See  Note  4) was  placed  in  escrow  in  connection  with
stabilization  requirements for certain properties securing some of the mortgage
revenue   bonds.   As  the  associated   bonds   complete  those   stabilization
requirements,  the funds will be  released  to us. The  required  balance of the
escrow account depends upon the outstanding principal balances of the associated
bonds  and the  property  status  of  each.  Of the  amount  required  as of the
transaction date ($126.0)  million,  we funded $76.0 million and are required to
fund the balance as we receive  additional  commitments on a new credit facility
that we  entered  into at the time of the  transaction  (see  Note  11).  We are
required to pay a fee at an annual rate of 5.0% of any unfunded  balance and the
rate will  increase to 8.0% in July 2008 and 11.0% in January  2009. As there is
risk to the projected  stabilization of the underlying  properties,  we recorded
the escrow balance at its net present value assuming a 15.0% discount rate.

C. CONSTRUCTION LOANS TO LIHTC PROPERTIES

Through a  subsidiary,  we issue  construction  loans to LIHTC  properties  on a
short-term basis until the properties are included in future Affordable  Housing
investment fund  offerings.  These loans are guaranteed by the developers of the
LIHTC properties.


NOTE 9 - GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and intangible assets, net consisted of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                       2007          2006
------------------------------   -----------   -----------
<S>                              <C>           <C>
Goodwill                         $   342,667   $   345,806
Other intangible assets, net         103,077       126,459
Mortgage servicing rights, net        58,529        68,785
                                 -----------   -----------

Total                            $   504,273   $   541,050
                                 ===========   ===========
</TABLE>

                                       91
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


A.  GOODWILL

The table provided below summarizes  information  regarding  goodwill,  which we
include in our Corporate segment:
<TABLE>
<CAPTION>
(IN THOUSANDS)                         Total
----------------------------        -----------
<S>                                 <C>
Balance at January 1, 2006          $   235,684
Additions                               116,774
Reductions                               (6,652)
                                    -----------

Balance at December 31, 2006        $   345,806
Additions                                   432
Reductions                               (3,571)
                                    -----------

Balance at December 31, 2007        $   342,667
                                    ===========
</TABLE>


The  goodwill  addition in 2007 was due to the  adoption of FIN 48 (see Note 20)
and a reserve for an uncertain tax position that existed at Centerline Investors
at  acquisition.  The goodwill  addition in 2006 relates to the  acquisitions of
CharterMac Real Estate Securities and Centerline Investors (see Note 5).

Reductions to goodwill in 2007 and 2006 pertain  primarily to the  redemption of
SCUs (see Note 15).  The  deferred  tax  impact of such  redemption  effectively
reduces the purchase  price for the subsidiary  they were issued to finance.  In
addition,  we reduced  goodwill in 2006 by $6.1 million in  connection  with the
closure of CharterMac Real Estate  Securities,  $1.0 million of which we charged
to expense while the remainder pertained to consideration  returned to us. Other
reductions  in 2007 relate to the final  allocations  of our  purchase  price of
Centerline Investors.

Although  partially  contingent upon subsidiary equity  conversions,  all of our
goodwill is tax-deductible.

B.  OTHER INTANGIBLE ASSETS

The components of other intangible assets, net are as follows as of December 31:
<TABLE>
<CAPTION>
                            Estimated
                             Useful
                              Life                Gross                  Accumulated
(DOLLARS IN THOUSANDS)      (in Years)       Carrying Amount             Amortization                    Net
-------------------------   ----------   ------------------------   -----------------------   ------------------------
                                            2007         2006          2007         2006         2007         2006
                                         ----------   -----------   ----------   ----------   -----------   ----------
<S>                               <C>    <C>          <C>           <C>          <C>          <C>           <C>
Amortized intangible
  assets:
  Transactional
   relationships                  16.7   $  103,000   $   103,000   $   34,721   $   25,590   $    68,279   $   77,410
  Partnership service
   contracts                       9.4       47,300        47,300       28,057       16,604        19,243       30,696
  General partner
   interests                       8.5        6,016         6,016        2,547        1,774         3,469        4,242
  Joint venture developer
   relationships                   5.0        4,800         4,800        3,955        2,915           845        1,885
  Mortgage banking broker
   relationships                   5.0        1,080         1,080          612          396           468          684
  Other identified
   intangibles (1)                  --           --         4,427           --        3,658            --          769
                            ----------   ----------   -----------   ----------   ----------   -----------   ----------
Weighted average
  life/subtotal                   13.8      162,196       166,623       69,892       50,937        92,304      115,686
                            ==========

Unamortized intangible
  assets:
  Mortgage banking
   licenses and approvals
   with no expiration                        10,773        10,773           --           --        10,773       10,773
                                         ----------   -----------   ----------   ----------   -----------   ----------

Total other intangible
  assets, net                            $  172,969   $   177,396   $   69,892   $   50,937   $   103,077   $  126,459
                                         ==========   ===========   ==========   ==========   ===========   ==========
<CAPTION>

(IN THOUSANDS)                                           2007          2006         2005
-------------------------                             -----------   ----------   ----------
<S>                                                   <C>           <C>          <C>
Amortization expense (1)                              $    15,387   $   15,534   $   14,332
                                                      ===========   ==========   ==========
</TABLE>

                                       92
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


(1) Other  identified  intangibles  pertained  to the  acquisition  of  mortgage
    revenue bond investments, for which the amortization ($0.5 million per year)
    reduced mortgage revenue bond interest income. This asset was written off at
    the time of the  re-securitization  of the mortgage  revenue bond portfolio.
    Expense for the year ended December 31, 2007,  excludes the AMAC  impairment
    charge as described below.

In  light  of  declining  performance  at AMAC  in the  fourth  quarter  of 2007
resulting  from the  disruption  in mortgage and credit  markets,  we recorded a
pre-tax  impairment  charge of $7.2  million  with  respect  to the  partnership
service  contract asset as a result of our management of AMAC. In 2006, we wrote
off $1.6 million of unamortized  transactional  relationship  assets  associated
with the closure of  CharterMac  Real Estate  Securities  (see Note 5). In 2005,
management  decided to change the name of the subsidiary  that conducts our fund
sponsorship  business and we wrote off an  intangible  asset  attributed  to the
trade name,  resulting in a charge of $22.6 million.  These charges are included
within  "write-off  of  goodwill  and  intangible  assets"  in the  consolidated
statements of operations.

The estimated amortization expense for other intangible assets for the next five
years is as follows:

                                                      (IN THOUSANDS)
                                                      --------------

               2008                                   $      15,272
               2009                                   $      13,838
               2010                                   $       9,314
               2011                                   $       9,278
               2012                                   $       8,727


C.  MORTGAGE SERVICING RIGHTS

The components of the change in MSRs and related reserves were as follows:

                                                            (IN THOUSANDS)
                                                            --------------

Balance at January 1, 2006                                  $      62,190
MSRs and other servicing assets acquired in Centerline
   Investors acquisition                                           17,607
MSRs capitalized                                                    8,798
Amortization                                                      (19,660)
Increase in reserves                                                 (150)
                                                            --------------
Balance at December 31, 2006                                       68,785
MSRs capitalized                                                   10,815
Amortization                                                      (21,071)
Increase in reserves                                                   --
                                                            --------------
Balance at December 31, 2007                                $      58,529
                                                            ==============

Reserve for Loan Losses :

Balance at January 1, 2006                                  $      12,966
Net additions                                                         150
                                                            --------------
Balance at December 31, 2006                                       13,116
Net additions                                                          --
                                                            --------------
Balance at December 31, 2007                                $      13,116
                                                            ==============


MSRs  capitalized  in 2007  include  $2.2  million  associated  with our ongoing
servicing  for the  bonds  included  in the  re-securitization  of the  mortgage
revenue bond portfolio which we accounted for as sold (see Note 4).

                                       93
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The  estimated  amortization  expense for the MSRs for the next five years is as
follows:

                                                      (IN THOUSANDS)
                                                      --------------

               2008                                   $      12,838
               2009                                   $      10,400
               2010                                   $       7,636
               2011                                   $       6,849
               2012                                   $       5,606


The  estimated  fair values of the MSRs,  based upon  third-party  and  internal
valuations,  were  $85.8  million  at  December  31,  2007 and $99.0  million at
December 31, 2006.  The  significant  assumptions  used in  estimating  the fair
values at December 31, were as follows:
<TABLE>
<CAPTION>
                                                    2007            2006
                                               -------------   -------------
     <S>                                       <C>             <C>
                                                       17.54%          16.04%
     Weighted average discount rate
     Weighted average pre-pay speed                     9.98%          10.94%
     Weighted average lockout period               4.0 years       4.7 years
     Weighted average default rate                       .50%            .27%
     Cost to service loans                     $       2,215   $       2,286
     Acquisition cost (per loan)               $       1,464   $       1,457
</TABLE>


The table below  illustrates  hypothetical  fair values of MSRs at December  31,
2007,  caused by assumed  immediate changes to key assumptions which are used to
determine fair value.
<TABLE>
<CAPTION>
(IN THOUSANDS)                                          2007            2006
------------------------------------------------    ------------   ------------
<S>                                                 <C>            <C>
Fair value of MSRs at December 31, 2007             $     85,762   $     98,956

Prepayment speed:
   Fair value after impact of 10% adverse change          84,989         98,095
   Fair value after impact of 20% adverse change          84,281         97,335

Discount rate:
   Fair value after impact of 10% adverse change          81,013         94,381
   Fair value after impact of 20% adverse change          76,915         90,219

Default rate:
   Fair value after impact of 10% adverse change          85,683         98,813
   Fair value after impact of 20% adverse change          85,613         98,709
</TABLE>


These  sensitivities  are  hypothetical  changes  in fair  value  and  cannot be
extrapolated  because  the  relationship  of the  changes in  assumption  to the
changes in fair value may not be linear.  Also,  the effect of a variation  in a
particular  assumption  is  calculated  without  changing any other  assumption,
whereas change in one factor may result in changes to another.  Accordingly,  no
assurance can be given that actual results would be consistent  with the results
of these estimates.

                                       94
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 10 - DEFERRED COSTS AND OTHER ASSETS, NET

The  components  of deferred  costs and other  assets,  net are presented in the
table below:
<TABLE>
<CAPTION>
                                                       December 31,     December 31,
(IN THOUSANDS)                                             2007             2006
---------------------------------------------------   -------------    -------------
<S>                                                   <C>              <C>
Deferred financing and other costs                    $      39,599    $      32,472
Less: Accumulated amortization                               (5,176)          (6,718)
                                                      -------------    -------------

Net deferred costs                                           34,423           25,754

Deposits receivable                                          59,957           13,251
Interest receivable                                          10,550           30,275
Fees receivable, net of reserves                             14,057           19,842
Furniture, fixtures and leasehold improvements, net           8,366            9,748
Income taxes receivable                                       2,271              714
Interest rate swaps at fair value                                --            2,236
Other                                                        11,278            6,149
                                                      -------------    -------------

  Total                                               $     140,902    $     107,969
                                                      =============    =============
</TABLE>


A.  DEFERRED FINANCING AND OTHER COSTS

During 2007, in  connection  with the Freddie Mac  Transaction  (see Note 4), we
terminated the previous credit  facilities and replaced them with new facilities
(see  Note 11).  This  resulted  in a  write-off  of $5.2  million  of  deferred
financing and other costs related to the old facilities  and the  capitalization
of $13.2 million of costs related to the new facilities.

During 2006, in connection with the restructuring of our securitization programs
(see Note 12) we wrote off the unamortized  balance of deferred  financing costs
pertaining to the  terminated  programs.  As a result,  we recorded  incremental
amortization expense of $3.4 million during 2006. In connection with refinancing
our lines of credit at the time of the  Centerline  Investors  acquisition  (see
Notes 5 and 11) we wrote off the unamortized balance of deferred financing costs
pertaining to the terminated lines ($0.1 million) and recorded deferred costs of
$9.3 million related to the new facilities.

B. DEPOSITS RECEIVABLE

Deposits  receivable consists primarily of collateral deposits related to credit
intermediation  agreements to provide  specified  investment yields to investors
(see Note 25). As the primary credit  intermediator  in these  transactions is a
third-party,  we have been required to post  collateral  in connection  with our
contingent  obligation.  Prior to the  re-securitization of our mortgage revenue
bond portfolio (see Note 4), we posted certain bond  investments to fulfill this
requirement.  Upon  completion of the  transaction,  we were required to deposit
$55.0 million in cash as substitute collateral.


NOTE 11 - NOTES PAYABLE

Notes payable included the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                 2007          2006
----------------------------------------   -----------   -----------
<S>                                        <C>           <C>
Term loan                                  $   140,000   $   249,375
Revolving credit facility                      210,000       177,500
CMC warehouse line                              32,302       122,459
Multifamily ASAP plus facility                  58,413            --
Commercial Real Estate repurchase lines         56,912        41,598
Syndicated corporate debt warehouse line         5,423            --
Other                                            2,838           233
                                           -----------   -----------
  Total notes payable                      $   505,888   $   591,165
                                           ===========   ===========
</TABLE>

                                       95
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


A.  TERM LOAN AND REVOLVING CREDIT FACILITY

In August 2006, in connection with our acquisition of Centerline  Investors (see
Note 5), we entered into a syndicated  loan  commitment with various lenders and
Bank of America,  N.A.  ("Bank of America) As agent.  The commitment  provided a
$250.0 million term loan (the "Term Loan") and a $250.0 million revolving credit
facility (the "Credit Facility").

The Credit  Facility  and the Term Loan bore  interest  at the London  Interbank
Offered Rate  ("LIBOR")  plus 2.5% for the Term Loan,  or a margin  ranging from
1.625% to 1.875%  depending  on the ratio of "funded debt to adjusted  CAD",  as
defined  in the credit  agreement,  for the Credit  Facility.  In June 2007,  we
increased the borrowing capacity to $320.0 million.

In December 2007, in connection with the Freddie Mac  Transaction  (see Note 4),
we  terminated  the Term Loan and Credit  Facility and entered into a new credit
facility  agreement.  The new agreement  provides us with a $140.0  million term
loan (subject to an increase of up to $10.0 million upon an increase in lenders'
commitments),  which matures in December 2008 (the "New Term Loan", and a $225.0
million revolving credit facility (subject to an increase of up to $75.0 million
upon an increase in commitments  and subject to a step-down to $275.0 million on
March 30, 2009) (the "Revolving Credit  Facility"),  which matures in June 2009,
subject to a six-month extension.

As  we  receive  additional  commitments  under  these  facilities,  incremental
borrowings will be required to fund the stabilization escrow associated with the
re-securitization of our mortgage revenue bond portfolio (see Notes 4 and 8) and
to pay costs associated with the transaction (see Note 13).

All or a portion of the new  Revolving  Credit  Facility  and New Term Loan bear
interest at LIBOR plus a margin of 3.00% through March 31, 2009, and a margin of
2.75% thereafter, to the termination of the new agreement.

As provided  for in the new  agreement,  we are also able to receive  "Swingline
Loans"  (borrowings  of up to  $25.0  million  that  we may  request  under  the
Revolving  Credit  Facility),  with each loan bearing interest at the prime rate
set by Bank of America.

We may prepay the New Term Loan and the Revolving  Credit  Facility plus accrued
interest, in whole or in part and without premium or penalty, subject to certain
restrictions.  The New Term loan is also subject to mandatory  prepayment  under
certain  circumstances.  The  outstanding  principal  of the  New  Term  Loan is
required to be reduced by:

     (i)  $15.0  million on or before March 31, 2008,  from the maximum New Term
          Loan principal balance permitted under the new agreement;
     (ii) an additional $15.0 million on or before June 30, 2008;
     (iii) an additional $45.0 million on or before August 31, 2008; and
     (iv) an additional $25.0 million on or before October 31, 2008.

The entire  outstanding  principal  balance of the New Term Loan will be due and
payable on December 26, 2008.

Stock of certain of our subsidiaries is pledged as collateral under the New Term
Loan and the Revolving Credit  Facility.  The weighted average net interest rate
was 7.16% as of December 31, 2007.

The New Term  Loan and the  Revolving  Credit  Facility  require  us to  satisfy
certain financial and other covenants including (as defined in the agreement):

     o    a minimum level of consolidated net worth;
     o    a minimum ratio of consolidated EBITDA to fixed charges;
     o    a minimum ratio of funded debt to consolidated EBITDA; and
     o    certain  limitations  on  distributions  (including  distributions  to
          minority interest holders).

The terms of the New Term Loan and the Revolving  Credit  Facility also required
us to obtain permanent equity financing. In connection with that requirement, we
issued convertible preferred shares in January 2008 (see Note 28).

B.  CMC WAREHOUSE LINE

In May 2007,  we entered  into a warehouse  facility  which  replaced the $100.0
million warehouse facility  previously used by Centerline  Mortgage Capital Inc.
("CMC"),  our Commercial Real Estate  mortgage  banking  facility.  The facility
(whose  lenders are now  represented  by Bank of  America,  N.A, as agent) had a
total  capacity of $150.0  million as of December 31, 2007,  matures in May 2008

                                       96
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)



and bears interest at LIBOR plus 0.7%.  Mortgages financed by advances from this
facility as well as the related  servicing  and other rights (see Notes 8 and 9)
are pledged as security  under the facility.  Borrowing  under the CMC warehouse
line  relates to the level of  mortgage  loans held for sale (see Note 8). As of
December 31, 2007, the interest rate was 5.56%.

C.  MULTIFAMILY ASAP PLUS FACILITY

Under this program with Fannie Mae,  mortgage  loans are initially  funded using
the  CMC  warehouse  line  described  above.  Subsequently,   Fannie  Mae  funds
approximately  99% of the loan and CMC  funds  the  remaining  1%.  CMC is later
reimbursed by Fannie Mae. As of December 31, 2007, the interest rate was 4.71%.

D.  COMMERCIAL REAL ESTATE REPURCHASE LINES

At December  31, 2007,  we were a party to two  repurchase  agreements  with two
counterparties  that provide total  commitments of $205.0 million,  although the
maximum  amount  available to borrow under each facility is limited by the value
of the pledged collateral. As of December 31, 2007, we owed $56.9 million (based
on retained  CMBS  certificate  collateral  with a fair value of $68.2  million)
under these agreements  which is the maximum amount without pledging  additional
collateral.  Interest  rates  range from 5.2% to 5.8%.  The  borrowings  have no
specified maturity date,  although they may be called upon six months' notice by
the counterparty. As of December 31, 2007, no such notice had been received from
the counterparties.

E.  CENTERLINE FINANCIAL FACILITIES

Upon  its  launch  in  June  2006,  our  Centerline   Financial  LLC  subsidiary
("Centerline Financial") entered into a $30.0 million senior debt facility and a
$125.0 million  mezzanine debt facility,  maturing in June 2036. The senior debt
facility is provided by Citibank,  N.A.  ("Citibank"),  Natixis  Capital Markets
Inc.  ("Natixis")  and one of our  subsidiary  companies and it generally  bears
interest, at our election, at:

     (1) 1.40% plus the higher of
         a. the Prime Rate, or
         b. the federal  funds  effective  rate,  as defined,  plus 1/2%; or
     (2) LIBOR plus 0.40%.

The  mezzanine  debt  facility  is  provided by  Citibank  and  generally  bears
interest, at our discretion, at:

     (1) 2.25% plus the higher of
         a. the Prime Rate, or
         b. the federal  funds  effective  rate,  as defined,  plus 1/2%, or
     (2) LIBOR plus 1.25%.

As of December 31, 2007, no amounts were outstanding under these facilities.

F.  SYNDICATED CORPORATE DEBT WAREHOUSE LINE

In November 2007, we closed a warehouse  facility with Morgan Stanley Altabridge
Ltd. ("Morgan Stanley") to fund syndicated  corporate debt investments (see Note
6). The facility has a total capacity of $100.0 million, matures in August 2008,
and bears interest at LIBOR plus 1.00%.  Investments financed by the facility as
well as certain other assets of our  subsidiary  serve as  collateral  under the
facility. As of December 31, 2007, the interest rate was 5.70%.

G.  COVENANTS

We are subject to customary covenants with respect to our various notes payable,
including the covenants  described under TERM LOAN AND REVOLVING CREDIT FACILITY
above. As of December 31, 2007, we were in compliance with all such covenants.

                                       97
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 12 - FINANCING ARRANGEMENTS AND SECURED FINANCING

Following are the components of financing  arrangements and secured financing at
December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                       2007            2006
-----------------------------   -------------   -------------
<S>                             <C>             <C>
Freddie Mac secured financing   $     548,227   $          --
P-FLOATs/RITES                         14,275         403,381
Floats/Residuals                           --         944,799
Fixed-rate securitization                  --         452,990
                                -------------   -------------

Total                           $     562,502   $   1,801,170
                                =============   =============
</TABLE>


In December  2007,  we completed the  re-securitization  of most of our mortgage
revenue  bond  portfolio  (see Note 4). As a result,  we  terminated  almost all
existing financing arrangements except for the financing of one mortgage revenue
bond not re-securitized through the Freddie Mac Transaction.

For  certain  bonds  included in the  December  2007  re-securitization,  we had
continuing  involvement  principally  in the form of  performance  guarantees on
payment of principal and interest for defined  periods of time,  which precluded
sale treatment despite consideration received from Freddie Mac. For such assets,
a secured  financing  liability was  established  in  accordance  with SFAS 140,
representing senior certificates  outstanding related to those assets we did not
recognize as sold. The certificates  bear interest at a weighted average rate of
5.2% and mature in relation to the underlying mortgage revenue bond pools, which
can extend to 2049.  The mortgage  revenue bonds that secure this  financing are
summarized in Note 6.B.

The remaining P-FLOATs/RITES arrangement effectively allows us to borrow against
the fair value of the related  mortgage  revenue bond. A senior  certificate  is
sold  to  a  third  party  investor  while  we  retain   subordinated   residual
certificated interests.  The net effect of this program is that a portion of the
interest we receive from the mortgage  revenue bond is distributed to holders of
the senior certificates while we receive any remaining interest via the residual
certificate after related expenses are deducted.

In June 2006, we restructured several of our securitization programs in place at
that  time,  whereby   Centerline   Financial  became  the  provider  of  credit
intermediation,  as supported  by Natixis.  As a result,  we  terminated a prior
securitization  relationship  and created a  "Floats/Residuals"  program through
Goldman  Sachs  with a  structure  similar  to the  P-FLOATs/RITES  program.  In
connection  with the  termination  of the program  through  which we  previously
obtained  credit  intermediation,  we paid  $1.4  million  in  termination  fees
(included in general and administrative expense) and $2.6 million of other costs
(recorded in interest expense) in 2006.

In August 2006, we entered into a $455.0 million  securitization whereby we sold
fixed rate  certificates  secured by a pool of our mortgage  revenue  bonds.  In
connection with the Freddie Mac transaction,  the fixed-rate  securitization was
repaid in December 2007.

                                       98
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


COST OF FUNDS

Our annualized cost of funds relating to financing  arrangements and the related
amount of interest expense were as follows:
<TABLE>
<CAPTION>
                                          2007          2006          2005
                                       ----------    ----------    ----------
<S>                                    <C>           <C>           <C>
Cost of funds (1)                            4.79%         4.17%         3.65%
Interest expense (in millions) (1)     $     80.4    $     68.7    $     44.8

Rate at December 31, excluding fees:

P-FLOATs/RITES                               5.00%         4.02%         3.33%
Floats/Residuals                               --          4.03%         3.29%
Fixed rate                                     --          4.61%           --
Freddie Mac secured financing                5.20%           --            --
</TABLE>

(1)  Includes  effect of our swaps and, in 2006,  incremental  costs  related to
     restructuring of our securitization programs.


NOTE 13 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts  payable,  accrued  expenses  and other  liabilities  consisted  of the
following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                         2007          2006
-----------------------------------------------    ------------  -------------
<S>                                                <C>           <C>
Deferred revenues                                  $    100,610  $      92,564
Transaction costs payable                                35,314             --
Interest rate swaps at fair value (Note 14)              50,445          1,997
Distributions payable                                    41,016         41,554
Accounts payable                                         15,976         15,006
Salaries and benefits                                    30,513         29,551
Accrued fund organization and offering expenses           8,484         11,860
Escrow/deposits payable                                   5,641          6,844
Accrued interest payable                                  1,334          8,900
Restructuring accrual                                        80          1,128
Unsettled investments                                    15,000             --
Income tax reserves (Note 20)                             2,442             --
Other                                                     6,397          4,395
                                                   ------------  -------------

Total                                              $    313,252  $     213,799
                                                   ============  ========-====
</TABLE>


A. DEFERRED REVENUES

In connection with our Affordable  Housing LIHTC fund origination and management
businesses,  we  receive  revenues  at the time a fund  closes  associated  with
origination,  property acquisitions,  partnership management services and credit
intermediation.  These fees are deferred and recognized  over various periods as
described in Note 2.

B. UNFUNDED ESCROW LIABILITY AND TRANSACTION COSTS PAYABLE

In connection with the re-securitization  transaction with Freddie Mac (see Note
4) and the  establishment  of our new credit  facility (see Note 11) we incurred
transaction  costs that were not paid at the time of  closing.  The  transaction
fees will be paid  upon  receiving  additional  commitments  for the new  credit
facility,  after any additional required funding of a stabilization  escrow (see
Note 8).

                                       99
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


C.  RESTRUCTURING ACCRUAL

Accrued  restructuring  costs pertain to integration actions with respect to the
acquisition  of Centerline  Investors  (see Note 5). We recorded  these costs in
general  and  administrative  expenses  in the second  quarter  of 2006.  A roll
forward of the restructuring costs (included within our Portfolio Management and
Commercial Real Estate segments) is as follows:
<TABLE>
<CAPTION>

                                 Employee        Lease
                               termination    termination
(IN THOUSANDS)                    costs          costs          Total
----------------------------   -----------    -----------    -----------
<S>                            <C>            <C>            <C>
Balance at January 1, 2006     $        --    $        --    $        --
Additions                            1,831            164          1,995
Payments                              (318)            --           (318)
Adjustments                           (549)            --           (549)
                               -----------    -----------    -----------

Balance at December 31, 2006   $       964    $       164    $     1,128
                               ===========    ===========    ===========

Additions                              165             --            165
Payments                            (1,129)           (84)        (1,213)
                               -----------    -----------    -----------

Balance at December 31, 2007   $        --    $        80    $        80
                               ===========    ===========    ===========
</TABLE>


Adjustments in 2006 represent the reversal of amounts due to employee  attrition
in advance of severance dates or amounts  reclassified as retention bonuses. The
restructuring with respect to employee terminations was completed in April 2007.
The accrual for lease  termination  costs will be paid over the remaining  lease
term (2.5 years).


NOTE 14 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Our  derivative  instruments  are  comprised  of cash  flow  hedges  of debt and
free-standing  derivatives  related to  investments.  While we carry  derivative
instruments  in  both   categories  at  their   estimated  fair  values  on  our
consolidated  balance  sheets,  the  changes in those fair  values are  recorded
differently. To the extent that the cash flow hedges are effectively hedging the
associated  debt, we record changes in their fair values as a component of other
comprehensive  income  within  shareholders'  equity.  If a cash  flow  hedge is
ineffective,  we include such  ineffectiveness in our consolidated  statement of
operations. With respect to the free-standing derivatives, we include the change
in their fair value in our consolidated statements of operations.

A. CASH FLOW HEDGES OF DEBT

Our New Term Loan and the Revolving Credit Facility (see Note 11) incur interest
expense  at a  variable  rate,  exposing  us to  interest  rate  risk.  We  have
established a policy for risk  management  and our objectives and strategies for
the  use of  derivative  instruments  to  potentially  mitigate  such  risk.  We
currently manage a portion of our interest rate risk resulting from the exposure
to variable rates  (benchmark rate) on our credit facility through the use of an
interest  rate swap  indexed to, or to LIBOR.  Under the swap  agreement,  for a
specified  period of time we are  required  to pay a fixed rate of interest on a
specified  notional  amount to the  transaction  counterparty  and we  receive a
floating rate of interest equivalent to the LIBOR index. The swap outstanding at
December 31, 2007, had a notional  amount of $275.0  million,  expires in August
2009 and has a fixed rate of 5.25%.  The  average  LIBOR rate was 5.25% in 2007,
5.13% in 2006 and 3.46% in 2005.

Prior to terminating our financing  arrangements upon the  re-securitization  of
our  mortgage  revenue  bonds,  we also had interest  rate swaps  indexed to the
Securities  Industry and  Financial  Markets  Association  Municipal  Swap Index
("SIFMA") rate, the most widely used tax-exempt floating rate index. The average
SIFMA  rate was 3.62% in 2007,  3.45% in 2006 and 2.45% in 2005.  We  terminated
these swaps when we terminated the financing  arrangements  and recognized  $1.0
million of expense related to the terminations.  Previously unrealized gains and
losses  associated with these swaps were  reclassified  from  accumulated  other
comprehensive income when we recorded the termination charge in our consolidated
statement of operations.

At inception,  we designate these swaps as cash flow hedging  instruments,  with
the hedged item being the variable  interest payments on our floating rate debt.
At the  inception of the hedge and on an ongoing  basis,  we assess  whether the
swap  agreements  are effective in  offsetting  changes in the cash flows of the
hedged  financing.   Amounts  in  accumulated  other  comprehensive  income  are

                                      100
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


reclassified into earnings in the same period during which the hedged forecasted
transaction  affects  earnings.  Since  we are  hedging  the  variable  interest
payments in our floating rate debt, the forecasted transactions are the interest
payments.  An inherent risk of these swap  agreements is the credit risk related
to the counterparty's ability to meet terms of the contracts with us.

We evaluate our interest rate risk on an ongoing  basis to determine  whether it
would be advantageous to engage in any further hedging transactions.

Certain of our consolidated  partnerships also had interest rate swaps accounted
for as hedges as of December 31, 2007 (see Note 23).

B.  FREE STANDING DERIVATIVES

In 2006,  we had an interest  rate swap with a notional  amount of $26.0 million
that hedged the change in fair value of a $26.0  million  investment.  This swap
was assigned to AMAC when we sold AMAC the related investment in 2006.

One of our  businesses  within our Commercial  Real Estate segment  entered into
eleven  interest rate swap agreements in connection with a CMBS fund that closed
in the third  quarter  of 2007 (see Note 23).  For the year ended  December  31,
2007,  expense of $13.5 million  associated  with these swaps is included within
the change in fair value of free-standing derivatives.

We are a party to 25  interest  rate  swap  agreements  with the  developers  of
properties  relating to certain mortgage revenue bonds we owned. Under the terms
of these agreements,  we pay a variable rate of interest and receive interest at
a fixed rate equal to the related  bonds.  Due to the  re-securitization  of the
related  mortgage  revenue bonds in connection  with the Freddie Mac Transaction
(see Note 4),  these  swaps are now  deemed to be  free-standing  derivates.  At
December  31,  2007,  these  swaps had an  aggregate  notional  amount of $281.9
million,  a  weighted  average  interest  rate of 6.27% and a  weighted  average
remaining term of 14.9 years.

For the above described free standing swaps, we do not apply hedge accounting to
them and, therefore, any changes in the fair values from the date of the Freddie
Mac Transaction are included in interest expense as detailed below.

C.  FINANCIAL STATEMENT IMPACT

Presented  below are amounts  included in Interest  expense on the  Consolidated
Statements of Operations related to the swaps described above:
<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                    -----------------------------------------
(IN THOUSANDS)                                          2007           2006           2005
-------------------------------------------------   -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>
Interest payments - cash flow hedges                $       204    $       448    $     2,963
Interest receipts - cash flow hedges                     (3,010)        (2,299)          (219)
Change in fair value of free standing derivatives        17,183           (203)           203
Ineffectiveness                                           1,390            799            399
                                                    -----------    -----------    -----------

Net                                                 $    15,767    $    (1,255)   $     3,346
                                                    ===========    ===========    ===========
</TABLE>


In  addition to the amounts  included  in  interest  expense,  as noted above we
recognized a $1.0 million loss in connection with  terminating  cash flow hedges
and a $19.5 million loss for the fair value of swap  contracts  associated  with
the mortgage revenue bonds we re-securitized. Both amounts are included in "Loss
on re-securitization of mortgage revenue bonds" in our consolidated statement of
operations. We estimate that $3.3 million of the net unrealized loss included in
accumulated  other  comprehensive  income  will be  reclassified  into  interest
expense within the next twelve months.

                                      101
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


Interest  rate  swaps  in a net  liability  position  ("out of the  money")  are
recorded in accounts  payable,  accrued expenses and other liabilities and those
in a net asset  position  ("in the  money") are  recorded in deferred  costs and
other assets. The amounts recorded were as follows:
<TABLE>
<CAPTION>
                                       December 31,   December 31,
(IN THOUSANDS)                             2007           2006
----------------------                 ------------   -------------
<S>                                    <C>            <C>
Net liability position                 $     50,445   $      1,997
Net asset position                     $         --   $      2,236
</TABLE>


NOTE 15 - SUBSIDIARY EQUITY

A. PREFERRED SHARES OF A SUBSIDIARY - SUBJECT TO MANDATORY REPURCHASE

Since June 1999, we have issued multiple series of Cumulative  Preferred Shares,
which are subject to mandatory repurchase, through Equity Issuer.

<TABLE>
<CAPTION>
                                                                                Liquidation
                      Date of        Mandatory      Mandatory      Number of    Preference    Total Face     Dividend
Preferred Series      Issuance        Tender        Repurchase       Shares      per Share      Amount         Rate
----------------   -------------   -------------   -------------   ----------   -----------   -----------   ------------
                                                                                     (IN THOUSANDS)
<S>                 <C>            <C>             <C>                    <C>   <C>           <C>                 <C>
Series A               June 1999       July 2009       July 2049           45   $     2,000   $    90,000         6.625%
Series A-1             July 2000       July 2009       July 2049           48           500        24,000         7.100%
Series A-2          October 2001       July 2009       July 2049           62           500        31,000         6.300%
Series A-3             June 2002   November 2014   November 2052           60           500        30,000         6.800%
Series B               July 2000   December 2010   December 2050          110           500        55,000         7.600%
Series B-1          October 2001   December 2010   December 2050           37           500        18,500         6.800%
Series B-2             June 2002   November 2014   November 2052           50           500        25,000         7.200%
                                                                                              -----------
  Total                                                                                       $   273,500
                                                                                              ===========
</TABLE>


We collectively  refer to the Series A Cumulative  Preferred Shares,  Series A-1
Cumulative  Preferred Shares,  Series A-2 Cumulative Preferred Shares and Series
A-3 Cumulative  Preferred Shares as the "Series A Shares." We collectively refer
to the Series B Subordinate  Cumulative Preferred Shares, Series B-1 Subordinate
Cumulative  Preferred  Shares and Series B-2  Subordinate  Cumulative  Preferred
Shares as the  "Series B  Shares."  We also  collectively  refer to the Series A
Shares and the Series B Shares as the "Preferred Shares."

The  Series A Shares  all have  identical  terms  except as to the  distribution
commencement  date and other  terms  listed in the table  above.  Likewise,  the
Series  B  Shares  all  have  identical  terms,  except  as to the  distribution
commencement  date and other  terms  listed in the table  above.  The  Preferred
Shares are subject to  mandatory  tender for  remarketing  and  purchase on such
dates and each  remarketing  date  thereafter  at their  respective  liquidation
amounts plus all distributions  accrued but unpaid. Each holder of the Preferred
Shares will be required to tender its shares on the dates listed  above,  unless
Equity Issuer decides to remarket  them.  Unless Equity Issuer has determined to
redeem them,  holders of the  Preferred  Shares may elect to retain their shares
upon remarketing,  with a new distribution rate to be determined at that time by
the  remarketing  agent.  After the mandatory  tender date for a series,  Equity
Issuer  may  redeem  the  Preferred  Shares of that  series,  subject to certain
conditions. The Preferred Shares are not convertible into our common shares.

If any series of Preferred Shares remains  outstanding on or after May 15, 2019,
the Preferred  Shareholders  of such series may direct Equity Issuer to sell the
Class A-1 certificates (retained in connection with the re-securitization of our
mortgage  revenue bonds as discussed in Note 4) to Freddie Mac in return for the
retirement of the subject series of Preferred Shares.

The  Preferred  Shares have annual  preferred  dividends  payable  quarterly  in
arrears upon  declaration  by our Board of  Trustees,  but only to the extent of
tax-exempt  net income for the  particular  quarter.  With respect to payment of
distributions  and amounts upon  liquidation,  dissolution  or winding-up of our
Company, the Series A Shares rank, senior to:

     o    all classes or series of Convertible CRA Shares (see Notes 16 and 17);
     o    all Series B shares; and
     o    our common shares.

                                      102
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


With  respect  to  payment  of  distributions   and  amounts  upon  liquidation,
dissolution or winding-up of our Company, the Series B Shares rank senior to our
Convertible CRA Shares and common shares.

Equity  Issuer may not pay any  distributions  to the parent  trust until it has
either  paid  all  Preferred  Share  distributions,  or in the  case of the next
following  distribution  payment date,  set aside funds  sufficient for payment.
Since issuance of the Preferred Shares,  all quarterly  distributions  have been
declared at each stated annualized  dividend rate for each respective series and
all distributions due have been paid.

Equity Issuer is subject to, among others, the following  covenants with respect
to the Preferred Shares:

     TAX-EXEMPT INTEREST AND DISTRIBUTION

     Equity Issuer may only acquire investments, other than investments acquired
     pursuant  to a certain  preferred  trust  contribution  agreement,  that it
     reasonably  believes will generate  interest and  distributions  excludable
     from gross income for federal income tax purposes.  As soon as commercially
     practicable,  Equity Issuer will dispose of any  investment if its interest
     becomes includable in gross income for federal income tax purposes, for any
     reason.  Equity Issuer may not dispose of the Class A-1 certificates except
     in connection  with a redemption of the Preferred  Shares or if directed by
     the Preferred Shareholders after May 15, 2019 as discussed above.

     LEVERAGE

     Equity  Issuer will not,  and will not permit any of its  subsidiaries  to,
     directly or indirectly, incur any obligation.

     FAILURE TO PAY DISTRIBUTIONS

     If  Equity  Issuer  has  not  paid,  in  full,  six  consecutive  quarterly
     distributions on the Preferred  Shares,  it is required to reconstitute its
     board of trustees  so that a majority of the board of trustees  consists of
     trustees who are independent with respect to Equity Issuer,  Centerline and
     Centerline Affordable Housing Advisors LLC ("CAHA").

     ALLOCATION OF TAXABLE INTEREST INCOME AND MARKET DISCOUNT

     Equity Issuer will specifically allocate taxable interest income and market
     discount that is taxable as ordinary income to us. Market discount, if any,
     may arise where Equity Issuer  acquires a bond other than upon its original
     issuance  for less than its stated  redemption  price at  maturity  and the
     difference is greater than a minor amount  (generally 1/4 of 1% of a bond's
     stated  redemption  price at maturity  multiplied by the number of complete
     years to maturity).

     LIMITATION ON ISSUANCE OF PREFERRED EQUITY INTERESTS

     Pursuant  to  a  consent   solicitation   agreement   with  the   preferred
     shareholders  at the time of the  Freddie  Mac  transaction  (see  Note 4),
     Equity Issuer may not issue any additional preferred equity interests.

In accordance with SFAS No. 150,  ACCOUNTING FOR CERTAIN  FINANCIAL  INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY ("SFAS 150") we classify the
Preferred  Shares as  liabilities in our balance sheet and include the dividends
paid for those  share as  interest  expense in our  consolidated  statements  of
operations.

B. PREFERRED SHARES OF A SUBSIDIARY - NOT SUBJECT TO MANDATORY REPURCHASE

In May 2004,  Equity Issuer issued the following  Cumulative  Preferred  Shares,
which are not subject to mandatory repurchase:
<TABLE>
<CAPTION>
                                                                Liquidation    Total Face
                      Date of        Mandatory     Number of    Preference        Amount         Dividend
Preferred Series      Issuance        Tender         Shares      per Share    (IN THOUSANDS)       Rate
----------------   -------------   -------------   ----------   -----------   --------------   ------------
<S>                     <C>             <C>                <C>  <C>           <C>                     <C>
Series A-4-1            May 2004        May 2015           60   $       500   $       30,000          5.75%
Series A-4-2            May 2004        May 2019           58           500           29,000          6.00%
Series B-3-1            May 2004        May 2015           50           500           25,000          6.00%
Series B-3-2            May 2004        May 2019           40           500           20,000          6.30%
                                                                              --------------
   Total                                                                      $      104,000
                                                                              ==============
</TABLE>

                                      103
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


Shareholders are required to tender their shares for remarketing.  Equity Issuer
may (but is not required to) redeem these shares at any time after the mandatory
tender dates.

Except for the absence of a mandatory repurchase feature (and for specific terms
enumerated in the table above),

     o    the Series A-4-1and Series A-4-2 shares have the same  characteristics
          as the Series A Shares described above; and
     o    the Series B-3-1 and Series B-3-2 shares have the same characteristics
          as the Series B shares described above.

In  accordance  with SFAS 150,  as these  shares are not  subject  to  mandatory
repurchase,  we classify them as mezzanine  equity and the associated  dividends
are classified  outside of interest  expense in the  consolidated  statements of
operations.

C.  MINORITY INTERESTS

Minority  interests in consolidated  subsidiaries  consisted of the following at
December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                           2007            2006
--------------------------------    -------------   -------------
<S>                                <C>             <C>
Convertible SCUs of a subsidiary   $     165,717   $     231,262
Convertible SCIs of a subsidiary           3,984           4,758
Convertible SMUs of a subsidiary              --           5,110
Other                                      7,015           6,260
                                   -------------   -------------

Total                              $     176,716   $     247,390
                                   =============   =============
</TABLE>


Income (loss)  allocated to minority  interests,  net of tax, was as follows for
the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)             2007             2006             2005
--------------        -------------    -------------    -------------
<S>                   <C>              <C>              <C>
SCUs                  $     (23,852)   $      16,131    $      23,091
SCIs                           (313)              80               --
SMUs                           (296)             102              330
Other                           350             (219)              --
                      -------------    -------------    -------------

Total                 $     (24,111)   $      16,094    $      23,421
                      =============    =============    =============
</TABLE>


SCUs

In connection  with our  acquisition of CAHA, our subsidiary  issued  membership
interests  in the  form of 16.1  million  SCUs.  SCU  holders  are  entitled  to
distributions  at the same  time as,  and only if, we pay  distributions  on our
common shares.  SCU  distributions  are calculated as the amount of common share
distributions  divided by 0.72,  to adjust for the taxable  nature of the income
comprising  the SCU  distributions.  SCU  distributions  are payable only to the
extent of the  subsidiary's  cash flow,  supplemented  by a loan of all but $5.0
million  from the  parent  trust  in the  event of a  shortfall.  Any  remaining
shortfall will accrue  interest at a market rate and will only be payable at the
time the subsidiary has sufficient cash flow.

Each holder of SCUs has the right to:

     o    exchange all or a portion of their SCUs for cash; and
     o    receive cash for any accrued but unpaid  distributions with respect to
          SCUs exchanged (not including accrued and unpaid distributions for the
          quarterly period in which the exchange occurs).

Instead of cash, we may, at our  discretion,  exchange the SCUs (and any accrued
but unpaid  distributions) for common shares on a one-for-one basis,  subject to
anti-dilution adjustments.  We would issue the common shares at a price equal to
the average  closing market price of our common shares for the five  consecutive
trading days prior to the date when we receive notice of intent to convert.  Our
subsidiary may not pay any  distributions  to the parent trust until it has paid
all SCU  distributions.  Through December 31, 2007, all SCU  distributions  have
been paid.

                                      104
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


As of December 31,  2007,  there were 14.3  million  SCUs  outstanding  and 14.8
million were outstanding at December 31, 2006.

SCIs
----

In connection  with our  acquisition  of Centerline  Investors (see Note 5), our
subsidiary  issued  membership  interests in the form of  approximately  268,000
SCIs.  SCI holders are entitled to  distributions  at the same time as, and only
if, we pay  distributions on our common shares.  SCI distributions are initially
$1.72 per year,  subject to an adjustment in the amount of 95% of the percentage
increases or decreases in the dividends paid by us on our common shares.

Each holder of SCIs has the right to:

     o    exchange all or a portion of their SCIs for cash; and
     o    receive cash for any accrued but unpaid  distributions with respect to
          SCIs exchanged (not including accrued and unpaid distributions for the
          quarterly period in which the exchange occurs).

Instead of cash, we may, at our  discretion,  exchange the SCIs (and any accrued
but unpaid  distributions) for common shares on a one-for-one basis,  subject to
anti-dilution adjustments.  We would issue the common shares at a price equal to
the average  closing market price of our common shares for the five  consecutive
trading days prior to the date when we receive notice of intent to convert.

As of December 31, 2007 and 2006, there were 268,000 SCIs outstanding.

SMUs
----

SMUs were issued in connection with Commercial Real Estate  acquisitions in 2005
and  2006.  They  had  similar  features  to  SCUs  and  SCIs  except  that  SMU
distributions were initially $1.69 per year, subject to adjustment in the amount
of 95% of the  percentage  increases or decreases in the dividends paid by us on
the common shares.

As of December 31, 2006, there were 278,000 SMUs outstanding. During 2007, these
SMUs were converted to common shares and no SMUs remain  outstanding at December
31, 2007.

Conversions
-----------

Holders of subsidiary equity units converted holdings as follows:
<TABLE>
<CAPTION>
                                   Number          Common
     Year                        converted     shares issued    Cash paid
---------------                -------------   -------------   -------------
                                                               (IN THOUSANDS)

     <S>        <C>                  <C>             <C>       <C>
     2005       SCUs                 287,000         287,000              --

     2006       SCUs                  60,000          20,000   $         723
                SMUs                  75,000          75,000              --

     2007       SCUs                 528,000              --   $        7,066(1)
                SMUs                 278,000         278,000              --
</TABLE>

(1) Of this amount,  $3.8 million related to shares converted as of December 31,
   2007, and was paid in January 2008.


Additionally,  in 2006, in connection with the closure of CharterMac Real Estate
Securities  (see Note 5), we  cancelled  114,000  SMUs and  72,000  others  were
returned to us. We reversed the  aggregate  amount of $4.1 million from minority
interests to goodwill.

                                      105
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


Other
-----

"Other" minority  interests at December 31, 2007 and 2006,  primarily  represent
the 10%  interest in  Centerline  Financial  owned by Natixis.  Natixis has been
issued warrants which,  generally,  may be exercised beginning June 2009, and if
exercised, would increase Natixis's ownership percentage to 19%.


NOTE 16 - REDEEMABLE SECURITIES

We previously issued Convertible CRA Preferred Shares ("Convertible CRA shares")
and 4.4% Cumulative  Perpetual  Convertible CRA Preferred Shares ("CRA Preferred
Shares") (See Note 17). In December 2007, we entered into option agreements with
certain holders of these shares.

The option agreements provide that:

     o    we have the option to  repurchase  the shares for the  original  gross
          issuance price per share (plus  accumulated and unpaid  distributions)
          at any time from the date of the agreement; and
     o    if we do not repurchase the shares by certain dates,  the shareholders
          have the option to require us to purchase  the shares for the original
          gross   issuance  price  per  share  (plus   accumulated   and  unpaid
          distributions).

In addition, the ability of certain shareholders to convert the shares to common
shares is eliminated and in the case of the CRA Preferred Shares, the agreements
also increase the dividend rate on the shares from 4.4% to 5.2% (now "Redeemable
CRA Shares" and  "Redeemable  CRA Preferred  Shares").  The shares for which the
conversion  was not eliminated  are referred to as  "Convertible  Redeemable CRA
Shares".

A summary  of the total  number of  redeemable  securities  are as follows as of
December 31, 2007:
<TABLE>
<CAPTION>
               Series                                 Shares
---------------------------------                 --------------
                                                  (IN THOUSANDS)
<S>                                                         <C>
Convertible Redeemable CRA Shares                           708
Redeemable CRA Shares                                       538
Redeemable CRA Preferred Shares                           1,100
</TABLE>


The three classes are convertible into 0.9 million common shares.

Although not mandatorily  redeemable,  the  shareholders  now have the option to
require us to purchase  these  shares in the future.  As such,  these shares are
excluded  from  the  Shareholders'  equity  section  of the  balance  sheet  and
presented  in the  mezzanine  section  as of  December  31,  2007.  The  amounts
reclassified represent the fair value of the associated shares as of the date of
the  agreements.  The  difference  between the fair values of the shares and the
carrying  amounts as of the option dates ($3.4 million) was recorded as a charge
to beneficial  owners'  equity.  The  difference  between the fair values of the
shares as of the option dates and the exercise prices of the options is accreted
as a charge to  beneficial  owners  equity  over the period from the option date
until the put options are  exercisable.  These amounts affect earnings per share
as illustrated in Note 21.

In 2008, options were exercised leading to an additional 0.4 million Convertible
Redeemable CRA Shares and 80,000 additional Redeemable CRA Preferred Shares with
similar terms as described above (see Note 27).


NOTE 17 - SHAREHOLDERS' EQUITY

A.  SPECIAL PREFERRED VOTING SHARES

Each holder of SCUs (see Note 15) also holds one special  preferred voting share
(at a par value of $0.01 per share) for each SCU. The special  preferred  voting
shares  have no  economic  interest,  but  entitle  the  holder  to  vote,  on a
one-for-one basis, on all matters subject to a vote of our common  shareholders.
We have the  right to  require  that  each  special  preferred  voting  share be
redeemed at par and cancelled  simultaneously upon the exchange of an SCU by its
holder  into cash or a common  share.  Other than the payment of $0.01 per share
upon redemption of the special preferred voting shares or the liquidation of our
Company,   the  special   preferred  voting  shares  are  not  entitled  to  any
distributions or other economic rights.

                                      106
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


As  selling  principals  of CAHA,  Stephen  M. Ross (our  chairman)  and Marc D.
Schnitzer  (our Chief  Executive  Officer and  President)  entered into a voting
agreement which governs the voting of all of their:

     o    special preferred voting shares,
     o    common shares issuable upon exchange of their SCUs, and
     o    any other common  shares  currently  owned or which may be acquired by
          them in the future.

The voting agreement provides that the selling principals of CAHA will:

     o    vote their common shares or special  preferred  voting shares in favor
          of the election of any  independent  trustee  approved by our board of
          trustees or in the same proportion as the unaffiliated  holders of our
          common shares vote in such election; and
     o    not exercise any right as  shareholder  of our Company to nominate any
          independent trustee.

Similar  voting  agreements  with other selling  principals of CAHA expired when
their employment with us ended. Mr. Schnitzer's  agreement will terminate at the
time he is no longer an employee, officer, or trustee of our Company. The voting
agreement  with respect to Mr. Ross will remain in effect as long as he owns any
of our special preferred voting shares or common shares. As of January 31, 2008,
(inclusive of shares  acquired by an affiliate of Mr. Ross in January 2008) 23.3
million voting shares were subject to this agreement.

B. CONVERTIBLE CRA SHARES

Our Convertible  Community  Reinvestment Act Preferred Shares  ("Convertible CRA
Shares")  initially were intended to enable  financial  institutions  to receive
certain regulatory benefits in connection with their investment.  We developed a
proprietary  method  for  allocating  these  regulatory   benefits  to  specific
financial institutions that invest in the Convertible CRA Shares. As a result of
the  re-securitization  transaction  with Freddie Mac in December 2007 (see Note
4), we do not believe  that these  shares  will  continue to qualify for credits
under the Community  Reinvestment  Act.  Other than the preferred  allocation of
regulatory benefits,  the preferred investors receive the same economic benefits
as our common shareholders including:

     o    receipt of the same dividends per share;
     o    pro rata allocation of earnings between the two classes of shares; and
     o    equal  ranking  with the common  shares  with  respect to rights  upon
          liquidation, dissolution or winding up of our Company.

The Convertible CRA Shares have no voting rights,  except on matters relating to
the terms of the  Convertible CRA Shares or to amendments to our Trust Agreement
that would adversely affect the Convertible CRA Shares.

For  Convertible  CRA shares issued prior to 2002, the investors have the option
to convert their shares into common shares at  predetermined  conversion  rates.
For  Convertible  CRA Shares  issued in 2002 and later,  conversion  into common
shares is on a one-for-one basis. Upon conversion, the investors would no longer
be entitled to a special allocation of the regulatory benefit.

In  December  2007,  we  entered  into  option  agreements  with  certain of the
Convertible  CRA  shareholders  (see  Note 16) and  reclassified  the  shares as
mezzanine equity at an aggregate fair value of $18.4 million.  Option agreements
regarding additional shares were executed in 2008 (see Note 27).

At December 31, we had the following Convertible CRA Shares outstanding:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                         2007             2006
--------------------------------------------      -------------    -------------
<S>                                                       <C>              <C>
Convertible CRA Shares issued prior to 2002                 291              998
Convertible CRA Shares issued 2002 and later              5,015            5,554
                                                  -------------    -------------
Total outstanding                                         5,306            6,552
                                                  =============    =============
Common shares issuable upon conversion                    5,297            6,487
                                                  =============    =============
</TABLE>


C. 4.4% CONVERTIBLE CRA PREFERRED SHARES

Our  4.4%  Cumulative   Perpetual   Convertible  CRA  Preferred   Shares  ("4.4%
Convertible  CRA Preferred  Shares")  have the same CRA related  benefits of the
Convertible  CRA Shares and  likewise  have no voting  rights  except on certain

                                      107
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


matters relating to the terms of the 4.4% Convertible CRA Preferred Shares or to
amendments  to our  Trust  Agreement  which  would  adversely  affect  the  4.4%
Convertible CRA Preferred Shares.

The shares rank senior to our common shares and the  Convertible CRA Shares with
respect to rights upon  liquidation,  dissolution  or winding up of our Company.
They rank  senior to our common  shares  and the  Convertible  CRA  Shares  with
respect  to  distributions,  which  are  cumulative  and  fixed  at  4.4% of the
liquidation amount of $50 per share. The shares have no stated maturity.

In  December  2007,  we  entered  into  option  agreements  with  certain of the
Convertible  CRA  shareholders  (see  Note 16) and  reclassified  the  shares as
mezzanine equity at an aggregate fair value of $51.5 million.  Option agreements
regarding additional shares were executed in 2008 (see Note 27).

Beginning  July  2008,  the  4.4%  Convertible  CRA  Preferred  Shares  will  be
convertible  into  our  common  shares  at the  option  of  their  holders  at a
conversion rate of approximately 1.81 common shares each (a total of 1.9 million
common shares), subject to conversion adjustment conditions. Also beginning July
2008, we may redeem the shares at a price equal to their liquidation amount plus
any accrued and unpaid distributions. The shares are also subject to remarketing
provisions  beginning  in July 2015.  All  distributions  have been paid through
December 2007.

D. 11.0% CUMULATIVE CONVERTIBLE PREFERRED SHARES AND RIGHTS OFFERING

In January  2008,  we issued  convertible  preferred  shares to an  affiliate of
Related Companies (a company  controlled by Mr. Ross) for net proceeds of $131.2
million.  In February 2008, we announced a rights offering to allow shareholders
to participate in this share issuance by purchasing shares from the affiliate of
Related Companies (see Note 27).

E. DIVIDEND REINVESTMENT PLAN

In May 2000, we  implemented a dividend  reinvestment  and common share purchase
plan. Under this plan, common shareholders may elect to have their distributions
automatically  reinvested  in  additional  common shares at a price equal to the
average of the high and low market price from the previous  day's  trading,  and
make cash payments for further  investment.  As of December 31, 2007, there were
149,000 shares participating in the plan, which represented 333 investors.

F. REPURCHASES

The Board of  Trustees  has  authorized  the  implementation  of a common  share
repurchase plan, enabling us to repurchase, from time to time, up to 3.0 million
common shares. This plan has no expiration date. The repurchases are made in the
open market and the timing is dependent on the availability of common shares and
other market  conditions.  During 2006, we entered into a 10b5-1 trading plan to
facilitate  the purchases of shares under this program.  In connection  with our
Revolving  Credit  Facility  and New Term Loan (see Note 11), we are  restricted
from repurchasing our shares during the term of such facilities.

In addition to the repurchase  plan, we may repurchase  shares from employees in
connection with tax withholding  requirements  upon vesting of restricted  share
grants.  We  account  for  repurchased  common  shares  as  treasury  shares  of
beneficial  interest.  These repurchases are not subject to the Revolving Credit
Facility and New Term Loan restrictions described above.

During the years ended December 31, we repurchased shares as follows,  including
shares we purchased  through the 10b5-1 plan,  shares purchased in 2006 prior to
implementing that plan, and via employee withholdings:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                  2007           2006           2005
----------------------------------------    ------------   ------------   ------------
<S>                                         <C>            <C>            <C>
Number of shares                                   1,973          1,082            187
Cost, including commissions and service
  charges                                   $     36,294   $     20,883   $      4,165
</TABLE>


All repurchases  during 2005 were in connection with employee  withholdings  and
there were no repurchases made under the repurchase plan during those years.

Although  additional  shares may be repurchased  in 2008 in connection  with tax
withholding  requirements upon vesting of restricted share grants, we are unable
to estimate  how many.  Additionally,  as part of the rights  offering  noted in
11.0% CUMULATIVE CONVERTIBLE PREFERRED SHARES AND RIGHTS OFFERING above, we will
repurchase  some of the newly  issued  preferred  shares and resell  them to the
extent shareholders participate in the rights offering.

                                      108
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


G. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income were as follows:
<TABLE>
<CAPTION>
                                 Net Unrealized
                                 Gain/(Loss) on
                                     Mortgage       Net Unrealized     Net Unrealized     Net Unrealized       Accumulated
                                     Revenue        Gain/(Loss) on     Gain/(Loss) of     Gain/(Loss) of          Other
                                      Bonds,          Derivatives          Equity           Marketable       Comprehensive
(IN THOUSANDS)                      Net of Tax         Net of Tax         Investees         Securities        Income (Loss)
                                 ---------------    ---------------    ---------------    ---------------    ---------------
<S>                              <C>                <C>                       <C>                <C>         <C>
Balance at January 1, 2005       $        15,589    $        (4,037)   $            --    $            --    $        11,552
Unrealized gains (losses), net            87,224              4,517                 --                 35             91,776
Tax effect                                    --              1,331                 --                 --              1,331
Reclassification to net income            (4,555)                --                 --                 --             (4,555)
                                 ---------------    ---------------    ---------------    ---------------    ---------------
Balance at December 31, 2005              98,258              1,811                 --                 35            100,104
Unrealized gains (losses), net           (26,285)            (3,690)             1,452                286            (28,237)
Tax effect                                (1,247)             1,246                 --                 --                 (1)
Reclassification to net income            (5,003)                --                 --                 --             (5,003)
                                 ---------------    ---------------    ---------------    ---------------    ---------------
Balance at December 31, 2006              65,723               (633)             1,452                321             66,863
Unrealized gains (losses), net           (24,219)            (6,137)           (90,948)           (22,554)          (143,858)
Tax effect                                11,462            (18,979)                --                 --             (7,517)
Reclassification to net income           (19,933)                --                 --                (75)           (20,008)
                                 ---------------    ---------------    ---------------    ---------------    ---------------
Balance at December 31, 2007     $        33,033    $       (25,749)   $       (89,496)   $       (22,308)   $      (104,520)
                                 ===============    ===============    ===============    ===============    ===============
</TABLE>


NOTE 18 - GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  consisted of the  following for the years
ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                         2007           2006           2005
-----------------------------------------------   -------------  -------------  -------------
<S>                                               <C>            <C>            <C>
Salaries and benefits                             $     116,764  $      94,916  $      68,983
Professional fees                                        13,510         14,403         11,357
LIHTC Fund origination and property acquisition           8,370         12,338         15,704
Other general and administrative                         43,840         39,129         29,351
                                                  -------------  -------------  -------------

Total                                             $     182,484  $     160,786  $     125,395
                                                  =============  ============= = ============
</TABLE>


NOTE 19 - SHARE BASED COMPENSATION

A.  THE PLAN

In June 2007,  our  shareholders  approved  the 2007  Incentive  Share Plan (the
"Plan"),  which replaced our then existing Amended and Restated  Incentive Share
Plan.

The purpose of the Plan is designed to  attract,  retain and  motivate  eligible
persons and to provide incentives and rewards for superior performance.

The Plan allows for the issuance of share options,  share  appreciation  rights,
restricted shares,  restricted share units,  unrestricted shares, deferred share
units, and performance awards (collectively, the "Awards") to eligible persons.

The  Compensation   Committee  (the   "Committee")  of  our  Board  of  Trustees
administers the Plan.  Pursuant to the Plan, the maximum number of common shares
that may be awarded is the lesser of:

     o    10% of the number of total shares outstanding (as defined in the Plan)
          as of December 31 preceding issuances of such awards; or
     o    the limits  prescribed by the national  security  exchange or national
          quotation system on which the shares may then be listed.

                                      109
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The  Committee  will grant Awards under the Plan at its  discretion,  and it has
established  the  2007  Outperformance  Program  ("2007  OPP"),  and two  Annual
Incentive  Bonus Programs  (denominated  as "A" and "B") that provide for future
Awards  on  terms  the  Committee  has  established.  At this  time,  we can not
determine the amount or dollar value of Awards to be provided under any of these
programs because they depend on our future  performance,  and because individual
allocations are discretionary for each program.

B.  OUTPERFORMANCE PROGRAM

Under the 2007 OPP,  Award  recipients  will share in a performance  pool if our
total return to  shareholders  over the  three-year  period from January 1, 2007
through December 31, 2009 exceeds 37.5%. The size of the pool will be 11% of the
outperformance  return  amount in excess of the 37.5%  benchmark,  subject  to a
maximum  pool  of  $25.0  million.  The  outperformance  pool  will  be  paid to
participants in the form of restricted  share awards which will vest 50% on each
of  December  31,  2010  and  2011,  subject  to  the  participant's   continued
employment,  except as otherwise provided in the 2007 OPP. We are accounting for
OPP Awards as equity  awards  pursuant  to SFAS 123 (R),  SHARE  BASED  PAYMENT.
Grants  under this  program in 2007 had a grant date value of $0.7  million.  We
recognized expense of $0.1 million during 2007 in connection with these grants.

C.  ANNUAL INCENTIVE BONUS PROGRAMS

The Annual  Incentive Bonus Programs  establish cash bonus pools for the payment
of annual bonuses of cash and restricted shares to eligible  persons.  Under the
programs,  we expect to issue  awards equal to 4.07% of our cash  available  for
distribution to shareholders ("CAD"). See Note 24 for a definition of CAD.

D.  SHARE OPTIONS

All options  granted have an exercise  price equal to or greater than the market
price of our common  shares on the grant date.  The  maximum  option term is ten
years from the date of grant and options  granted  pursuant to the Plan may vest
immediately  upon  issuance  or over a  period  determined  by our  compensation
committee.

We granted the following options:
<TABLE>
<CAPTION>
                                    Weighted                          Weighted
                                     Average          Weighted         Average
     Year            Number       Exercise Price    Average Term    Vesting Period
--------------   --------------   --------------   --------------   --------------
<C>                     <C>       <C>                  <C>               <C>
2007                    984,349   $        19.06       10.0 years        1.3 years
2006                    544,000   $        21.78        7.4 years        2.1 years
2005                    656,515   $        24.35       10.0 years        3.0 years
</TABLE>

We used the following weighted average  assumptions in the Black-Scholes  option
pricing model to determine fair values of options granted:
<TABLE>
<CAPTION>
                                      2007            2006             2005
                                --------------   --------------   --------------
<S>                                     <C>              <C>              <C>
Risk free interest rate                  4.75%            4.42%            3.01%
Expected years until exercise            1.11              1.71             2.00
Expected stock volatility               23.01%           23.14%           20.38%
Dividend yield                           8.81%            8.11%            6.71%
</TABLE>

                                      110
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The following table summarizes  activity in our share option plans for the years
ended December 31:

<TABLE>
<CAPTION>
                                         2007                         2006                         2005
                              --------------------------   --------------------------   --------------------------
                                              Weighted                     Weighted                     Weighted
                                               Average                      Average                      Average
                                              Exercise                     Exercise                     Exercise
                                Options         Price        Options         Price        Options         Price
                              -----------    -----------   -----------    -----------   -----------    -----------
<S>                             <C>          <C>             <C>          <C>             <C>          <C>
Outstanding at beginning of
  year                          2,018,741    $     20.77     1,510,341    $     20.42     1,075,313    $     17.36
Granted (1)                       984,349          19.06       544,000          21.78       656,515          24.35
Forfeited                         (91,910)         21.18            --             --            --             --
Exercised                         (32,000)         21.18       (35,600)         21.18      (221,487)         17.18
                              -----------    -----------   -----------    -----------   -----------    -----------
Outstanding at end of year      2,879,180    $     20.17     2,018,741    $     20.77     1,510,341    $     20.42
                              ===========    ===========   ===========    ===========   ===========    ===========

Fair value of options
  granted during the year
  (in thousands)                             $     1,325                  $       852                  $     1,196
                                             ===========                  ===========                  ===========
</TABLE>

(1)  Excludes options  cancelled and reissued.  See RE-ISSUANCE OF SHARE OPTIONS
     BELOW.

<TABLE>
<CAPTION>
                                                       As of December 31, 2007
                                 ---------------------------------------------------------------------
                                                                         Weighted
                                                                         Average
                                                       Weighted         Remaining
                                                        Average        Contractual        Aggregate
                                                       Exercise            Term        Intrinsic Value
                                     Options             Price          (IN YEARS)     (IN THOUSANDS)
                                 ---------------   ---------------   ---------------   ---------------
<S>                                    <C>         <C>                           <C>   <C>
Vested and expected to vest at
  end of period                        2,879,180   $         20.17               7.5   $            --
                                 ===============   ===============   ===============   ===============
Exercisable at end of year             1,486,413   $         20.84               6.6   $            --
                                 ===============   ===============   ===============   ===============
</TABLE>


There was no aggregate intrinsic value at December 31, 2007, due to the exercise
price of the  outstanding  options being greater than the closing share price on
the last  trading day of the year.  This  amount  will change  based on the fair
market value of our common shares.

The following table summarizes  information about share options  outstanding and
exercisable at December 31, 2007:

                                   Weighted
                                   Average
                                  Remaining
                                 Contractual
                    Number          Life            Number
Exercise Price   Outstanding      (IN YEARS)      Exercisable
--------------  --------------  --------------  --------------

$        11.56          51,576             2.3          51,576
$        17.56           2,250             4.7           2,250
$        17.78         800,000             5.9         600,000
$        19.06         984,349             9.2              --
$        21.61          20,000             7.4          20,000
$        22.03         384,490             8.0         256,327
$        24.44         636,515             7.0         556,260
                --------------- --------------  --------------

                     2,879,180             7.5       1,486,413
                =============== ==============  ==============

                                      111
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


E.  NON-VESTED SHARES AND SCUS

We issue restricted  share grants  primarily in connection with  acquisitions or
employee  bonuses.  In conjunction  with the CAHA acquisition in 2003, we issued
restricted common shares to various individuals who are either employees of CAHA
or are one of the selling principals,  most of which vested over periods ranging
from three months to four years.  During 2006, in connection with the Centerline
Investors  acquisition,  we  issued  1.7  million  restricted  common  shares to
Centerline  Investors  employees  (see Note 5), of which  56,000  shares  vested
immediately, with the remaining vesting over a period of one to four years.

Also, in conjunction with the CAHA  acquisition,  our subsidiary  issued SCUs to
employees  other than the selling  principals.  These SCUs  vested over  periods
ranging from three to four years.

Activity with respect to non-vested shares and SCUs was as follows for the years
ended December 31:
<TABLE>
<CAPTION>
                                                        Weighted                             Weighted
                                                        Average                               Average
                                     Non-vested        Grant Date        Non-vested          Grant Date
                                       shares          Fair Value            SCUs            Fair Value
                                  ---------------    ---------------   ---------------    ---------------
<S>                                     <C>          <C>                      <C>         <C>
Non-vested at January 1, 2005             494,691    $         19.37           310,400    $         17.92
Granted                                   119,592              22.37                --                 --
Vested                                   (365,022)             19.78                --                 --
Forfeited                                  (8,067)             19.46                --                 --
                                  ---------------    ---------------   ---------------    ---------------
Non-vested at December 31, 2005           241,194              20.25           310,400              17.92
                                  ---------------    ---------------   ---------------    ---------------
Granted                                 2,170,371              19.73                --                 --
Vested                                   (300,483)             20.06          (148,087)             17.92
Forfeited                                 (22,511)             20.56                --                 --
                                  ---------------    ---------------   ---------------    ---------------
Non-vested at December 31, 2006         2,088,571              19.74           162,313              17.92
                                  ---------------    ---------------   ---------------    ---------------
Granted                                   914,841              15.58                --                 --
Vested                                   (856,102)             19.76          (162,313)             17.92
Forfeited                                 (70,821)             19.82                --                 --
                                  ---------------    ---------------   ---------------    ---------------
Non-vested at December 31, 2007         2,076,489    $         18.61                --    $            --
                                  ===============    ===============   ===============    ===============
</TABLE>


F.  UNAMORTIZED COSTS AND SHARES AVAILABLE FOR GRANT

As of  December  31,  2007,  there  was  $20.0  million  of  total  unrecognized
compensation   cost  related  to  share  options  and   non-vested   share-based
compensation  grants.  We  expect to  recognize  this  compensation  cost over a
weighted-average period of 2.2 years.

As of  December  31,  2007,  there  were 7.1  million  options  or share  grants
available for issuance under the Plan. In addition, 0.7 million options or share
grants remain available for issuance under the prior plan.

G.  TRUSTEE GRANTS

Our  independent  trustees  receive a portion of their  annual  compensation  in
common  shares.  We  granted  the  following  common  shares as part of  trustee
compensation:

               Year                         Number
          ----------------              ---------------

               2007                           51,542(1)
               2006                           11,625
               2005                           14,466

          (1)  Of the 2007 shares issued,  10,077 were issued in January 2007 in
               connection with 2006 services.

                                      112
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


H.  RE-ISSUANCE OF STOCK OPTIONS

In July 2007, our Compensation and Nominating and Governance Committees approved
the cancellation of outstanding  options to purchase our common shares issued to
Stephen M. Ross, our Chairman,  and the  substitution  of the cancelled  options
with new ones on substantially similar terms.

The Committees  took this action  because Mr. Ross  otherwise  likely would have
been subject to adverse tax consequences  under Section 409A ("Section 409A") of
the Internal Revenue Code of 1986, as amended,  that were unforeseen at the time
we granted the original options.  The cancelled option was issued to Mr. Ross in
consideration  of his  service  as the  Chairman  of the  Board of  Trustees  in
connection with our  acquisition of CAHA. The cancelled  options had an exercise
price  ($17.78 per share) that was below the market  value of our common  shares
("in-the-money")  on November  17, 2003,  the  effective  date of the  cancelled
options, because the parties previously had agreed that the exercise price would
equal the average of the closing  price of our common shares for the 30 calendar
days  immediately  preceding the public  announcement  of the  acquisition.  For
purposes of Section  409A,  the holder of a share  option that has been  granted
"in-the-money",  to the extent  not vested as of January 1, 2005,  is subject to
adverse tax consequences.

The new  options,  which were  granted  with an exercise  price above the market
price of our common shares on the grant date:

     o    contain the identical  exercise price ($17.78 per common share) as the
          cancelled options;
     o    expire on the same date (November 17, 2013) as the cancelled options;
     o    grant an option to purchase the same number of common shares (800,000)
          that remained unexercised under the cancelled option; and
     o    provide for the same vesting  schedules  with respect to the remaining
          unvested  shares  under the  cancelled  option  (400,000  of which are
          vested  immediately,  200,000 of which are due to vest on November 17,
          2007 and 200,000 of which are due to vest on November 17, 2008).

Because the terms of the cancelled options and the new options are substantially
similar, the cancellation and re-grant had no effect on share-based compensation
expenses reported in our consolidated financial statements.

I. INCOME STATEMENT IMPACT

Expense related to our share based compensation was as follows:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                  -----------------------------------------
(IN THOUSANDS)                                        2007           2006           2005
----------------------------------------------    -----------    -----------    -----------
<S>                                               <C>          <C>             <C>
Outperformance program                            $        74  $          --   $         --
Share options                                           1,402            937            895
Non-vested shares and SCUs (net of forfeitures)        26,969         14,209          7,543
Trustee grants                                            574            279            313
                                                  -----------    -----------    -----------

Net                                               $    29,019    $    15,425    $     8,751
                                                  ===========    ===========    ===========
</TABLE>


NOTE 20 - INCOME TAXES

A large majority of our pre-tax  income was derived from our Affordable  Housing
bond investing business and the CMBS fund origination and management  businesses
we acquired with  Centerline  Investors,  which are  structured as  flow-through
entities;  as such,  the income  from those  investments  does not subject us to
income taxes. Our other businesses are conducted in corporations and are subject
to income taxes.

The components of our pre-tax (loss) income were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                        2007           2006           2005
----------------------------------------------    -----------    -----------    -----------
<S>                                               <C>          <C>             <C>
Not subject to tax                                $   (36,337)   $    79,341    $    79,309
Subject to tax                                        (19,284)       (31,555)       (48,872)
                                                  -----------    -----------    -----------

Total (loss) income before income taxes           $   (55,621)   $    47,786    $    30,437
                                                  ===========    ===========    ===========
</TABLE>

                                      113
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The income tax (benefit) provision consisted of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)                        2007           2006            2005
----------------------------      -----------    ------------    ------------
<S>                               <C>            <C>             <C>
Current:
  Federal                         $       268    $      1,107    $     (1,783)
  State and local                       1,091           3,230           1,384
                                  -----------    ------------    ------------
Total current                           1,359           4,337            (399)

Deferred:
  Federal                             (14,574)        (17,560)        (18,012)
  State and local                      (1,979)         (9,436)        (10,166)
                                  -----------    ------------    ------------
Total deferred                        (16,553)        (26,996)        (28,178)

Valuation allowance                    19,701          29,151              --
                                  -----------    ------------    ------------

Total tax provision (benefit)     $     4,507    $      6,492    $    (28,577)
                                  ===========     ===========     ===========
</TABLE>


The tax provision (benefit) does not include:

     (1) the current tax benefit  related to additional tax deductions for share
         based compensation which was credited to beneficial owners' equity; or
     (2) the deferred tax benefit and related valuation allowance resulting from
         unrealized  losses on derivative  contracts which was credited to other
         comprehensive income.

Deferred  income tax assets and  liabilities  are  computed  based on  temporary
differences  between the financial  statement and income tax bases of assets and
liabilities that existed at the balance sheet date.

A reconciliation  of the statutory federal tax rate to our effective tax rate is
as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)                                      2007           2006            2005
---------------------------------------------   -----------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Statutory tax rate                                     35.0%           35.0%           35.0%
Valuation allowance                                   (37.5)           61.1              --
State and local taxes, net of federal benefit           1.4            (8.6)          (19.0)
Partnership income not subject to tax                 (36.1)          (54.2)          (89.6)
SCUs/SMUs (see Note 15)                                28.0           (13.0)          (13.2)
Tax-exempt interest                                     2.6            (5.3)           (6.1)
Share based compensation                                 --            (0.5)           (0.7)
Other                                                  (1.5)           (0.9)           (0.3)
                                                -----------     -----------     -----------
Effective tax rate                                     (8.1)%          13.6%          (93.9)%
                                                ===========     ===========     ===========
</TABLE>

                                      114
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


The components of the deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)                              2007           2006
-------------------------------------   -----------    -----------
<S>                                     <C>            <C>
DEFERRED TAX ASSETS:
Deferred revenue                        $    35,425    $    42,720
Share based compensation                      7,234          4,599
Unrealized loss on derivatives                1,006          5,273
Purchased servicing rights                      500          1,632
Bad debt reserves                             5,417          3,518
Partnerships and depreciation                 4,708          2,996
Tax  credits and state operating loss
  carry forwards                             17,261          2,654
Other, net                                      610            396
                                        -----------    -----------
Total deferred tax assets                    72,161         63,788
                                        -----------    -----------

DEFERRED TAX LIABILITIES:
Intangible assets                           (13,242)       (20,250)
Deferred costs                                 (748)        (1,119)
Originated mortgage service rights          (10,651)        (9,329)
                                        -----------    -----------
Total deferred tax liabilities              (24,641)       (30,698)
                                        -----------    -----------

Valuation allowance                         (47,520)       (33,090)
                                        -----------    -----------

Net deferred tax asset                 $         --   $         --
                                        ===========    ===========
</TABLE>


At December  31,  2007,  our  corporate  subsidiaries  had the  following  carry
forwards:
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                         --------------

<S>                                                      <C>
Low income housing credits (expiring starting in 2024)   $        1,508
Alternative minimum tax credits (do not expire)          $          999
</TABLE>


Beginning in 2006, we determined  that, in light of projected  taxable losses in
the corporate  subsidiaries for the foreseeable  future, all of our deferred tax
assets  will  likely  not be  realized  and  therefore  we have  provided a full
valuation allowance.

The Internal  Revenue Service is examining the  consolidated  corporate  federal
income  tax  return for our  subsidiaries  subject to taxes for the tax  periods
ended June 30, 2003,  December 31, 2003 and December 31, 2004. The New York City
taxing  authority  is  examining  the  partnership  tax  returns  of  one of our
subsidiaries  for the years ended December 31, 2003 and December 31, 2004. These
examinations are ongoing and no significant issues have yet been raised.

We adopted the provisions of FIN 48 on January 1, 2007. As a result of adoption,
we  recognized  a charge of $1.2  million to the  January  1,  2007,  balance of
beneficial  owners'  equity and $0.4  million to the  January 1, 2007,  goodwill
balance (see Note 9). As of the adoption  date,  we had gross  unrecognized  tax
benefits of $2.0 million and accrued interest and penalties of $0.8 million.  Of
this total,  $2.5 million  represents  the amount of  unrecognized  tax benefits
that, if recognized,  would  favorably  affect the effective  income tax rate in
future periods.  We do not anticipate that these  unrecognized tax benefits will
significantly  change  due to the  settlement  of audits and the  expiration  of
statute  of  limitations  prior to June 30,  2008.  We  recognize  interest  and
penalties  related to uncertain tax positions within our income tax provision or
benefit,  which amount was $0.5 million for the year ended  December 31, 2007. A
reconciliation  of the beginning and ending amount of unrecognized  tax benefits
is as follows:
<TABLE>
<CAPTION>

<S>                                                               <C>
Balance at January 1, 2007                                        $        2,543
Additions based on tax positions related to the current year                  --
Additions for tax positions of prior years                                   535
Reductions for tax positions of prior years                                   --
Settlements                                                                   --
                                                                  --------------

Balance at December 31, 2007                                      $        3,078
                                                                  ==============
</TABLE>

                                      115
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 21 - EARNINGS PER SHARE, PROFIT AND LOSS ALLOCATIONS AND DISTRIBUTIONS

We  allocate  the income of certain  subsidiaries  first to holders of  minority
interests (see Note 15). We then allocate the remaining  profits to shareholders
in accordance with their percentage interests.  In accordance with SFAS No. 128,
EARNINGS PER SHARE,  0.8 million common share  equivalents have been excluded in
the Diluted EPS calculation for the year ended December 31, 2007, as we reported
a net loss after  dividends for the 4.4%  Convertible CRA Preferred  Shares.  In
addition,  the difference between the carrying amounts of redeemable  securities
and the exercise price of put options for those shares (see Note 16) is deducted
from net income to calculate net income allocable to shareholders.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)               Income         Shares*       Per Share
-----------------------------------------------     ------------    -----------   ------------
<S>                                                 <C>                  <C>      <C>
2007:
-----

Net loss                                            $    (60,128)
Preferred dividends                                       (4,757)
Effect of redeemable shares (see Note 16)                 (3,390)
                                                    ------------
Net loss allocable to shareholders (Basic EPS)           (68,275)        57,175   $      (1.19)
                                                                                  ============
Effect of dilutive securities                                 --             --
                                                    ------------    -----------
Diluted EPS                                         $    (68,275)        57,175   $      (1.19)
                                                    ============    ===========   ============

2006:
-----

Net income                                          $     41,294
Preferred dividends                                       (4,752)
                                                    ------------
Net income allocable to shareholders (Basic EPS)          36,542         58,154   $       0.63
                                                                                  ============
Effect of dilutive securities                                 --            557
                                                    ------------    -----------
Diluted EPS                                         $     36,542         58,711   $       0.62
                                                    ============    ===========   ============

2005:
-----

Net income                                          $     59,014
Preferred dividends                                       (2,020)
                                                    ------------
Net income allocable to shareholders (Basic EPS)          56,994         58,018   $       0.98
                                                                                  ============
Effect of dilutive securities                                 --            273
                                                    ------------    -----------
Diluted EPS                                         $     56,994         58,291   $       0.98
                                                    ============    ===========   ============
</TABLE>

* Includes common and Convertible CRA Shares (see Note 17).

                                      116
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 22 - RELATED PARTY TRANSACTIONS

INVESTMENTS IN AND LOANS TO AFFILIATES

The  components of  investments  in and loans to affiliates are presented in the
table below:
<TABLE>
<CAPTION>
                                                 December 31,  December 31,
(IN THOUSANDS)                                       2007         2006
----------------------------------------------   -----------   -----------
<S>                                              <C>           <C>
Loan to AMAC                                     $    77,685   $    15,000
Interest receivable on AMAC loan                         529           264
Investment in AMAC common and preferred shares         6,910            --
Co-investment in CUC                                   4,184         3,066
Due from partnerships, net                             8,300        44,701
Fees receivable, net                                   9,567         2,150
                                                 -----------   -----------

                                                 $   107,175   $    65,181
                                                 ===========   ===========
</TABLE>

Note: The above table does not include our  co-investments  in the  consolidated
CMBS and  High-Yield  Debt Fund  Partnerships  as the amounts are  eliminated in
consolidation.  These  co-investments  totaled  $36.1 million as of December 31,
2007, and $56.5 million as of December 31, 2006,


INCOME STATEMENT IMPACT

Our  Consolidated  Statements  of  Operations  included  the  following  amounts
pertaining to related party transactions:
<TABLE>
<CAPTION>
(IN THOUSANDS)                                               2007          2006           2005
---------------------------------------------------      ------------  ------------   ------------
<S>                                                      <C>           <C>            <C>
AMAC asset management and incentive management fees
   and expense reimbursements                            $      3,526  $      3,630   $      4,926
AMAC credit facility interest income                     $      2,970  $      1,461   $         87
AMAC servicing fee income                                $        655  $         66   $         --
Equity in loss of AMAC                                   $     (4,012) $         --   $         --
TRCLP shared service fee expense                         $        243  $        620   $        507
TRCLP property management services expense               $      4,354  $      4,277   $      3,158
</TABLE>


A. AMAC

Through one of our subsidiaries,  we manage the operations of AMAC. In addition,
in March 2007, we entered into a share purchase plan under Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended,  whereby we may purchase up to 9.8%
of the  outstanding  common  shares of AMAC in  open-market  purchases  based on
pre-determined  parameters.  Through December 31, 2007, we purchased 0.6 million
common  shares (for $5.3 million)  under this plan,  or 6.9% of its  outstanding
common shares of beneficial  interest.  Furthermore,  in July 2007, we purchased
0.3 million  shares of 7.25% Series A Cumulative  Convertible  Preferred  Shares
issued by AMAC for $7.0 million in  connection  with AMAC's  public  offering of
such shares.  We account for these  investments  on the equity  method as we can
exercise significant  influence over AMAC's financial and operating policies via
our advisory agreement.

In April 2007,  we increased the capacity of the  revolving  credit  facility to
AMAC from $50.0 million to $80.0 million and extended the term to June 2008 with
a one year optional  extension.  This facility,  bearing  interest at LIBOR plus
3.0%,  is used by AMAC to purchase  new  investments  and for general  corporate
purposes.  Income we earn from this  facility  is  included  in "Other  interest
income"  in  the  Consolidated  Statements  of  Operations.  In the  opinion  of
management,  the terms of this facility are consistent with similar transactions
with independent third parties.

During 2007,  AMAC  suspended  investment  activity due to  volatility in credit
markets that led to significant margin calls on its debt facilities and interest
rate swaps. As a result, it sold certain assets,  recorded impairment charges on
others and  recorded a  substantial  net loss.  In  addition,  AMAC has recorded
unrealized losses on some of its remaining assets and interest rate derivatives.
As we account for our investments in AMAC on the equity method, we have recorded
$4.0 million of losses in connection with our investment and recorded  dividends

                                      117
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


received as returns of capital.  Due to the equity  losses we have  recorded our
allocable  share  of  AMAC's  unrealized  losses,  the  carrying  value  of  our
investment  in its common  shares was reduced to zero and the carrying  value of
our preferred investment was reduced to $6.9 million. Although AMAC has notified
us that it is in default  under the  covenants  of the line of credit,  interest
payments for the line of credit are current and we have not exercised our rights
to demand repayment as we believe the advances are recoverable.

We  earn  asset   management  fees,   incentive   management  fees  and  expense
reimbursements  from AMAC  pursuant  to an  advisory  agreement.  These fees and
reimbursements  are included in "Fee income" in the  Consolidated  Statements of
Operations.  Effective  March 2007,  we entered  into a new  advisory  agreement
whereby the basis of certain of the fees we earn has changed.

During 2007 and 2006, our Commercial Real Estate  subsidiaries  originated loans
on behalf of AMAC of $255.1 million and $531.8 million,  respectively.  Pursuant
to the advisory agreement,  we received mortgage banking fees from the borrowers
of $1.1 million and $2.8 million in 2007 and 2006, respectively. We record these
fees in "Fee income" in the Consolidated  Statements of Operations.  In December
2007,  we  purchased  four loans from AMAC for a total of $32.8  million.  These
loans were  funded by the ASAP plus  facility  and will be sold to Fannie Mae in
2008.

We serve as the collateral manager for AMAC's $400.0 million CDO and service all
of the loans in AMAC's investment portfolio,  performing all primary and special
servicing functions.  Pursuant to the servicing agreement,  we receive fees from
AMAC based on the dollar  amount of loans we  service  and record  these fees in
"Fee income" in the Consolidated Statements of Operations.

During  2006,  Centerline  Real  Estate  Special  Situations  Mortgage  Fund LLC
("CRESS")  entered  into  a  co-investment  agreement  with  AMAC  whereby  both
participate in investment  opportunities that are originated by our subsidiaries
and  meet  mutual  investment  criteria.  A  portion  of  CRESS'  2007  and 2006
investments  were made  pursuant to this  agreement.  In addition,  during March
2007,  AMAC sold its  economic  interest in a group of  properties  to CRESS for
$12.0 million.  During December 2007, CRESS purchased  investments from AMAC for
$7.9  million.  In  January  and  February  2008,  CRESS  purchased   additional
investments from AMAC for $55.0 million (see Note 27).

B.  THE RELATED COMPANIES L.P.

General and administrative  expenses include shared service fees paid or payable
to The Related Companies, L.P. ("TRCLP"), a company controlled by our Chairman.

In  addition,  a  subsidiary  of  TRCLP  earned  fees  for  performing  property
management  services for various  properties held in LIHTC Fund  Partnerships we
manage and are included in "Other expenses of consolidated  partnerships" in the
Consolidated Statements of Operations.

During the year ended December 31, 2007, we acquired five mortgage revenue bonds
secured  by  properties   developed  by  a  subsidiary  of  TRCLP.   LIHTC  Fund
Partnerships  that we  consolidate  also  provided  equity  financing  to  these
properties.  CRESS also acquired participation  interests with AMAC in two loans
secured by properties developed by TRCLP.

In January 2008, we issued $131.2 million of our convertible preferred shares to
a company affiliated with TRCLP (see Notes 17 and 27).

C.  CO-INVESTMENT IN CUC

CUC is an investment fund with the California Public Employees Retirement System
("CalPERS")  as  majority  investor,  focusing  on  investments  in  multifamily
properties  in  major  urban  markets.   Our  membership   interest  includes  a
co-investment  obligation  amounting  to 2.5% of capital  invested  (see Note 25
regarding future funding commitments).

D.  DUE FROM PARTNERSHIPS, NET

Due from  partnerships  represents  monies advanced to investment  funds that we
sponsor. The decline in the balance from December 31, 2006, relates to temporary
loans made to investment  funds during the fourth quarter of 2006, a substantial
portion of which were repaid in the first quarter of 2007.

A portion  of these  advances  relate  to the  financial  difficulties  of three
developers  and  our  subsequent  actions  to  protect  our  investments  in the
properties  that were under  development  and for which we assumed  the  general
partner interests (see Note 25). As we consolidate those property  partnerships,
the above  balances  are net of  eliminations  of $26.7  million at December 31,
2007, and $24.3 million at December 31, 2006.

                                      118
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


E. OTHER

Substantially  all fund origination  revenues in the Affordable  Housing segment
are received from LIHTC Fund Partnerships we have originated and manage, many of
which comprise the  partnerships  that we consolidate.  While  affiliates of our
Company hold equity  interests in the investment  funds' general  partner and/or
managing member/advisor,  we have no direct investments in these entities and we
do not guarantee  their  obligations.  We have agreements with these entities to
provide  ongoing  services on behalf of the  general  partners  and/or  managing
members/advisors  and we receive  all fee  income to which  these  entities  are
entitled.

In  connection  with the 2002  refinancing  of a  property  partly  owned by our
Chairman,  we entered into an agreement  which allows the revenue bond to be put
to us should the owner of the  underlying  property  default on the bond. We, in
turn,  entered  into  agreements  which  allow us to put the bond to the general
partners of the owner who are  affiliates of the Company.  This right is secured
by collateral  assignments of the general partners' partnership interests in the
limited partnership which owns the underlying property.


NOTE 23 - CONSOLIDATED PARTNERSHIPS

Financial  information  for the LIHTC Fund and Property  Partnerships  are as of
September 30, 2007, the most recent reliable date.  Information  with respect to
the CMBS Fund and High-Yield Debt Fund Partnerships is as of December 31, 2007.

Assets and liabilities of consolidated partnerships consisted of the following:
<TABLE>
<CAPTION>
                                                     December 31, 2007                            December 31, 2006
                                        -------------------------------------------  -------------------------------------------
                                                        CMBS and                                     CMBS and
                                         LIHTC Fund     High-Yield                    LIHTC Fund     High-Yield
                                        and Property    Debt Fund                    and Property    Debt Fund
(IN THOUSANDS)                          Partnerships   Partnerships       Total      Partnerships   Partnerships       Total
--------------------------------------  -------------  -------------  -------------  -------------  -------------  -------------
<S>                                     <C>            <C>            <C>            <C>            <C>            <C>
Available-for-sale, at fair value
---------------------------------
  CMBS                                  $          --  $   1,235,059  $   1,235,059  $          --  $     719,645  $     719,645
  Retained CMBS certificates                       --        482,424        482,424             --        597,491        597,491
  Other                                            --         65,060         65,060             --             --             --
                                        -------------  -------------  -------------  -------------  -------------  -------------
                                                   --      1,782,543      1,782,543             --      1,317,136      1,317,136
                                        -------------  -------------  -------------  -------------  -------------  -------------

Equity method
-------------
  Equity interests in LIHTC properties      4,178,206             --      4,178,206      3,598,009             --      3,598,009

Other
-----
  Mortgage loans held for investment               --        336,322        336,322             --        101,156        101,156
  Other investments                            78,055             --         78,055         73,939          1,407         75,346
                                        -------------  -------------  -------------  -------------  -------------  -------------
                                               78,055        336,322        414,377         73,939        102,563        176,502
                                        -------------  -------------  -------------  -------------  -------------  -------------

Investments held by consolidated
  partnerships                              4,256,261      2,118,865      6,375,126      3,671,948      1,419,699      5,091,647
                                        -------------  -------------  -------------  -------------  -------------  -------------

Land, buildings and improvements, net         661,380             --        661,380        617,914             --        617,914
Other assets                                  290,076         81,659        371,735        276,010         60,858        336,868
                                        -------------  -------------  -------------  -------------  -------------  -------------
Other assets of consolidated
  partnerships                                951,456         81,659      1,033,115        893,924         60,858        954,782
                                        -------------  -------------  -------------  -------------  -------------  -------------

  Total assets                          $   5,207,717  $   2,200,524  $   7,408,241  $   4,565,872  $   1,480,557  $   6,046,429
                                        =============  =============  =============  =============  =============  =============

Financing arrangements                  $          --  $   1,128,376  $   1,128,376  $          --  $     687,719  $     687,719
Notes payable                                 422,904         35,463        458,367        594,477         21,500        615,977
Repurchase agreements                              --        410,589        410,589             --        243,955        243,955
Due to property partnerships                  970,602             --        970,602        971,864             --        971,864
Other liabilities                             177,979         15,041        193,020        169,065         11,574        180,639
                                        -------------  -------------  -------------  -------------  -------------  -------------

  Total liabilities of consolidated
    partnerships                        $   1,571,485  $   1,589,469  $   3,160,954  $   1,735,406  $     964,748  $   2,700,154
                                        =============  =============  =============  =============  =============  =============
</TABLE>

                                      119
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


A. CMBS

The CMBS Fund Partnerships invest in and hold CMBS investments.  In August 2007,
Centerline  Investors closed on an additional CMBS Fund Partnership,  consisting
of total accepted  capital  commitments of $585.3  million.  We participate as a
co-investor in the fund,  and have committed  $29.3 million of the total capital
commitments of this fund. CMBS investments held by these partnerships  comprised
the amounts noted below as of December 31, 2007:
<TABLE>
<CAPTION>
                             Face         Accreted        Unrealized      Unrealized         Fair        Percentage of
(DOLLARS IN THOUSANDS)      Amount          Cost             Gain           Loss             Value        Fair Value
----------------------  -------------   -------------    ------------   -------------    -------------   -------------
<S>                     <C>             <C>              <C>            <C>              <C>                     <C>
Security rating:
  BBB+                  $      17,000   $      17,000    $         --   $      (5,100)   $      11,900             1.0%
  BBB                          64,105          55,185              --         (14,438)          40,747             3.3
  BBB-                        347,032         300,119              --         (83,523)         216,596            17.5
  BB+                         269,706         252,286              --         (82,372)         169,914            13.7
  BB                          242,268         222,640              --         (77,060)         145,580            11.8
  BB-                         288,470         227,849              --         (67,687)         160,162            13.0
  B+                          202,753         159,347              --         (43,506)         115,841             9.4
  B                           159,821         102,068             419         (34,302)          68,185             5.5
  B-                          199,830          98,413           2,693         (29,842)          71,264             5.8
  CCC-                          6,000           4,338              --            (931)           3,407             0.3
  Non-rated                   814,602         294,464           2,919         (65,920)         231,463            18.7
                        -------------   -------------    ------------   -------------    -------------   -------------

  Total                 $   2,611,587   $   1,733,709    $      6,031   $    (504,681)   $   1,235,059           100.0%
                        =============   =============    ============   =============    =============   =============
</TABLE>

The  decreases  in fair value are due to  widening  interest  rate  spreads as a
result of market  conditions  and we believe  are not  reflective  of the credit
quality of the underlying  assets.  The CMBS Fund  Partnerships have the ability
and intent to hold these investments until recovery; as such, we have determined
that the decreases in fair value are temporary.

                                      120
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


B. RETAINED CMBS CERTIFICATES

The CMBS Fund Partnerships  retain interests in certain  securitized assets that
they have sold, as well as others purchased in market transactions.  Investments
in retained certificates held by these partnerships  comprised the amounts noted
below as of December 31, 2007:
<TABLE>
<CAPTION>
                               Face         Accreted        Unrealized      Unrealized         Fair        Percentage of
(DOLLARS IN THOUSANDS)        Amount          Cost             Gain            Loss            Value        Fair Value
-----------------------   -------------   -------------   -------------   -------------    -------------   -------------
<S>                       <C>             <C>              <C>            <C>              <C>                     <C>
Security rating:
  AAA                     $     147,900   $     144,258    $         --   $      (1,614)   $     142,644            29.6%
  AA+                            51,100          49,066              --            (674)          48,392            10.0
  AA                             15,400          16,252              --          (1,365)          14,887             3.1
  A+                             62,600          62,699              --          (4,120)          58,579            12.1
  A                              66,500          71,667              --          (6,967)          64,700            13.4
  A-                             30,700          28,526              --          (1,252)          27,274             5.7
  BBB+                           84,138          75,095              --         (16,188)          58,907            12.2
  BBB                            28,781          24,163              --         (12,650)          11,513             2.4
  BBB-                           40,294          31,672              --         (17,569)          14,103             2.9
  BB+                            47,820          22,770              --         (10,815)          11,955             2.5
  BB                             12,158           5,152              --          (2,356)           2,796             0.6
  BB-                            12,157           4,652              --          (2,220)           2,432             0.5
  B+                             21,073           7,161              --          (3,368)           3,793             0.8
  B                              11,348           2,745              --          (1,043)           1,702             0.3
  B-                             12,158           2,206              --            (747)           1,459             0.3
  Non-rated                     171,173           8,041             909            (393)           8,557             1.8
  Non-rated interest
  only                               --           4,749           3,982              --            8,731             1.8
                          -------------   -------------   -------------   -------------    -------------   -------------

  Total                   $     815,300   $     560,874   $       4,891   $     (83,341)   $     482,424           100.0%
                          =============   =============   =============   =============    =============   =============
</TABLE>


At December 31, 2007, the non-rated  interest only  certificates  had a combined
notional amount of $1.4 billion.

The  decreases  in fair value are due to  widening  interest  rate  spreads as a
result of market  conditions  and we believe  are not  reflective  of the credit
quality of the underlying  assets.  The CMBS Fund  Partnerships have the ability
and intent to hold these investments until recovery; as such, we have determined
that the decreases in fair value are temporary.

Unrealized  losses  presented  above do not include  $20.9 million of unrealized
losses that a fund  recognized  as an  impairment  charge in 2007 as the fund is
scheduled  to  liquidate in the next two years and may not hold the assets until
recovery.


                                      121
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


Fair value of the retained  certificates  is determined  assuming no defaults on
the  underlying  collateral  loans and  according  to the  payment  terms of the
underlying  loans,  which  generally  do  not  allow  prepayment  without  yield
maintenance except during the last three months of a loan. At December 31, 2007,
the remaining key  assumptions  used in measuring fair value and the sensitivity
of the current fair value of the  retained  certificates  to  potential  adverse
changes, were as follows:
<TABLE>
<CAPTION>
                                                                  Expected            Discount Rate Applied to
                                                                 Credit Loss                  Cash Flows
                                                         ---------------------------  --------------------------
                                             Discount
                               Weighted        Rate
                               Average      applied to         1%            2%        1% Adverse    2% Adverse
(DOLLARS IN THOUSANDS)        Life (yrs)    Cash Flows      CDR (1)        CDR (1)       Change        Change
---------------------------  ------------  ------------  -------------  ------------  ------------  ------------
<S>                                <C>           <C>          <C>           <C>            <C>           <C>
Security rating:
 AAA                                3.3           6.18%        (0.06)%       (0.14)%       (2.92)%       (5.73)%
 AA+                                3.9           6.98         (0.11)        (0.33)        (3.34)        (6.55)
 AA                                 4.4           7.46         (0.03)        (0.08)        (3.60)        (7.05)
 A+                                 4.4           8.14         (0.24)        (0.53)        (3.64)        (7.12)
 A                                  4.9           8.86         (0.03)        (0.10)        (3.81)        (7.44)
 A-                                 5.4           9.12         (0.83)        (1.85)        (4.22)        (8.22)
 BBB+                               6.9          12.78         (3.78)        (7.06)        (4.79)        (9.28)
 BBB                                7.7          21.57        (10.82)       (17.94)        (4.71)        (9.12)
 BBB-                               8.3          23.25         (9.45)       (15.46)        (4.84)        (9.11)
 BB+                                9.1          26.05         (9.60)       (19.85)        (4.71)        (9.35)
 BB                                 9.5          26.93         (7.55)       (22.96)        (4.78)        (9.22)
 BB-                                9.6          29.62         (6.82)       (27.55)        (4.47)        (8.62)
 B+                                10.0          31.35         (5.78)       (36.22)        (4.25)        (8.20)
 B                                 10.3          35.26         (6.10)       (38.78)        (3.76)        (7.28)
 B-                                10.4          41.30         (6.11)       (31.85)        (3.12)        (6.04)
 Non-rated                         12.0          89.15         (7.08)       (17.40)        (1.04)        (2.05)
 Non-rated interest only            6.6          32.67        (19.68)       (27.93)        (2.50)        (4.85)
</TABLE>

 (1)  Constant Default Rate


These  sensitivities  are  hypothetical  changes  in fair  value  and  cannot be
extrapolated  because  the  relationship  of the  changes in  assumption  to the
changes in fair value may not be linear.  Also,  the effect of a variation  in a
particular  assumption  is  calculated  without  changing any other  assumption,
whereas change in one factor may result in changes to another.  Accordingly,  no
assurance can be given that actual results would be consistent  with the results
of these estimates.

The interest rate on the principal classes is 4.0% and 0.2% on the interest only
class.  During  the  years  ended  December  31,  2007  and  2006,  consolidated
partnerships  received  $50.0  million  and $15.5  million,  respectively,  from
retained certificates.

Delinquencies  on the  collateral  loans  underlying  the retained  certificates
totaled 0.6% at December 31, 2007.  At December 31, 2007,  actual losses to date
were 2.4% of the underlying securitizations,  and projected remaining losses are
estimated  at 23.4% of the  underlying  securitizations.  At December  31, 2006,
actual losses to date were 0.4% of the underlying securitizations, and projected
remaining losses were estimated at 25.4% of the underlying securitizations.

C. EQUITY INTERESTS IN LIHTC PROPERTIES AND DUE TO PROPERTY PARTNERSHIPS

The LIHTC Fund Partnerships  invest in property level  partnerships that neither
we nor the LIHTC  Fund  Partnerships  control  and which,  therefore,  we do not
consolidate.  "Equity  interests  in LIHTC  properties"  represents  the limited
partner  equity  investments  in  those  property  level  partnerships.  "Due to
property partnerships"  represents the unfunded capital commitments of the LIHTC
Fund  Partnerships  in those property  partnerships.  As those  commitments  are
funded,  the "Equity  interests in LIHTC  properties"  balance increases and the
"due to property partnerships" balance decreases.

                                      122
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


D. MORTGAGE LOANS HELD FOR INVESTMENT

The  High-Yield  Debt Fund  Partnership  invests in various types of loans.  The
aggregate  carrying  values,  allocated  by product  type and  weighted  average
coupons,  of mortgage loans held for investment  held by that  Partnership as of
December 31, 2007 and 2006 are presented in the table below:
<TABLE>
<CAPTION>
                                           Total        Carrying      Allocation by      Fixed Rate     Variable Rate
(DOLLARS IN THOUSANDS)                  Commitment        Value       Product Type     Average Yield    Average Yield
-----------------------------------   -------------   -------------   -------------    -------------    -------------
<S>                                   <C>             <C>                       <C>                              <C>
2007
----
Product Type:
  Bridge loans, variable rate         $      15,000   $      12,472             3.7%              --%            7.70%
  Bridge loans, fixed rate                   46,626          43,764            11.6             7.12               --
  Subordinated notes, variable rate          34,825          21,666             8.7               --             7.98
  Subordinated notes, fixed rate             27,985          25,807             7.0             7.93               --
  Mezzanine loans, variable rate            185,841         147,136            46.4               --             8.93
  Mezzanine loans, fixed rate                90,474          85,477            22.6             9.79               --
                                      -------------   -------------   -------------    -------------    -------------

2007 Total/Average                    $     400,751   $     336,322           100.0%            8.28%            8.20%
                                      =============   =============   =============    =============    =============

2006
----
Product Type:
  Bridge loans, variable rate         $      15,000   $       1,178            9.30%              --%            8.35%
  Bridge loans, fixed rate                   22,496          22,496           13.94             7.29               --
  Subordinated notes, variable rate          40,000          34,157           24.79               --             9.64
  Subordinated notes, fixed rate             17,125          12,781           10.61             8.17               --
  Mezzanine loans, variable rate             36,500          27,982           22.62               --             9.22
  Mezzanine loans, fixed rate                30,246           2,562           18.74            15.00               --
                                      -------------   -------------   -------------    -------------    -------------

2006 Total/Average                    $     161,367   $     101,156           100.0%           10.15%            9.07%
                                      =============   =============   =============    =============    =============
</TABLE>


Mortgage loans held for investment had the following scheduled  maturities as of
December 31, 2007:
<TABLE>
<CAPTION>
                                               Current
                              Number of        Carrying
                               Loans            Value
    Year of Maturity          Maturing      (IN THOUSANDS)
------------------------   --------------   --------------
<S>                                    <C>  <C>
2008                                    3   $       39,144
2009                                   11          116,277
2010                                    8           50,964
2011                                    4           48,494
2012                                    2           16,508
Thereafter                              6           64,935
                           --------------   --------------
Total                                  34   $      336,322
                           ==============   ==============
</TABLE>


E.  FINANCING ARRANGEMENTS

The  financing  arrangements  of the  CMBS  Fund  Partnerships  consist  of four
separate  collateralized  debt  obligation  offerings,   with  weighted  average
interest  rates  ranging  from  4.7%  to 8.7%  and  weighted  average  remaining
maturities  of 4 to 10  years.  All of this  debt is  recourse  to the  specific
collateral and non-recourse to the CMBS funds.

In August 2007, two of our CMBS Fund Partnerships  re-securitized $985.9 million
in face amount of CMBS certificates, having a fair value of $593.6 million, into
a  collateralized  debt  obligation  offering and issued $435.0  million in face

                                      123
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


amount of notes with fixed rate  coupons with a weighted  average of 6.38%.  The
proceeds  were  utilized to repay  $295.5  million of variable  rate  repurchase
agreements and the balance was returned to the investors in the partnerships.

F.  NOTES PAYABLE

Of the LIHTC Fund  Partnerships  notes  payable at  December  31,  2007,  $256.0
million are collateralized by equity subscriptions of certain equity partners of
the investment funds. Under the partnership agreements,  the equity partners are
also obligated to pay the principal and interest on the notes.  Of the remaining
balance,  $167.0 million is collateralized with the underlying properties of the
consolidated operating partnerships. All of this debt is non-recourse to us.

As of December 31, 2007, the CMBS Fund  Partnerships  had borrowed $35.5 million
under a  subscription  line  facility  and did not have the  ability to make any
additional  borrowings.  The  subscription  line facility,  which was amended in
January 2008,  expires in 2010 and has an interest rate of 5.23% at December 31,
2007. There were no corresponding borrowings as of December 31, 2006.

At December 31, 2007, the  High-Yield  Debt Fund  Partnership  had no borrowings
outstanding  under a  subscription  line  facility and had the ability to borrow
$25.0 million.  The  subscription  line facility,  which was amended in February
2008, expires in 2010 and has an interest rate of 5.30% at December 31, 2007. As
of December 31, 2006, $21.5 million was outstanding.

G.  REPURCHASE AGREEMENTS

Repurchase  facilities  of  the  Consolidated   Partnerships  consisted  of  the
following as of December 31:
<TABLE>
<CAPTION>

                                            2007                                           2006
                         ------------------------------------------   ----------------------------------------------
                            Total       Outstanding    Fair Value of      Total         Outstanding    Fair Value of
(DOLLARS IN THOUSANDS)   Commitments      Balance       Collateral     Commitments        Balance        Collateral
----------------------   ------------   ------------   ------------   -------------   --------------   -------------
<S>                      <C>            <C>            <C>            <C>             <C>              <C>
CMBS Fund
Partnerships             $    784,100   $    313,159   $    622,449   $     495,000   $      214,224   $     298,700

Weighted average
  interest rate                          5.4% to 6.3%                                    5.3% to 6.1%

High-Yield Debt Fund
  Partnership                 350,000         97,430        194,600         350,000           29,731          40,700

Weighted average
  interest rate                          6.0% to 6.4%                                   6.1% to 6.6%

                         ------------   ------------   ------------   -------------   --------------   -------------

Total borrowings         $  1,134,100   $    410,589   $    817,049   $     845,000   $      243,955   $     339,400
                         ============   ============   ============   =============   ==============   =============
</TABLE>


The CMBS Fund  Partnerships have six repurchase  agreement  facilities with four
counterparties.  Borrowings as of December 31, 2007, had an average  maturity of
26 days and the  partnerships  did not have the  ability to make any  additional
borrowings without pledging additional collateral.

The  High-Yield  Debt Fund  Partnership  has  commitments  from  three  separate
repurchase  agreement  facilities  with three  counterparties.  Borrowings as of
December 31, 2007, had weighted average remaining  maturities of 28 days and the
partnership did not have the ability to make any additional  borrowings  without
pledging additional collateral.

                                      124
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


H. OTHER ASSETS AND OTHER LIABILITIES

Assets  other  than  those  discussed  above  include  cash,  fees and  interest
receivable, prepaid expenses and operating receivables of the funds. Liabilities
other than debt include interest, distributions, operating accruals and the fair
value of interest rate derivatives.

I.  FINANCIAL RISK MANAGEMENT AND DERIVATIVES

The CMBS Fund  Partnerships have entered into amortizing  forward-starting  swap
agreements with Bear Stearns  Capital  Markets Inc. ("Bear  Stearns") and Morgan
Stanley Capital Services Inc. to mitigate their  proportionate share of the risk
of  changes  in the  interest-related  cash  outflows  on the next  contemplated
long-term debt issuance. Some of these swaps are designated as hedges under SFAS
133, while others are not. The High-Yield Debt Fund Partnership has entered into
spot-starting  swap agreements with Bear Stearns to mitigate its risk of changes
in the  interest-related  cash  outflows  on its  financing  of its  fixed  rate
investments. These swaps are designated as hedges under SFAS 133. As of December
31,  2007,  we  recognized  $1.5  million of expense  through the  statement  of
operations which was previously recognized as part of other comprehensive income
due to change in cash flows of forecasted transactions.

A summary of the swaps at the CMBS Fund and High-Yield Debt Fund Partnerships is
as follows:
<TABLE>
<CAPTION>
                                                 2007                                                 2006
                        -----------------------------------------------------  -----------------------------------------------------
                                                   Unrealized                                             Unrealized
                                                      Loss                                                   Loss
                           Hedge      Non-Hedge    Included in   Unrealized       Hedge      Non-Hedge    Included in    Unrealized
                        Designated   Designated      Other          Loss       Designated   Designated      Other           Loss
                         Notional     Notional    Comprehensive  Included in    Notional     Notional    Comprehensive   Included in
(DOLLARS IN THOUSANDS)    Amount       Amount        Income      Net Income      Amount       Amount        Income       Net Income
----------------------  -----------  -----------  -------------  -----------   -----------  -----------  -------------   -----------
<S>                     <C>          <C>          <C>            <C>           <C>          <C>          <C>             <C>
CMBS Fund
  Partnerships          $   334,936  $    27,655  $      11,656  $     1,961   $   165,855  $   180,670  $       1,001   $     1,187

                           4.63% to     5.23% to                                  4.91% to     4.91% to
Interest Rates                5.69%        5.77%                                     5.75%        5.75%


                        Jan 2017 to
Maturity Dates             Oct 2018     Jan 2017                                  Jan 2017     Jan 2017

High-Yield Debt
  Fund Partnership      $    73,006  $        --  $       3,407  $        --   $     9,914  $        --  $          29   $        --

                           4.89% to                                               4.89% to
Interest Rates                5.17%                                                  5.14%


                        Dec 2009 to                                            Dec 2009 to
Maturity Dates             May 2017                                               Jun 2016
</TABLE>

                                 125
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


J.  REVENUES AND EXPENSES

Revenues and expenses of consolidated partnerships consisted of the following:
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                        ----------------------------------------------------------------------------------------------------
                                           2007                                        2006                         2005
                        -----------------------------------------   -----------------------------------------   ------------
                                           CMBS                                        CMBS
                         LIHTC Fund    Direct Loan                   LIHTC Fund    Direct Loan                   LIHTC Fund
                        and Property       Fund                     and Property       Fund                     and Property
(IN THOUSANDS)          Partnerships   Partnerships      Total      Partnerships   Partnerships      Total      Partnerships
---------------------   ------------   ------------   -----------   ------------   ------------   -----------   ------------
<S>                     <C>            <C>            <C>           <C>            <C>            <C>           <C>
Interest income         $     14,565   $    180,638   $   195,203   $     10,510   $     41,218   $    51,728   $      5,129
Fee income                        --            738           738             --            100           100             --
Rental income                 55,541             --        55,541         30,701             --        30,701         18,824
Other revenues                 6,539             --         6,539          7,127             --         7,127          4,003
                        ------------   ------------   -----------   ------------   ------------   -----------   ------------

Total revenues          $     76,645   $    181,376   $   258,021   $     48,338   $     41,318   $    89,656   $     27,956
                        ============   ============   ===========   ============   ============   ===========   ============

Interest expense        $     19,245   $     81,076   $   100,321   $     25,989   $     21,937   $    47,926   $     26,322

Asset management fees         24,611             --        24,611         20,960             --        20,960         21,600
Property operating
   expenses                   26,395             --        26,395         20,825             --        20,825         12,307
General and
   administrative
   expenses                   21,324          3,028        24,352         14,447            438        14,885          6,858
Depreciation and
   amortization               29,451          3,643        33,094         22,515             --        22,515         10,416
Other expenses                 4,579             --         4,579          2,957             --         2,957          1,847
                        ------------   ------------   -----------   ------------   ------------   -----------   ------------
  Subtotal                   106,360          6,671       113,031         81,704            438        82,142         53,028
                        ------------   ------------   -----------   ------------   ------------   -----------   ------------

Total expenses          $    125,605   $     87,747   $   213,352   $    107,693   $     22,375   $   130,068   $     79,350
                        ============   ============   ===========   ============   ============   ===========   ============
</TABLE>

(1) Represents the period from date of Investor's acquisition in August 2006.


NOTE 24 - BUSINESS SEGMENTS

We manage our operations  through four reportable  segments and two not involved
in direct  operations as described in Note 1. Segment results include all direct
and  contractual  revenues  and  expenses  of each  segment and  allocations  of
indirect expenses based on specific methodologies. These reportable segments are
strategic  business  units that  primarily  generate  revenue  streams  that are
distinctly different and are generally managed separately. Unallocated corporate
costs are reported separately.

The table below includes CAD, and a  reconciliation  from CAD to net income,  as
CAD was the  performance  measure used by our chief  decision-maker  to allocate
resources among the segments and  determination  of bonuses through December 31,
2007.  There is no generally  accepted  methodology  for computing  CAD, and the
Company's  computation  of CAD may not be  comparable  to CAD  reported by other
companies.  CAD does not  represent  net cash  provided by operating  activities
determined  in  accordance  with  GAAP  and  should  not  be  considered  as  an
alternative to net income  (determined in accordance with GAAP) as an indication
of the  Company's  performance,  as an  alternative  to net cash  provided  from
operating  activities  (determined in accordance  with GAAP) as a measure of our
liquidity, or as an indication of our ability to make cash distributions.

                                      126
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


<TABLE>
<CAPTION>
(IN THOUSANDS)                                                           2007         2006          2005
------------------------------------------------------------------   ----------    ----------    ----------
<S>                                                                  <C>           <C>           <C>
REVENUES
  Affordable Housing                                                 $  282,956    $  287,686    $  263,127
  Commercial Real Estate (1)                                             65,893        55,062        46,513
  Portfolio Management (1)                                               61,402        35,372        22,203
  Credit Risk Products                                                   15,748         3,644            --
  Corporate Group                                                        28,314        23,940        11,345
  Consolidated Partnerships (2)                                         258,021        89,656        27,956
  Elimination of intersegment transactions                             (139,407)     (108,101)      (76,047)
                                                                     ----------    ----------    ----------
Consolidated Revenues                                                $  572,927    $  387,259    $  295,097
                                                                     ==========    ==========    ==========
CAD
  Affordable Housing (3)                                             $  118,289    $  150,327    $  182,221
  Commercial Real Estate (1)                                             23,906        19,704         9,001
  Portfolio Management (1)                                               32,145        17,149        12,646
  Credit Risk Products                                                   14,857        (5,822)           --
  Unallocated corporate costs                                           (94,303)      (70,328)      (89,158)
                                                                     ----------    ----------    ----------
  Consolidated CAD excluding costs of re-securitization
    transaction                                                          94,894       111,030       114,710
  Cash costs of re-securitization transaction                           (89,030)           --            --
                                                                     ----------    ----------    ----------
  Consolidated CAD including cash costs of re-securitization
    transaction                                                           5,864       111,030       114,710

  Reconciliation of CAD to net (loss) income:
    Fees deferred for GAAP (4)                                          (13,036)      (30,426)      (25,106)
    Depreciation and amortization expense                               (45,099)      (45,395)      (43,795)
    Interest income yield adjustments (5)                                (8,991)       (4,137)        1,772
    Non-cash impact of re-securitization of mortgage revenue bonds       11,127            --            --
    Gain on sale of investments (6)                                       5,553        10,855        11,140
    Loss on impairment of assets                                        (20,008)       (5,003)       (4,555)
    Write-off of intangible assets                                       (7,226)       (2,644)      (22,567)
    Tax adjustment (7)                                                   (3,147)       (2,180)       27,866
    Non-cash compensation (8)                                           (21,169)      (19,348)       (8,541)
    Difference between subsidiary equity distributions
      and income allocated to minority interests (9)                     59,543        19,243        11,245
    Non-cash equity income (10)                                          (5,555)        6,253          (358)
    Preferred dividends                                                   4,757         4,752         2,020
    Loss on fair value of derivatives                                   (18,526)         (208)         (203)
    Other, net                                                           (4,215)       (1,498)       (4,614)
                                                                     ----------    ----------    ----------
Consolidated Net (Loss) Income                                       $  (60,128)   $   41,294    $   59,014
                                                                     ==========    ==========    ==========

DEPRECIATION AND AMORTIZATION
  Affordable Housing                                                 $    1,312    $    6,438    $    5,225
  Commercial Real Estate (1)                                             15,468        18,058        19,618
  Portfolio Management (1)                                                6,819           107            79
  Credit Risk Products                                                       85            --            --
  Corporate Group                                                        21,415        20,792        18,873
                                                                     ----------    ----------    ----------
Consolidated Depreciation and Amortization                           $   45,099    $   45,395    $   43,795
                                                                     ==========    ==========    ==========

Depreciation and Amortization of Consolidated Partnerships           $   33,094    $   22,515    $   10,416

<CAPTION>
                                                                                  -----------   -----------
                                                                                  December 31,  December 31,
                                                                                      2007          2006
                                                                                  -----------   -----------
<S>                                                                               <C>           <C>
IDENTIFIABLE ASSETS
  Affordable Housing                                                              $ 1,385,902   $ 2,866,346
  Commercial Real Estate (1)                                                          410,440       390,886
  Portfolio Management (1)                                                             12,136        13,754
  Credit Risk Products                                                                102,044        52,337
  Consolidated partnerships (2)                                                     7,408,241     6,046,429
  Corporate Group                                                                     672,589       794,074
  Elimination of intersegment balances                                               (499,764)     (475,855)
                                                                                  -----------   -----------
Consolidated Identifiable Assets                                                  $ 9,491,588   $ 9,687,971
                                                                                  ===========   ===========
</TABLE>

(1)  Includes Centerline Investors as of August 2006.


                                      127
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


(2)  Includes funds sponsored by Centerline Investors as of August 2006.
(3)  2007 includes  $92.4 million of costs related to the  re-securitization  of
     our mortgage revenue bonds to Freddie Mac.
(4)  Represents  the net  difference  between  fees  received  at the  time of a
     transaction  that are recognized  immediately  for CAD but are deferred and
     recognized  over time for GAAP  accounting  (i.e.:  fund  sponsorship  fees
     recognized over the relevant  service  periods) or upon a later event (such
     as mortgage origination fees recognized upon settlement of a loan sale).
(5)  Represents the adjustment  for  amortization  of bond discounts or premiums
     that are  recognized  immediately  for CAD but are deferred and  recognized
     over time for GAAP  accounting,  as well as the  difference  between actual
     interest  income received and income  recognized  under the effective yield
     method.
(6)  Represents non-cash gain recognized on sale of mortgage loans when MSRs are
     retained  and  gains on sales of  mortgage  revenue  bonds.  This  does not
     include the costs  associated  with the  re-securitization  of our mortgage
     revenue bonds to Freddie Mac as described in (3) above.
(7)  Represents the difference between the tax benefit recorded and the net cash
     amount we expect to pay or receive in relation to the current period.
(8)  Represents the add-back of amortization of costs recognized for share-based
     compensation and non-cash compensation related to fund earnings.
(9)  Represents the difference between actual  distributions to SCU, SMU and SCI
     holders  (which  is  based  on the  common  share  distribution  rate)  and
     accounting  allocation  of  earnings,  which is  based  on the  represented
     portion of combined  common,  CRA and subsidiary  equity in allocating GAAP
     net income.
(10) Represents the difference between equity income recorded in accordance with
     GAAP and cash dividends received.


NOTE 25 - COMMITMENTS AND CONTINGENCIES

PRS/CRG/ERC

PRS/ CRG

PRS Companies  ("PRS") and Capital Realty Group ("CRG") were sponsors of certain
property  partnerships  for which we held mortgage revenue bonds and/or to which
investment funds we sponsor have contributed equity. A construction affiliate of
PRS  served  as  general  contractor  for  most of  these  partnerships.  Due to
financial  difficulties  experienced by PRS and its construction  affiliate,  we
ceased our business  dealings with PRS and acquired the general partner interest
in certain partnerships  sponsored by PRS as part of agreements reached in April
2005 (the "PRS Partnerships").  There were two additional projects for which the
PRS construction  affiliate was general contractor (the "GCG  Partnerships") for
which the general partner interest owned by PRS or an affiliate were transferred
to us at the same time.

Likewise,  we entered into  agreements in April of 2005 with CRG with respect to
certain  partnerships  in which CRG served as sponsor (the "CRG  Partnerships").
The PRS financial  difficulties  created  construction  finance  shortfalls that
created liquidity  problems for these partnerships as well. In December of 2006,
we entered into an additional  agreement  with CRG to transfer to us the general
partner  interests  held by CRG in four  additional  properties.  This agreement
included the  termination of certain rights  retained by CRG with respect to the
CRG Partnerships in the 2005 Agreements and we have ceased our business dealings
with CRG.

The PRS Partnerships,  GCG Partnerships, and CRG Partnerships are set out in the
table below.

In August  2007,  we entered  into a letter of intent for a developer to acquire
the general  partnership  interests in nine of the PRS  partnerships  located in
Atlanta,  Georgia. Under the proposed arrangement,  the acquirer will manage the
projects,  and we will fund a fixed  amount  of  advances,  after  which we will
jointly fund any required advances with the acquirer. We will also jointly share
fees  and  cash  flow  payable  to the  general  partners  of the  projects.  We
anticipate  that the general  partner  interests in the projects will be sold in
the first quarter of 2008.

ERC

To protect our interests in properties  for which we had provided debt or equity
financing,  in October 2006 we reached an agreement with ERC, Inc. (a developer)
to acquire its general partner interests in partnerships it had sponsored. Those
partnerships are also summarized in the table below.

We have advanced funds to the partnerships after the takeover to cover operating
costs until the properties achieve  stabilization.  Future equity payments,  and
proceeds  from  the  sale  of the  general  partner  interests  due  from  these
partnerships will help offset the advances.

                                      128
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


In October 2007,  we entered into letters of intent to sell the general  partner
interests  in 17 of the ERC  partnerships  to a developer.  If the  transactions
close, the developer will acquire six of the general partner  interests for $3.4
million and the remaining 11 general partner interests for a specified  multiple
of cash flow as the properties  stabilize  during a three-year  period.  We will
jointly  fund  property  deficits  with the  acquirer  up to  specified  maximum
amounts.

Summary of Impact
-----------------

In the first  quarter of 2007,  we  reassessed  our strategy with respect to the
ultimate recovery of our investments in these properties.  We have undertaken an
initiative  to  determine  the most  advantageous  strategy  for recovery on the
mortgage  revenue bonds.  The strategies to be followed for individual bonds may
involve  a change  in our  planned  holding  period of the asset or the level of
additional funding we may provide, if any. The initial assessment of four of the
mortgage  revenue  bonds caused us to recognize  an  impairment  charge of $13.7
million in the first quarter of 2007 (see Note 6) due in part to the revision of
the  estimated  level  and  timing  of  cash  flows  for  the  valuation  of the
properties.  In connection with that  determination,  management  concluded that
advances  made to our  sponsored  funds  in  connection  with  those  underlying
properties  may not be fully  recoverable  and we  recorded  a  reserve  of $5.6
million in 2007.

The partnerships are summarized as follows:
<TABLE>
<CAPTION>
                                             Centerline
                                               Capital         Included in
                                             Sponsored            Credit           Centerline       Third Parties
                                           Fund is Equity     Intermediated         Holds GP           Provided
                            Number             Partner             Funds            Interest            Equity
                       ----------------   ----------------   ----------------   ----------------   ----------------
                       PRS PARTNERSHIPS
<S>                                  <C>                <C>                <C>                <C>               <C>
Lease-Up                             11                  6                  4                  6                 5
Stabilized                            2                 --                 --                 --                 2
                       ----------------   ----------------   ----------------   ----------------   ----------------
Subtotal                             13                  6                  4                  6                 7
                       ----------------   ----------------   ----------------   ----------------   ----------------

                       CRG PARTNERSHIPS
Stabilized                            3                  3                  3                 --                 --
Lease-Up                              4                  4                  2                  3                 --
Rehab                                 1                  1                  1                  1                 --
Construction                          1                  1                 --                 --                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------
Subtotal                              9                  9                  6                  4                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------

                       GCG PARTNERSHIPS
Lease-Up                              2                  2                  1                 --                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------
Subtotal                              2                  2                  1                 --                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------
                       ERC PARTNERSHIP
Construction                          1                  1                  1                  1                 --
Lease-Up                             13                 13                 12                 13                 --
Stabilized                            4                  4                  3                  4                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------
Subtotal                             18                 18                 16                 18                 --
                       ----------------   ----------------   ----------------   ----------------   ----------------
Total                                42                 35                 27                 28                  7
                       ================   ================   ================   ================   ================
Total eliminated in
  consolidation
</TABLE>


Our potential exposure falls into three categories as follows:

    Cash  required  to bring the  properties  to  break-even  operation  -
    -------------------------------------------------------------------
          As of December 31, 2007,  advances  outstanding totaled $36.0 million,
          net of the reserve  described  above.  These advances,  and additional
          loans, are assessed periodically for collectability. At present, we do
          not  anticipate  that any of the  remaining  advances  would require a
          charge to  expense,  although  as the  strategy  with  respect  to any
          property is implemented, circumstances  may require  a change in  that

                                      129
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


          outlook.  The current  marketing  plan is to sell the general  partner
          interests in the above  referenced  assets over the course of the next
          twelve months.  The assets continue to be actively managed to minimize
          the necessary  cash flow outlays and maximize the  performance of each
          asset.  Letters  of intent  for the  purchase  of most of the  general
          partner  interests  are  in  place  and  it is  anticipated  that  the
          properties will, in the aggregate, require $10.6 million of additional
          cash over the next 24 months to fund deficit cash flow at the property
          level.  The 24 month  funding  horizon  includes  up to 12  months  of
          marketing  through the ultimate  sale date and an additional 12 months
          of required  funding with the future  general  partners as part of the
          agreement to bring the properties toward stabilization.

    Potential cost to provide specified yields -
    ------------------------------------------
          As noted in the table above,  27 of the  partnerships  are included in
          credit  intermediated  funds for  which we are  obligated  to  provide
          specified  yields.  As  construction  delays  are likely to reduce the
          expected yields of the properties themselves, performance of the funds
          is likely to be impacted as well. The  obligations,  however,  provide
          for  expected  yields  on  pools  of  properties,  some of  which  are
          performing  above  expected  levels  and the  funds  themselves  often
          provide for adjustors that may mitigate the negative impact that would
          arise from the  construction  delays over the guarantee period covered
          by the  agreements.  Our current  estimate  given these  factors,  and
          assuming that the property level  partnerships  meet their obligations
          under existing partnership agreements, is that no exposure under these
          agreements is probable at this time.

There can be no assurance  that a bankruptcy by or against PRS or its affiliates
or  against  ERC may  not  give  rise  to  additional  claims  concerning  these
partnerships.

FORWARD TRANSACTIONS

At December  31,  2007,  our  Commercial  Real Estate  subsidiaries  had forward
commitments  under  Fannie Mae and  Freddie Mac  programs of $279.1  million for
mortgages to be funded through October 2010, and each lending  commitment has an
associated sale commitment.  In addition,  those subsidiaries had commitments to
sell mortgages totaling $103.9 million. Of this amount, $90.7 million was funded
as of December 31, 2007,  and is included in  "Investments - Other" as "Mortgage
loans held for sale" on the  Consolidated  Balance  Sheet.  The balance of $13.2
million is to be funded in 2008.

Additionally,  we have  certain  mortgage  revenue  bonds  that we fund on an as
needed basis. The remaining balance to be funded on these drawdown bonds is $1.1
million at December 31, 2007.

MORTGAGE LOAN LOSS SHARING AGREEMENTS

Pursuant to a master loss sharing agreement under the Fannie Mae DUS program, we
assume  responsibility  for a portion of any loss that may result from  borrower
defaults,  based on Fannie Mae loss  sharing  formulas.  At December 31, 2007, a
significant  proportion  of our loans  sold to Fannie Mae  consisted  of Level I
loans,  meaning,  in most cases, that we are responsible for the first 5% of the
unpaid principal  balance and a portion of any additional losses to a maximum of
20% of the original  principal  balance;  Fannie Mae bears any  remaining  loss.
Pursuant to this  agreement,  we are  responsible  for funding 100% of mortgagor
delinquency  (principal  and  interest)  and  servicing  (taxes,  insurance  and
foreclosure  costs) advances until the amounts  advanced exceed 5% of the unpaid
principal  balance at the date of default.  Thereafter,  we may request  interim
loss sharing adjustments which allow us to fund 25% of such advances until final
settlement under the agreement.

We also participate in loss sharing transactions under Freddie Mac's DUI program
whereby we originate loans that are purchased by Freddie Mac. Under the terms of
our master agreement with Freddie Mac, we are obligated to reimburse Freddie Mac
for a  portion  of any loss  that  may  result  from  borrower  defaults  on DUI
transactions.  For such loans,  if a default  occurs,  our share of the standard
loss will be the first 5% of the unpaid  principal  balance  and 25% of the next
20% of the remaining unpaid principal  balance to a maximum of 10% of the unpaid
principal  balance.  The loss on a defaulted  loan is  calculated  as the unpaid
principal amount due, unpaid interest due and default  resolutions costs (taxes,
insurance, operation and foreclosure costs) less recoveries.

Our maximum  exposure at December 31, 2007,  pursuant to these  agreements,  was
$834.7  million  (representing  what we would  owe in  accordance  with the loss
sharing  percentages  with Fannie Mae and Freddie Mac  described  above if every
loan  defaulted  and losses were  incurred in amounts  equal to or greater  than
these  levels  for  which  we are  responsible),  although  this  amount  is not
indicative  of our actual  potential  losses.  We maintain an allowance for loan
losses for loans  originated  under  these  product  lines at a level  that,  in
management's  judgment, is adequate to provide for estimated losses. At December
31,  2007,  that reserve was $13.1  million,  which  represents  our estimate of
potential losses as of that date.

As of December 31, 2007, we maintained collateral consisting of commercial paper
and Fannie Mae and Freddie Mac  securities  of $9.1  million and a money  market
account  of  $2.0  million,   which  is  included  in  restricted  cash  in  the
Consolidated Balance Sheet, to satisfy the Fannie Mae collateral requirements of
$10.9 million.

                                      130
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


We are also  required  by the master  agreement  with  Freddie  Mac to provide a
letter of  credit  in the  amount of 8% of the  original  principal  balance  as
collateral security for payment of the reimbursement obligation. A reimbursement
agreement with the Bank of America to provide a master letter of credit covering
the  collateral  requirement  up to $8.0  million  covers  this letter of credit
requirement.   At  December  31,  2007,  commitments  under  this  reimbursement
agreement totaled $8.0 million.

YIELD TRANSACTIONS

We have  entered  into  several  credit  intermediation  agreements  with either
Natixis  or  Merrill  Lynch & Co.,  Inc.  ("Merrill  Lynch")  (each  a  "Primary
Intermediator") to provide  agreed-upon rates of return for pools of multifamily
properties to funds sponsored by CAHA. In return,  we have or will receive fees,
generally at the start of each credit  intermediation  period. There are a total
of 19 outstanding agreements to provide the specified returns:

     o    through the construction and lease-up phases of the properties;
     o    for the period from the  completion of the  construction  and lease-up
          phases through the operating phase of the properties; or
     o    covering both periods.

Total  potential  exposure  pursuant  to  these  transactions  is $1.5  billion,
assuming the funds achieve no return  whatsoever.  We have analyzed the expected
operations of the underlying  properties and believe there is no risk of loss at
this time,  as we have never yet been called upon to make  payments  under these
agreements.  Should  our  analysis  of risk  of loss  change  in the  future,  a
provision  for  possible  losses  might be  required  pursuant  to SFAS  No.  5,
ACCOUNTING FOR CONTINGENCIES. The fair value of these obligations,  representing
the deferral of the fee income over the obligation periods, was $44.3 million as
of December 31,  2007.  This amount is included in  "deferred  revenues"  within
"Accounts  payable,  accrued expenses and other liabilities" on our Consolidated
Balance Sheet.  Refer also to PRS/CRG/ERC  above,  regarding  potential exposure
under existing obligations.

OTHER CONTINGENT LIABILITIES

We have entered into several transactions pursuant to the terms of which we will
provide credit support to construction lenders for project completion and Fannie
Mae conversion.  In some instances,  we have also agreed to acquire subordinated
bonds to the extent the construction  period bonds do not fully convert. In some
instances, we also provide payment, operating deficit, recapture and replacement
reserve   guarantees  as  business   requirements   for   developers  to  obtain
construction  financing.  Our  maximum  aggregate  exposure  relating  to  these
transactions was $199.2 million as of December 31, 2007. The fair value of these
obligations,  representing  the  deferral of the fee income over the  obligation
periods,  was $0.7 million as of December 31, 2007. To date, we have had minimal
exposure to losses under these transactions and anticipate no material liquidity
requirements in satisfaction of any guarantee issued.

At  December  31,  2007,  we had no unused  letters  of credit as  described  in
MORTGAGE LOAN LOSS SHARING AGREEMENTS above.

Centerline Financial has entered into three credit intermediation  agreements to
provide for monthly  principal and interest debt service  payments for debt owed
by property  partnerships  only to the extent there is a shortfall  payment from
the  underlying  property.  In return,  we receive fees monthly based on a fixed
rate until the expiration of the agreements  which occur in 2009 and 2023. Total
potential  exposure  pursuant to these  transactions is $44.0 million as well as
monthly interest obligations, assuming the bonds default and cannot be sold. The
recourse  upon  default  would  be to  acquire  the bond  and  foreclose  on the
underlying property at which point the property would either be rehabilitated or
sold.  The fair value of the  obligation,  representing  the deferral of the fee
income over the  obligation  period,  was $1.2  million as of December 31, 2007.
This amount is included in "Deferred revenues" within "Accounts payable, accrued
expenses and other liabilities" on our Consolidated Balance Sheet.

LEGAL CONTINGENCIES

We are subject to routine litigation and administrative  proceedings  arising in
the ordinary course of business.

Putative Class and Derivative Actions
-------------------------------------

Through  February 29, 2008, we and our trustees have been named as defendants in
twelve  shareholder  putative class and/or derivative actions arising out of our
announcements that (i) we have taken steps to transition our business to more of
a fund manager and in connection  with such action intend to reduce the dividend
payable on our common  shares  from that which has been paid in prior  years and
(ii) we  committed  to sell an 11%  Convertible  Preferred  Stock to The Related
Companies  LP (see  Note 27).  Six of these  cases are  putative  class  actions
pending  in  federal  court in New York that  assert  claims  under the  federal
securities laws. The other six cases are primarily derivative actions,  although
some purport also to assert class  claims,  arising under state law. Each of the
actions is summarized below.

                                      131
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


FEDERAL SECURITIES CASES

On January 18, 2008, the first of the federal securities  putative class actions
was filed  against us and  certain of our  officers  and  trustees in the United
States District Court for the Southern  District of New York.  Thereafter,  five
other,  essentially  duplicative  putative  class actions were also filed in the
same court.  The  complaint in each case  asserts  that we and other  defendants
allegedly  violated  federal  securities  law by failing to disclose in a timely
fashion our recently  announced  transaction  with Freddie Mac.  Each  complaint
seeks an  unspecified  amount of  compensatory  damages and other relief.  After
March 18, 2008, the court will designate a lead plaintiff for these cases and we
expect that  thereafter  all six  lawsuits  will be  consolidated  into a single
action.  We intend to  defend  vigorously  the  claims  that have been  asserted
against us and our officers and trustees. The federal lawsuits are:

     o    On January 18, 2008,  Goldstein v. Centerline Holding Company, et al.,
          No. 08 CV 00505,  was filed  against  us and  against  certain  of our
          officers  and  trustees in the United  States  District  Court for the
          Southern District of New York;
     o    On January 31, 2008, Frank v. Centerline Holding Company,  et al., No.
          08 CV 01026,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York;
     o    On February 4, 2008,  Weinrib v. Centerline  Holding Company,  et al.,
          No. 08 CV 01158,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York;
     o    On February 11, 2008, Lyons v. Centerline Holding Company, et al., No.
          08 CV 01458,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York; and
     o    On February 15, 2008, Dechter v. Centerline  Holding Company,  et al.,
          No. 08 CV 01593,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York.
     o    On February 26, 2008,  Quill v.  Centerline  Holding Co., Inc, et al.,
          No. 08 CV 01902,  was filed against us and certain of our officers and
          trustees in the United States District Court for the Southern District
          of New York.

DERIVATIVE LAWSUITS

On January  15,  2008,  the first of the state law cases,  a putative  class and
derivative action,  entitled OFF V. ROSS, CA No. 3468-VCP, was filed against us,
our Board of Trustees and The Related  Companies,  L.P. in the Delaware Court of
Chancery.  The lawsuit concerns our sale of a new issue of convertible preferred
stock to an affiliate of The Related Companies,  L.P. The lawsuit alleges claims
for breach of  fiduciary  duty  against the  Trustees  and seeks an  unspecified
amount of  compensatory  damages from them as well as injunctive  relief against
all defendants. Thereafter, five other derivative lawsuits asserting the same or
similar  claims  were filed in state and  federal  courts in New York and in the
Delaware Chancery Court. Two of these  later-filed  actions also allege that the
trustees  breached  their  fiduciary  duties to us by  allegedly  violating  the
federal securities laws (as alleged in the federal securities lawsuits described
above). We are named solely as a nominal defendant in all six derivative actions
and no  monetary  relief is sought  against us in any of those  cases.  The five
derivative actions filed subsequent to the OFF case are:

     o    On January 18, 2008, Kramer v. Ross, et al., Index. No. 100861-08, was
          filed against us and our board of trustees, in New York County Supreme
          Court;
     o    On January 25, 2008,  Carfagno v. Schnitzer,  et al., No. 08 CV 00912,
          was filed  against us and our board of trustees  in the United  States
          District Court for the Southern District of New York;
     o    On January 30, 2008,  Ciszerk v. Ross, et al., CA No. 3511,  was filed
          against us, our board of trustees and The Related  Companies,  L.P. in
          the Delaware Court of Chancery;
     o    On February 22, 2008, Kanter v. Ross, et al., 08 Civ. 01827, was filed
          against us, our board of trustees and The Related  Companies,  L.P. in
          the United  States  District  Court for the  Southern  District of New
          York; and
     o    On February 27, 2008, Broy v.  Centerline  Holding Company et al., No.
          08 CV 01971,  was filed  against us and  certain of our  officers  and
          trustees in the United States District Court for the Southern District
          of New York.

We have  negotiated a settlement with the plaintiff in the OFF case based on the
rights  offering  which we have  previously  announced (see Notes 17 and 27) and
which is subject to court  approval.  We believe that the settlement in OFF will
also resolve the similar  claims that have been asserted in several of the other
derivative lawsuits. If the court does not approve the settlement in OFF, and/or
to the extent that the OFF settlement  does not resolve all of the claims in the
other cases, the defendants intend to defend themselves vigorously in all of the
lawsuits.

In addition, the outside members of the Board of Trustees have received a letter
from one of our purported shareholders demanding that they investigate potential
claims against our officers and others arising out of the  allegations  asserted
in the federal securities litigation.  The Board will consider the letter at its
next regularly scheduled meeting.

                                      132
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


Other
-----

Claims  have  been  asserted  against  our  subsidiaries  in  two  separate  but
interrelated lawsuits relating to two properties for which we have provided debt
and equity  financing,  but associated  with the same  developers.  The lawsuits
allege, among other things:

     o    breach of fiduciary duty;
     o    breach of the implied covenant of good faith and fair dealing;
     o    intentional misrepresentation, fraud and deceit;
     o    negligent misrepresentation; and
     o    tortious interference with contracts.

One of the lawsuits, which was originally filed in Pierce County Superior Court,
and  thereafter  transferred  to King  County  Superior  Court,  in the State of
Washington,  is  entitled  SILVERWOOD  ALLIANCE  APARTMENTS,   LLC,  ET  AL.  V.
AFFORDABLE HOUSING PARTNERSHIP  ALLIANCE LLC, ET AL., Case No.  06-2-40705-9SEA.
SILVERWOOD involves a counterclaim for unspecified  damages.  The other lawsuit,
also was  originally  filed in  Pierce  County  Superior  Court in the  State of
Washington and  thereafter  was removed to the United States  District Court for
the Western  District of Washington,  is entitled  VIEWCREST  BREMERTON,  LLC V.
RELATED  CAPITAL  HOUSING  PARTNERSHIP  I,  L.P.  - SERIES  3, ET AL.,  Case No.
C06-5459RSM.  VIEWCREST alleges damages of at least $10 - 15 million against our
subsidiaries.  SILVERWOOD  is  currently  scheduled  for  trial  in  June  2008.
VIEWCREST  does not  currently  have a scheduled  trial date.  The parties  have
engaged in  discovery  and have entered into  settlement  discussions  seeking a
global  resolution  of all of these  disputes.   If such a settlement  cannot be
achieved,  we intend to defend  vigorously  against the claims. We are unable at
the  present  time to  estimate  what  potential  losses,  if any,  may arise in
connection with this litigation.

FUNDING COMMITMENTS

CUC

Our membership interest in CUC (see Note 22) includes a co-investment obligation
amounting to 2.5% of capital  invested.  Based upon the current funding limit of
CUC, our remaining commitment as of December 31, 2007, was $1.0 million.

INVESTMENTS IN CMBS AND HIGH-YIELD DEBT FUND PARTNERSHIPS

We participate as co-investor in the CMBS and High-Yield Debt Fund  Partnerships
we sponsor  (see Note 23). As of  December  31,  2007,  our  remaining  unfunded
capital commitments were $11.8 million.

LEASE OBLIGATIONS

The future minimum payments and income from subleases for operating leases as of
December 31, 2007, were as follows:
<TABLE>
<CAPTION>
                                                             Net
                              Minimum                       minimum
                              lease         Sublease        lease
(IN THOUSANDS)               payments        income        payments
------------------------   ------------   ------------   ------------

                        <C>            <C>            <C>
Year Ending December 31,
2008                       $      8,688   $     (1,359)  $      7,329
2009                              8,297         (1,221)         7,076
2010                              8,720         (1,293)         7,427
2011                              7,559         (1,317)         6,242
2012                              6,854         (1,317)         5,537
Thereafter                       31,444           (302)        31,142
                           ------------   ------------   ------------
  Total                    $     71,562   $     (6,809)  $     64,753
                           ============   ============   ============
</TABLE>


We recorded rent expense of $8.9 million in 2007,  $8.9 million in 2006 and $8.4
million in 2005.

                                      133
<PAGE>

                           CENTERLINE HOLDING COMPANY
                   Notes to Consolidated Financial Statements
                                   (continued)


NOTE 26 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                             2007 Quarter Ended
                                      ---------------------------------------------------------------
                                       March 31 (2)       June 30       September 30   December 31(3)
                                      -------------    -------------   -------------   --------------
<S>                                   <C>              <C>             <C>             <C>
Total revenues                        $     117,165    $     135,064   $     158,351   $     162,347
(Loss) income before income taxes     $     (17,691)   $       4,667   $       9,081   $     (51,678)
Net (loss) income                     $     (14,745)   $       4,980   $      10,640   $     (61,003)
Net (loss) income per share(1)
  Basic                               $       (0.27)   $        0.07   $        0.17   $       (1.15)
  Diluted                             $       (0.27)   $        0.06   $        0.16   $       (1.15)
Weighted average shares outstanding
  Basic                                      57,957           57,219          56,582          56,959
  Diluted                                    57,957           58,690          57,736          56,959

<CAPTION>
                                                             2006 Quarter Ended
                                      ---------------------------------------------------------------
                                         March 31         June 30       September 30     December 31
                                      -------------    -------------   -------------   --------------
<S>                                   <C>              <C>             <C>             <C>
Total revenues                        $      72,139    $      79,231   $     107,947   $     127,942
Income before income taxes            $      11,738    $       3,843   $      21,804   $      10,401
Net income                            $      14,657    $       4,248   $      14,571   $       7,818
Net income per share(1)
  Basic                               $        0.23    $        0.05   $        0.23   $        0.11
  Diluted                             $        0.23    $        0.05   $        0.23   $        0.11
Weighted average shares outstanding
  Basic                                      58,578           58,639          58,015          57,878
  Diluted                                    58,895           58,919          58,396          58,458
</TABLE>

(1)  The total for the year may differ from the sum of the  quarters as a result
     of  weighting.
(2)  Includes $16.4 million of mortgage revenue bond impairment charges.
(3)  In December 2007, the  re-securitization  of our mortgage revenue bonds was
     accounted  for as a sale,  resulting  in a loss  of  $55.4  million  ($77.9
     million before minority interest allocations).
(4)  Includes Centerline Investors beginning in August 2006.


NOTE 27 - SUBSEQUENT EVENTS

11.0% Preferred Shares
----------------------
In January 2008, we issued 11.2 million 11.0% Cumulative  Convertible  Preferred
Shares, Series A-1 ("11.0% Preferred Shares") in a private placement. The entire
issue was  purchased  by an affiliate  of TRCLP.  The shares have a  liquidation
preference of $11.70 per share,  are convertible into 12.2 million common shares
and are entitled to voting rights as if converted into common shares. In January
2008,  we announced a rights  offering that  entitles  shareholders  to purchase
these shares from the TRCLP  affiliate,  and the TRCLP affiliate will retain any
shares not purchased as part of the rights offering.

Legal Matters
-------------
In January  2008,  the first of several  federal  and state  arising  out of our
announcements that (i) we have taken steps to transition our business to more of
a fund manager and in connection  with such action intend to reduce the dividend
payable on our common  shares  from that which has been paid in prior  years and
(ii) we committed to sell an 11% Convertible  Preferred Stock to an affiliate of
TRCLP. For more information, see Note 25.

Purchases from AMAC
-------------------
In January and February 2008,  CRESS purchased  investments  from AMAC for $55.0
million (see Note 22).

Redeemable Securities
---------------------
Effective January 1, 2008, we entered into option agreements with holders of 0.4
million of our  Convertible  CRA shares and 80,000 of our 4.4%  Convertible  CRA
Preferred  Shares to allow  redemption on terms  similar to options  executed in
December 2007. See Notes 16 and 17.

                                      134
<PAGE>

ITEM 9.    CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON  ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           None.

ITEM 9A.   CONTROLS AND PROCEDURES.

           (a)  Evaluation  of  Disclosure  Controls and  Procedures.  Our Chief
                Executive Officer and Chief Financial Officer have evaluated the
                effectiveness  of our  disclosure  controls and  procedures  (as
                defined in Rule 13a-15(e) or Rule 15a-15(e) under the Securities
                Exchange Act of 1934, as amended (the "Exchange Act")) as of the
                end of the period covered by this annual  report.  Based on such
                evaluation,  such officers have  concluded  that our  disclosure
                controls and  procedures as of the end of the period  covered by
                this annual  report were  effective  to ensure that  information
                required to be  disclosed by the Company in the reports that the
                Company  files or submits  under the  Exchange  Act is recorded,
                processed,  summarized  and  reported,  within the time  periods
                specified  in the SEC rules and forms,  and to ensure  that such
                information is  accumulated  and  communicated  to the Company's
                management,  including  the Chief  Executive  Officer  and Chief
                Financial  Officer,  as appropriate,  to allow timely  decisions
                regarding required disclosure.

           (b)  INTERNAL CONTROL OVER FINANCIAL  REPORTING.  There have not been
                any significant  changes in our internal  control over financial
                reporting  during the period to which this report  relates  that
                have materially affected, or are reasonably likely to materially
                affect, our internal control over financial reporting.  Refer to
                MANAGEMENT'S  REPORT ON THE  EFFECTIVENESS  OF INTERNAL  CONTROL
                OVER FINANCIAL REPORTING on page 65.

ITEM 9B.   OTHER INFORMATION

           None.

                                      135
<PAGE>

                                    PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 11.   EXECUTIVE COMPENSATION.

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS.

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.


ITEM 13.   CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS,  AND  DIRECTOR
           INDEPENDENCE.

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES.

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

                                      136
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

                                                                      Sequential
                                                                         Page
                                                                      ----------

(a)1.    Financial Statements

         Report of Independent Registered Public Accounting Firm              67

         Consolidated Balance Sheets as of December 31, 2007 and 2006         68

         Consolidated Statements of Operations for the years ended
           December 31, 2007, 2006 and 2005                                   69

         Consolidated Statements of Shareholders' Equity for the
           years ended December 31, 2007, 2006 and 2005                       70

         Consolidated Statements of Cash Flows for the years ended
           December 31, 2007, 2006 and 2005                                   71

         Notes to Consolidated Financial Statements                           73

(a)2.    Financial Statement Schedules

         Schedule I - Condensed Financial Information of Registrant          146

         Schedule II - Valuation and Qualifying Accounts                     150

         All other  schedules have been omitted  because they are not applicable
         or the required  information is included in the consolidated  financial
         statements and the notes thereto.

(a)3.    Exhibits
         --------

         3.1(a) Certificate  of  Business  Trust  dated as of  August  12,  1996
                (incorporated  by reference  to Exhibit 3.1 of our  Registration
                Statement  on Form 10,  filed with the  Commission  on August 1,
                1997).

         3.1(b) Certificate of Amendment of the Restated Certificate of Business
                Trust   (incorporated   by  reference  to  Exhibit  3.3  of  our
                Registration Statement on Form S-8, filed with the Commission on
                November 25, 2003).

         3.1(c) Certificate  of Amendment to the Restated  Certificate of Trust,
                effective  April 2, 2007 and dated March 28, 2007  (incorporated
                by  reference  to Exhibit 3.3 of our Current  Report on Form 8-K
                filed with the Commission on April 6, 2007).

         3.1(d) Second Amended and Restated Trust Agreement dated as of November
                17, 2003  (incorporated  by reference  to Exhibit  3.1(c) of our
                December 31, 2005 Annual Report on Form 10-K).

         3.1(e) Amendment No. 1 to Second Amended and Restated  Trust  Agreement
                dated as of  September  20, 2005  (incorporated  by reference to
                Exhibit 99.1 of our Current  Report on Form 8-K,  filed with the
                Commission on September 22, 2005).

         3.1(f) Amendment No. 2 to Second Amended and Restated  Trust  Agreement
                dated as of November  30, 2005  (incorporated  by  reference  to
                Exhibit 3.3 of our Registration Statement on Form 8-A filed with
                the Commission on January 3, 2006).

         3.1(g) Amendment No. 3 to Second Amended and Restated  Trust  Agreement
                (incorporated  by  reference  to Exhibit  3.1(a) of our June 30,
                2006 Quarterly Report on Form 10-Q).

         3.1(h) Amendment  No.  4 to  the  Second  Amended  and  Restated  Trust
                Agreement,  effective  April 2,  2007 and dated  March 28,  2007
                (incorporated  by reference to Exhibit 3.1 of our Current Report
                on Form 8-K filed with the Commission on April 6, 2007).

         3.2(a) Fifth Amended and Restated Bylaws of CharterMac, dated March 14,
                2007  (incorporated  by  reference to Exhibit 3.2 of our Current
                Report on Form 8-K filed with the Commission on March 20, 2007).

                                      137
<PAGE>

         3.2(b) Amendment  No. 1 to the Fifth  Amended  and  Restated  Bylaws of
                Centerline Holding Company (incorporated by reference to Exhibit
                3.2 of our Current  Report on Form 8-K filed with the Commission
                on April 6, 2007).

         4.1    Specimen Copy of Share  Certificate for shares of our beneficial
                interest  (incorporated  by  reference  to  Exhibit  4.1  of our
                Registration Statement on Form S-8, filed with the Commission on
                November 25, 2003).

         4.2    Certificate of Designation of Special  Preferred  Voting Shares,
                dated  November 17, 2003  (incorporated  by reference to Exhibit
                99.4  of  our  Current  Report  on  Form  8-K,  filed  with  the
                Commission on December 1, 2003).

         4.3    Amendment No. 1 to the  Certificate  of  Designation  of Special
                Preferred Voting Shares of Centerline Holding Company, effective
                May 4, 2007  (incorporated  by  reference to Exhibit 10.1 of our
                Current  Report on Form 8-K filed with the Commission on May 10,
                2007).

         4.4    Certificate  of  Designation  for 4.40%  Cumulative  Convertible
                Preferred  Shares,  Series A-1  (incorporated  by  reference  to
                Exhibit  99.3 of our  Current  Report on Form 8-K filed with the
                Commission on August 3, 2005

         4.5    Certificate  of  Designation  for 11.0%  Cumulative  Convertible
                Preferred  Shares,  Series A-1  (incorporated  by  reference  to
                Exhibit  3.1 of our  Current  Report on Form 8-K filed  with the
                Commission on January 31, 2008).

         10(a)  Contribution   Agreement   dated  as  of   December   17,   2002
                (incorporated by reference to our Preliminary Proxy Statement on
                Schedule 14A filed with the Commission on February 2, 2003).

         10(b)  Ross  Non-Qualified  Share  Option  Agreement  (incorporated  by
                reference to Exhibit 4.3 of our  Registration  Statement on Form
                S-8 filed with the Commission on November 25, 2003).

         10(c)  Registration Rights Agreement, dated as of November 17, 2003, by
                and among our Company and APH  Associates  L.P.,  DLK Associates
                L.P., Marc  Associates,  L.P.,  Related General II, L.P. and SJB
                Associates  L.P.  (incorporated  by reference to Exhibit 99.1 of
                our Registration Statement on Form S-8 filed with the Commission
                on November 25, 2003).

         10(d)  Registration  Rights Agreement,  dated January 25, 2008, between
                Centerline  Holding  Company  and  Related  Special  Assets  LLC
                (incorporated  by reference to Exhibit 4.1 of our Current Report
                on Form 8-K filed with the Commission on January 31 2008).

         10(e)  Restricted Share Plan  (incorporated by reference to Exhibit 4.2
                of our  Registration  Statement  on  Form  S-8  filed  with  the
                Commission on November 25, 2003).

         10(f)  Management  Agreement dated as of November 17, 2003,  between us
                and Related  Capital Company LLC  (incorporated  by reference to
                Exhibit  10(a) of our  December  31, 2003 Annual  Report on Form
                10-K).

         10(g)  Amended and Restated  Operating  Agreement of CharterMac Capital
                Company  LLC,  dated as of November  17, 2003  (incorporated  by
                reference  to  Exhibit  99.7 of our  Current  Report on Form 8-K
                filed with the Commission on December 1, 2003).

         10(h)  Special Preferred Voting Shares Purchase Agreement,  dated as of
                November 17, 2003,  by and among the Company and APH  Associates
                L.P.,  DLK  Associates  L.P.,  Marc  Associates,  L.P.,  Related
                General  II,  L.P.  and SJB  Associates  L.P.  (incorporated  by
                reference  to  Exhibit  99.8 of our  Current  Report on Form 8-K
                filed with the Commission on December 1, 2003).

         10(i)  Standstill  Agreement,  dated as of November  17,  2003,  by and
                among the Company and APH Associates  L.P., DLK Associates L.P.,
                Marc  Associates,   L.P.,  Related  General  II,  L.P.  and  SJB
                Associates  L.P.  (incorporated  by reference to Exhibit 99.9 of
                our  Current  Report on Form 8-K filed  with the  Commission  on
                December 1, 2003).

         10(j)  Voting  Agreement,  dated as of November 17, 2003,  by and among
                the Company and APH Associates  L.P., DLK Associates  L.P., Marc
                Associates,  L.P.,  Related  General II, L.P. and SJB Associates
                L.P.  (incorporated by reference to Exhibit 99.10 of our Current
                Report on Form 8-K filed  with the  Commission  on  December  1,
                2003).

         10(k)  Exchange Rights Agreement, dated as of November 17, 2003, by and
                among CharterMac Capital Company,  LLC, CharterMac  Corporation,
                APH Associates L.P., DLK Associates L.P, Marc Associates,  L.P.,
                Related General II, L.P. and SJB Associates  L.P.  (incorporated
                by reference to Exhibit 99.11 of our Current  Report on Form 8-K
                filed with the Commission on December 1, 2003).

                                      138
<PAGE>

         10(l)  Lock-up Agreement of Marc D. Schnitzer,  dated November 17, 2003
                (incorporated  by  reference  to  Exhibit  99.14 of our  Current
                Report on Form 8-K filed  with the  Commission  on  December  1,
                2003).

         10(m)  Lock-Up  Agreement of Stephen M. Ross,  dated  November 17, 2003
                (incorporated  by  reference  to  Exhibit  99.16 of our  Current
                Report on Form 8-K filed  with the  Commission  on  December  1,
                2003).

         10(n)  Future  Relations  Agreement,  dated as of November 17, 2003, by
                and among Stephen Ross, Related General II L.P., RCMP Management
                Inc.,  the  Related  Companies,  L.P.,  and  CharterMac  Capital
                Company,  LLC (incorporated by reference to Exhibit 99.21 of our
                Current Report on Form 8-K filed with the Commission on December
                1, 2003).

         10(o)  Shared Services Agreement, dated as of November 17, 2003, by and
                among The Related Companies,  L.P., Related Management  Company,
                and CharterMac  Capital  Company  (incorporated  by reference to
                Exhibit  99.24 of our Current  Report on Form 8-K filed with the
                Commission on December 1, 2003).

         10(p)  Other  Services  Agreement,  dated  November  17,  2003,  by and
                between  Relcap  Holding  Company  LLC  and  CharterMac  Capital
                Company,  LLC (incorporated by reference to Exhibit 99.25 of our
                Current Report on Form 8-K filed with the Commission on December
                1, 2003).

         10(q)  CharterMac  Guaranty,  dated December 17, 2002  (incorporated by
                reference  to Exhibit  99.27 of our  Current  Report on Form 8-K
                filed with the Commission on December 1, 2003).

         10(r)  Amended  and  Restated  Incentive  Share Plan  (incorporated  by
                reference  to  Exhibit  99.1 of our Form  S-8/A,  filed with the
                Commission on March 2, 2004).

         10(s)  Form of Non-Qualified Share Option Award Agreement (incorporated
                by reference  to Exhibit  10(af) of our December 31, 2004 Annual
                Report on Form 10-K).

         10(t)  Form  of  Restricted  Share  Award  Agreement  (incorporated  by
                reference  to Exhibit  10(ag) of our  December  31,  2004 Annual
                Report on Form 10-K).

         10(u)  Centerline Holding Company 2007 Incentive Share Plan and Form of
                2007  Incentive  Share Plan  (incorporated  by  reference to our
                definitive  proxy  statement  on  Schedule  14A  filed  with the
                Commission on April 23, 2007).

         10(v)  Centerline   2007   Outperformance   Plan   and   Form  of  2007
                Outperformance  Plan  (incorporated by reference to Exhibit 10.2
                of our Current  Report on Form 8-K filed with the  Commission on
                June 19, 2007).

         10(w)  Centerline  Annual  Incentive  Bonus  Program  "A"  and  Form of
                Centerline  Annual  Incentive Bonus Program A  (incorporated  by
                reference  to  Exhibit  10.3 of our  Current  Report on Form 8-K
                filed with the Commission on June 19, 2007).

         10(x)  Centerline  Annual  Incentive  Bonus  Program  "B"  and  Form of
                Centerline  Annual  Incentive Bonus Program B  (incorporated  by
                reference  to  Exhibit  10.4 of our  Current  Report on Form 8-K
                filed with the Commission on June 19, 2007).

         10(y)  Second Amended and Restated Advisory Services  Agreement between
                American   Mortgage   Acceptance   Company  and  CharterMac  AMI
                Associates, Inc. (incorporated by reference to Exhibit 10(ak) in
                our December 31, 2005 Annual Report on Form 10-K).

         10(z)  First Amendment to Second Amended and Restated Advisory Services
                Agreement  between  American  Mortgage  Acceptance  Company  and
                CharterMac   AMI   Associates,   Inc.,   dated  July  26,   2006
                (incorporated  by reference to Exhibit 10(y) of our December 31,
                2006 Annual Report on Form 10-K).

         10(aa) Amended and Restated Credit Note of American Mortgage Acceptance
                Company  (incorporated  by  reference  to  Exhibit  10.3  of our
                Current  Report on Form 8-K filed with the  Commission  on April
                26, 2006).

         10(ab) Limited Liability Company Agreement of Centerbrook  Holdings LLC
                and IXIS  Financial  Products  Inc. and Charter Mac  Corporation
                dated June 28, 2006  (incorporated  by reference to Exhibit 10.1
                of our June 30, 2006 Quarterly Report on Form 10-Q).

         10(ac) Unitholder and Warrant Agreement among Centerbrook Holdings LLC,
                IXIS Financial Products Inc. and Charter Mac Corporation,  dated
                as of June 28, 2006  (incorporated  by reference to Exhibit 10.2
                of our June 30, 2006 Quarterly Report on Form 10-Q).

                                      139
<PAGE>

         10(ad) Limited  Liability  Company  Agreement of Centerbrook  Financial
                LLC,  dated as of June 28, 2006  (incorporated  by  reference to
                Exhibit  10.3 of our  June 30,  2006  Quarterly  Report  on Form
                10-Q).

         10(ae) Senior Loan  Agreement  among  Centerbrook  Financial  LLC,  the
                lenders that are party  thereto and  Citibank,  N.A.,  as senior
                agent,  dated as of June 28, 2006  (incorporated by reference to
                Exhibit  10.4 of our  June 30,  2006  Quarterly  Report  on Form
                10-Q).

         10(af) Mezzanine Loan Agreement  among  Centerbrook  Financial LLC, the
                lenders that are party thereto and Citibank,  N.A., as mezzanine
                agent,  dated as of June 28, 2006  (incorporated by reference to
                Exhibit  10.5 of our  June 30,  2006  Quarterly  Report  on Form
                10-Q).

         10(ag) Subordination and Security Agreement among Centerbrook Financial
                LLC, Deutsche Bank Trust Company Americas,  and Citibank,  N.A.,
                as senior agent and mezzanine  agent,  dated as of June 28, 2006
                (incorporated  by reference to Exhibit 10.6 of our June 30, 2006
                Quarterly Report on Form 10-Q).

         10(ah) Guarantee   Agreement  between  CharterMac  and  IXIS  Financial
                Products  Inc.,  dated  as of June  28,  2006  (incorporated  by
                reference to Exhibit 10.7 of our June 30, 2006 Quarterly  Report
                on Form 10-Q).

         10(ai) Right of First Refusal  Letter  Agreement  among  CharterMac and
                Centerbrook   Financial   LLC,   dated  as  of  June  28,   2006
                (incorporated  by reference to Exhibit 10.8 of our June 30, 2006
                Quarterly Report on Form 10-Q).

         10(aj) Fee Letter  between IXIS Capital  Markets North America Inc. and
                Centerbrook   Holdings   LLC,   dated  as  of  June   28,   2006
                (incorporated  by reference to Exhibit 10.9 of our June 30, 2006
                Quarterly Report on Form 10-Q).

         10(ak) Credit Support Swap between Charter Mac Origination  Trust 1 and
                Centerbrook  Financial LLC (incorporated by reference to Exhibit
                10.10 of our June 30, 2006 Quarterly Report on Form 10-Q).

         10(al) Securities Purchase  Agreement,  dated as of August 15, 2006, by
                and among the Company,  ARCap  Investors,  the Selling  Members,
                ARCap REIT,  AISR, CM Corp and CM ARCap Investors  (incorporated
                by  reference  to Exhibit 2.1 of our current  report on Form 8-K
                filed with the Commission on August 21, 2006).

         10(am) Second Amended and Restated Limited  Liability Company Agreement
                of ARCap Investors, dated as of August 15, 2006, by and among CM
                ARCap  Investors,   Leonard  W.  Cotton  and  James  L.  Duggins
                (incorporated by reference to Exhibit 10.1 of our Current Report
                on Form 8-K filed with the Commission on August 21, 2006).

         10(an) Exchange Rights  Agreement,  dated as of August 15, 2006, by and
                among the Company, ARCap Investors, CM ARCap Investors,  Leonard
                W. Cotton and James L.  Duggins  (incorporated  by  reference to
                Exhibit  10.2 of our  Current  Report on Form 8-K filed with the
                Commission on August 21, 2006).

         10(ao) Registration  Rights Agreement,  dated as of August 15, 2006, by
                and among the Company, CM ARCap Investors, Leonard W. Cotton and
                James L. Duggins  (incorporated  by reference to Exhibit 10.4 of
                our  Current  Report on Form 8-K filed  with the  Commission  on
                August 21, 2006).
         10(as) Executive  Employment Agreement between Centerline Capital Group
                and Leonard W. Cotton dated as of August 10, 2007  (incorporated
                by reference  to Exhibit 10.1 on our Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(ap) Participation OPP Letter between  Centerline Holding Company and
                Leonard W. Cotton dated as of August 10, 2007  (incorporated  by
                reference  to  Exhibit  10.5 of our  Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(aq) Executive  Employment Agreement between Centerline Capital Group
                and James L. Duggins  dated as of August 10, 2007  (incorporated
                by reference  to Exhibit 10.2 on our Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(ar) Participation OPP Letter between  Centerline Holding Company and
                James L. Duggins  dated as of August 10, 2007  (incorporated  by
                reference  to  Exhibit  10.7 of our  Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(as) Executive Employment Agreement,  dated as of January 1, 2007, by
                and between Centerline Capital Group, Inc. and Chris Crouch. *

         10(at) Executive Employment Agreement,  dated as of January 1, 2007, by
                and between Centerline Capital Group, Inc. and Donald J. Meyer.*

                                      140
<PAGE>

         10(au) Executive Employment Agreement, dated as of January 16, 2007, by
                and between  Centerline  Capital  Group,  Inc. and Nicholas A.C.
                Mumford.*

         10(av) Executive Employment Agreement,  dated as of January 1, 2007, by
                and between Centerline Capital Group, Inc. and Andrew J. Weil.*

         10(aw) Separation  Agreement,  effective March 15, 2007, by and between
                Alan P. Hirmes and  CharterMac  Capital,  LLC  (incorporated  by
                reference  to  Exhibit  10.1 of our  Current  Report on Form 8-K
                filed with the Commission on March 20, 2007).

         10(ax) Executive Employment  Agreement,  dated as of November 28, 2006,
                by  and  between   Robert  Levy  and   CharterMac   Capital  LLC
                (incorporated by reference to Exhibit 10.2 of our current report
                on Form 8-K filed with the Commission on December 4, 2006).

         10(ay) Amendment to Executive  Employment  Agreement between Centerline
                Capital  LLC and  Robert L. Levy  dated as of  August  10,  2007
                (incorporated by reference to Exhibit 10.3 of our Current Report
                on Form 8-K filed with the Commission on August 16, 2007).

         10(az) Participation OPP Letter between  Centerline Holding Company and
                Robert L. Levy  dated as of August  10,  2007  (incorporated  by
                reference  to  Exhibit  10.6 of our  Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(ba) Executive Employment Agreement,  dated as of January 1, 2007, by
                and  between  Marc  D.  Schnitzer  and  CharterMac  Capital  LLC
                (incorporated by reference to Exhibit 10.2 of our Current Report
                on Form 8-K filed with the Commission on February 7, 2007).

         10(bb) Participation OPP Letter between  Centerline Holding Company and
                Marc D. Schnitzer dated as of August 10, 2007  (incorporated  by
                reference  to  Exhibit  10.4 of our  Current  Report on Form 8-K
                filed with the Commission on August 16, 2007).

         10(bc) Centerline  Holding  Company  Ross  Non-Qualified  Share  Option
                Agreement,  dated July 13, 2007  (incorporated  by  reference to
                Exhibit  10.1 of our  Current  Report on Form 8-K filed with the
                Commission on July 18, 2007).

         10(bd) Letter agreement dated July 12, 2007 between Stephen M. Ross and
                Centerline Holding Company (incorporated by reference to Exhibit
                10.2 of our Current Report on Form 8-K filed with the Commission
                on July 18, 2007).

         10(be) Amendment   to  Amended  and  Restated   Incentive   Share  Plan
                (incorporated  by reference to Exhibit 10(s) of our December 31,
                2006 Annual Report on Form 10-K).

         10(bf) Warehousing Credit and Security  Agreement,  dated as of May 30,
                2007,  among  Centerline   Mortgage  Capital  Inc.,   Centerline
                Mortgage Partners Inc., and Citicorp USA, Inc., as agent for the
                lenders,  and as a lender  (incorporated by reference to Exhibit
                10.1 of our Current Report on Form 8-K filed with the Commission
                on June 5, 2007).

         10(bg) First  Amendment to Warehousing  Credit and Security  Agreement,
                dated as of August 29, 2007, among  Centerline  Mortgage Capital
                Inc.  and  Centerline   Mortgage  Partners  Inc,  as  borrowers,
                Citicorp USA, Inc.,  SunTrust Bank and Wachovia  Bank,  N.A., as
                lenders,  and  Citicorp  USA,  Inc,  as  agent  for the  lenders
                (incorporated by reference to Exhibit 10.1 of our Current Report
                on Form 8-K filed with the Commission on September 5, 2007).

         10(bh) Second   Amendment  to  the  Warehousing   Credit  and  Security
                Agreement,  dated as of  December  20,  2007,  among  Centerline
                Mortgage Capital Inc.,  Centerline  Mortgage  Partners Inc., and
                Citicorp USA,  Inc.,  as agent for the lenders,  and as a lender
                (incorporated  by  reference  to our Current  Report on Form 8-K
                filed with the Commission on December 27, 2007).

         10(bi) Third   Amendment  to  the   Warehousing   Credit  and  Security
                Agreement,  dated as of  December  27,  2007,  among  Centerline
                Mortgage Capital Inc.,  Centerline  Mortgage  Partners Inc., and
                Bank of America,  NA., as agent for the lenders, and as a lender
                (incorporated by reference to Exhibit 10.1 of our Current Report
                on Form 8-K filed with the Commission on January 3, 2008).

         10(bj) First Amended and Restated  Loan  Agreement  Between  Centerline
                Holding Company and American Mortgage Acceptance Company,  dated
                September 17, 2007.*

                                      141
<PAGE>

         10(bk) Bond Exchange  Agreement,  dated as of December 27, 2007,  among
                Federal Home Loan Mortgage  Corporation,  Centerline  2007-1 EIT
                Securitization,  LLC,  Centerline 2007-1 SU Securitization,  LLC
                and Centerline  2007-1 T  Securitization,  LLC  (incorporated by
                reference  to  Exhibit  10.1 of our  Current  Report on Form 8-K
                filed with the Commission on January 3, 2008).

         10(bl) Reimbursement,  Pledge  and  Security  Agreement,  dated  as  of
                December  27,   2007,   between   Federal  Home  Loan   Mortgage
                Corporation and Centerline  Sponsor 2007-2  Securitization,  LLC
                (incorporated by reference to Exhibit 10.2 of our Current Report
                on Form 8-K filed with the Commission on January 3, 2008).

         10(bm) Series Certificate Agreement,  dated as of December 27, 2007, by
                and  between  Federal  Home Loan  Mortgage  Corporation,  in its
                corporate capacity,  and Federal Home Loan Mortgage Corporation,
                in its  capacity as  administrator,  with respect to Freddie Mac
                Multifamily Variable Rate Certificates Series M012 (incorporated
                by reference  to Exhibit 10.4 of our Current  Report on Form 8-K
                filed with the Commission on January 3, 2008).

         10(bn) Series Certificate Agreement,  dated as of December 27, 2007, by
                and  between  Federal  Home Loan  Mortgage  Corporation,  in its
                corporate capacity,  and Federal Home Loan Mortgage Corporation,
                in its  capacity as  administrator,  with respect to Freddie Mac
                Multifamily Variable Rate Certificates Series M013 (incorporated
                by reference  to Exhibit 10.4 of our Current  Report on Form 8-K
                filed with the Commission on January 3, 2008).

         10(bo) Series Certificate Agreement,  dated as of December 27, 2007, by
                and  between  Federal  Home Loan  Mortgage  Corporation,  in its
                corporate capacity,  and Federal Home Loan Mortgage Corporation,
                in its  capacity as  administrator,  with respect to Freddie Mac
                Multifamily Variable Rate Certificates Series M014 (incorporated
                by reference  to Exhibit 10.5 of our Current  Report on Form 8-K
                filed with the Commission on January 3, 2008).

         10(bp) Limited  Support  Agreement,  dated  as of  December  27,  2007,
                between Centerline  Guarantor LLC and Federal Home Loan Mortgage
                Corporation  (incorporated  by  reference to Exhibit 10.6 of our
                Current  Report on Form 8-K filed with the Commission on January
                3, 2008).

         10(bq) Limited  Support  Agreement,  dated  as of  December  27,  2007,
                between   Centerline  Holding  Company  and  Federal  Home  Loan
                Mortgage Corporation  (incorporated by reference to Exhibit 10.7
                of our Current  Report on Form 8-K filed with the  Commission on
                January 3, 2008).

         10(br) Stabilization Guaranty, Escrow and Security Agreement,  dated as
                of December 27, 2007,  between Centerline  Stabilization  2007-1
                Securitization,  LLC and Federal Home Loan Mortgage  Corporation
                (incorporated by reference to Exhibit 10.8 of our Current Report
                on Form 8-K filed with the Commission on January 3, 2008).

         10(bs) Stabilization  Limited Support  Agreement,  dated as of December
                27, 2007,  between  Centerline  Holding Company and Federal Home
                Loan Mortgage Corporation  (incorporated by reference to Exhibit
                10.9 of our Current Report on Form 8-K filed with the Commission
                on January 3, 2008).

         10(bt) Certificate Placement Agreement,  dated as of December 27, 2007,
                among  Morgan  Stanley & Co.,  Centerline  Holding  Company  and
                Federal  Home  Loan  Mortgage   Corporation   (incorporated   by
                reference  to Exhibit  10.10 of our  Current  Report on Form 8-K
                filed with the Commission on January 3, 2008).

         10(bu) Revolving  Credit and Term Loan Agreement,  dated as of December
                27, 2007, by and among Centerline  Holding  Company,  Centerline
                Capital Group Inc., the Guarantors listed on Schedule 1 thereto,
                the Lenders named therein,  Bank of America, N.A. as agent, Bank
                of America,  N.A., as issuing bank and  swingline  lender and as
                administrative  agent,  Banc  of  America  Securities,  LLC  and
                Citicorp USA,  Inc., as joint lead arrangers and Banc of America
                Securities,  LLC as book manager  (incorporated  by reference to
                Exhibit  10.11 of our Current  Report on Form 8-K filed with the
                Commission on January 3, 2008).

         10(bv) First  Amendment  to Revolving  Credit and Term Loan  Agreement,
                dated  January  22,  2008,  by and  between  Centerline  Holding
                Company, Centerline Capital Group Inc., the Guarantors listed on
                Schedule 1 thereto and the  Required  Lenders  (incorporated  by
                reference  to our  Current  Report  on Form 8-K  filed  with the
                Commission on January 28, 2008).

         10(bw) Second  Amendment to Revolving  Credit and Term Loan  Agreement,
                dated  February  28,  2008,  by  and  among  Centerline  Holding
                Company, Centerline Capital Group Inc., the Guarantors listed on
                Schedule 1 thereto and the  Required  Lenders  (incorporated  by
                reference  to our  Current  Report  on Form 8-K  filed  with the
                Commission on February 5, 2008).

                                      142
<PAGE>

         10(bx) Securities Purchase  Agreement,  dated January 25, 2008, between
                Centerline  Holding  Company  and  Related  Special  Assets  LLC
                (incorporated by reference to Exhibit 10.1 of our Current Report
                on Form 8-K filed with the Commission on January 31, 2008).

         12     Ratio of earnings to fixed charges and preferred dividends. *

         21     Subsidiaries of our Company.*

         23     Consent of Independent Registered Public Accounting Firm.*

         31.1   Chief Executive Officer  certification  pursuant to  Section 302
                of the Sarbanes- Oxley Act of 2002.*

         31.2   Chief Financial Officer  certification  pursuant to  Section 302
                of the  Sarbanes-Oxley Act of 2002.*

         32     Certification pursuant to Section 906 of the Sarbanes-Oxley  Act
                of 2002.*


         *      Filed herewith.

                                      143
<PAGE>

                                   SIGNATURES
                                   ----------



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


                           CENTERLINE HOLDING COMPANY
                                  (Registrant)




Date:  March 5, 2008
                                   By: /s/ Marc D Schnitzer
                                       --------------------
                                       Marc D. Schnitzer
                                       Managing Trustee, Chief Executive Officer
                                       and President
                                       (Principal Executive Officer)




Date:  March 5, 2008
                                   By: /s/ Robert L. Levy
                                       -------------------
                                       Robert L. Levy
                                       Chief Financial Officer
                                       (Principal Financial Officer and
                                        Principal Accounting Officer)


                                      144
<PAGE>

                                POWER OF ATTORNEY

Each person whose signature  appears below hereby  constitutes and appoints Marc
D. Schnitzer and Robert L. Levy, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name,  place and stead,  in any and all  capacities,  to sign any and all
amendments to this Annual  Report,  and to cause the same to be filed,  with all
exhibits  thereto  and  other  documents  in  connection  therewith,   with  the
Securities and Exchange  Commission,  hereby granting to said  attorneys-in-fact
and agents,  and each of them,  full power and  authority to do and perform each
and every act and thing  whatsoever  requisite  or  desirable  to be done in and
about the  premises,  as fully to all  intents and  purposes as the  undersigned
might or could do in person, hereby ratifying and confirming all acts and things
that said  attorneys-in-fact and agents, or either of them, or their substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following  persons on behalf of us and in the
capacities and on the dates indicated:

       Signature                         Title                        Date
-----------------------    ---------------------------------      -------------


/s/ Stephen M. Ross
-------------------        Managing Trustee and
Stephen M. Ross            Chairman of the Board                  March 5, 2008

/s/ Leonard W. Cotton
---------------------
Leonard W. Cotton          Managing Trustee, Vice-Chairman        March 5, 2008

/s/ Marc D. Schnitzer
---------------------      Managing Trustee, Chief Executive
Marc D. Schnitzer          Officer and President                  March 5, 2008


/s/ Jeff T. Blau
----------------
Jeff T. Blau               Managing Trustee                       March 5, 2008

/s/ Janice Cook Roberts
-----------------------
Janice Cook Roberts        Managing Trustee                       March 5, 2008

/s/ Robert J. Dolan
-------------------
Robert J. Dolan            Managing Trustee                       March 5, 2008

/s/ Nathan Gantcher
-------------------
Nathan Gantcher            Managing Trustee                       March 5, 2008

/s/ Jerome Y. Halperin
----------------------
Jerome Y. Halperin         Managing Trustee                       March 5, 2008

/s/ Robert L. Loverd
--------------------
Robert L. Loverd           Managing Trustee                       March 5, 2008

/s/ Robert A. Meister
---------------------
Robert A. Meister          Managing Trustee                       March 5, 2008

/s/ Thomas W. White
-------------------
Thomas W. White            Managing Trustee                       March 5, 2008


                                      145
<PAGE>

                           CENTERLINE HOLDING COMPANY
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

            Summarized condensed financial information of registrant

                  (not including its consolidated subsidiaries)

                            CONDENSED BALANCE SHEETS

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                   --------------------------
                                                                                       2007           2006
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
                                     ASSETS

Cash and cash equivalents                                                          $     1,641    $    25,638
Investments:
  Available-for-sale                                                                     6,113         90,520
  Other investments                                                                      7,257          7,564
  Investments in subsidiaries                                                          456,833        831,292
Investments in and loans to affiliates                                                 198,926        116,909
Intangible assets - net of amortization of $2,849 in 2006                                   --            258
Deferred costs and other assets                                                          6,096         16,368
                                                                                   -----------    -----------
Total assets                                                                       $   676,866    $ 1,088,549
                                                                                   ===========    ===========

                             LIABILITIES AND EQUITY

Liabilities:
  Notes payable                                                                    $     2,605    $   104,375
  Secured financing                                                                      3,049             --
  Accounts payable, accrued expenses and other liabilities                              33,276          7,653
  Distributions payable                                                                 26,072         26,389
                                                                                   -----------    -----------
Total liabilities                                                                       65,002        138,417
                                                                                   -----------    -----------

Redeemable securities                                                                   69,888             --
Commitments and contingencies

Shareholders' equity:
  Beneficial owners equity:
  4.4% Convertible CRA preferred shares; no par value (1,060 shares issued
    and outstanding in 2007 and 2,160 shares issued and outstanding in 2006)            51,281        104,498
  Convertible CRA Shares (5,306 shares issued and outstanding in 2007 and 6,552
    shares issued and outstanding in 2006)                                              66,879         98,603
  Special preferred voting shares; no par value (14,298 shares issued and
    outstanding in 2007 and 14,825 shares issued and outstanding in 2006)                  143            148
  Common shares; no par value (160,000 shares authorized; 53,943 issued and
    50,267 outstanding in 2007 and 52,746 issued and 51,343 outstanding in 2006)       592,505        708,038
  Restricted shares granted                                                                 --             --
  Treasury shares of beneficial interest - common, at cost (3,376 shares in 2007
    and 1,403 shares in 2006)                                                          (64,312)       (28,018)
  Accumulated other comprehensive (loss) income                                       (104,520)        66,863
                                                                                   -----------    -----------
Total shareholders' equity                                                             541,976        950,132
                                                                                   -----------    -----------

Total liabilities and equity                                                       $   676,866    $ 1,088,549
                                                                                   ===========    ===========
</TABLE>

            See accompanying notes to condensed financial statements

                                      146
<PAGE>

                           CENTERLINE HOLDING COMPANY
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF OPERATIONS

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                        -----------------------------------------
                                                            2007           2006           2005
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
Revenues:
  Mortgage revenue bond interest income                 $     5,323    $     8,025    $     7,267
  Other revenues                                             12,625         16,211          8,591
                                                        -----------    -----------    -----------
    Total revenues                                           17,948         24,236         15,858
                                                        -----------    -----------    -----------

Expenses:
  Interest                                                    7,700          2,595              4
  General and administrative                                  6,812          8,206          8,503
  Depreciation and amortization                                 566          4,333          1,895
  Impairment of assets                                          117            428            296
                                                        -----------    -----------    -----------
    Total expenses                                           15,195         15,562         10,698
                                                        -----------    -----------    -----------

Income before other income                                    2,753          8,674          5,160

Other income (loss):
  Equity in earnings (loss) of subsidiaries                 (97,880)        32,058         50,874
  Equity in earnings (loss) of investments                   (4,012)           568          3,038
  Gain (loss) on repayment of mortgage revenue bonds            657             (6)           (58)
  Gain on re-securitization of mortgage revenue bonds        38,354             --             --
                                                        -----------    -----------    -----------

Net (loss) income                                       $   (60,128)   $    41,294    $    59,014
                                                        ===========    ===========    ===========

Allocation of net (loss) income to:
  4.4% Convertible CRA preferred shareholders           $     4,757    $     4,752    $     2,020
  Common shareholders                                       (57,449)        32,405         50,558
  Convertible CRA shareholders                               (7,436)         4,137          6,436
                                                        -----------    -----------    -----------
    Total                                               $   (60,128)   $    41,294    $    59,014
                                                        -----------    -----------    -----------
</TABLE>

            See accompanying notes to condensed financial statements

                                      147
<PAGE>

                           CENTERLINE HOLDING COMPANY
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                         -----------------------------------
                                                                            2007         2006         2005
                                                                         ---------    ---------    ---------
<S>                                                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                                      $ (60,128)   $  41,294    $  59,014
  Reconciling items:
  (Gain) loss on repayment of mortgage revenue bonds                          (657)         101           58
  Impairment of assets                                                         117           --          296
  Depreciation and amortization                                                566        4,333        1,895
  Gain on re-securitization of mortgage revenue bonds                      (38,354)          --           --
  Equity in earnings of subsidiaries and unconsolidated entities           101,892      (32,626)     (53,912)
  Distributions received from subsidiaries and unconsolidated entities     255,644      349,553           --
  Non-cash compensation expense                                             29,640        7,036        8,661
  Other non-cash expense                                                      (188)       1,014        1,107
  Reserve for bad debt                                                         497           --           --
  Changes in operating assets and liabilities:
    Other assets and receivables                                             1,049       (4,629)      (4,595)
    Accounts payable, accrued expenses and other liabilities                25,084        2,285       (3,300)
    Due to / from subsidiaries                                             (39,584)      85,733       (3,578)
                                                                         ---------    ---------    ---------
Net cash flows from operating activities                                   275,578      454,094        5,646
                                                                         ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Repayments of mortgage revenue bonds and notes                           150,500        1,679       17,518
  Mortgage revenue bond acquisitions and fundings                           (4,004)      (7,683)      (3,405)
  Deferred investment acquisition costs                                         --          226          (47)
  Investment in subsidiaries and unconsolidated entities                  (157,981)    (459,897)      38,398
  Return of capital from equity investees                                       --       16,667           --
  Loan to AMAC                                                             (62,685)     (15,000)       4,600
  Other investments                                                         (4,045)      21,806      (34,494)
                                                                         ---------    ---------    ---------
Net cash flows from investing activities                                   (78,215)    (442,202)      22,570
                                                                         ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Distributions to shareholders                                           (104,436)    (104,168)     (96,582)
  (Decrease) increase in notes payable                                     (84,351)      84,375           --
  Secured financing                                                          3,049           --           --
  Issuance of preferred shares                                                  --           --      108,000
  Proceeds from stock options exercised                                        678          756        3,804
  Retirement of special preferred voting shares                                 (6)       1,889           (2)
  Treasury stock purchases                                                 (36,294)     (20,447)          --
  Deferred financing costs                                                      --       (1,450)      (3,602)
                                                                         ---------    ---------    ---------

Net cash flows from financing activities                                  (221,360)     (39,045)      11,618
                                                                         ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents                       (23,997)     (27,153)      39,834

Cash and cash equivalents at the beginning of the period                    25,638       52,791       12,957
                                                                         ---------    ---------    ---------

Cash and cash equivalents at the end of the period                       $   1,641    $  25,638    $  52,791
                                                                         =========    =========    =========

Supplemental information

Supplemental disclosure of non-cash activities:
  Contribution of mortgage revenue bonds to subsidiaries                 $   3,336    $  35,413    $  15,715
                                                                         =========    =========    =========

  Distribution of mortgage revenue bonds from subsidiaries               $      --    $  37,155    $      --
                                                                         =========    =========    =========
</TABLE>

            See accompanying notes to condensed financial statements

                                      148
<PAGE>


                           CENTERLINE HOLDING COMPANY
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.  Introduction and Basis of Presentation

Basis of Financial Information

The accompanying  condensed financial  statements (the "Parent Company Financial
Statements")   are  for   Centerline   Holding   Company  (not   including   its
subsidiaries).

The Parent Company Financial Statements,  including the notes thereto, should be
read in conjunction  with our  consolidated  financial  statements and the notes
thereto which are included in this Form 10-K.

2. Cash Dividends received from subsidiaries

The table below reflects the cash dividends  received for each of the last three
fiscal years from subsidiaries and 50% or less owned persons accounted for under
the equity method.
<TABLE>
<CAPTION>
(IN THOUSANDS)                 2007           2006           2005
-----------------------    -----------    -----------    -----------
<S>                                <C>         <C>             <C>
ARCap Investors, L.L.C.            240         15,957          2,219
</TABLE>


3.  Guarantees

In connection with the CMC warehouse line, both we and our subsidiary, CCG, have
entered into  guarantees  for the benefit of Bank of America,  guaranteeing  the
total advances drawn under the line, up to the maximum of $100 million, together
with interest, fees, costs, and charges related to the CMC warehouse line.

                                      149
<PAGE>

                                   Schedule II

                        Valuation and Qualifying Accounts
                                December 31, 2007


Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
                                         Additions
                                ---------------------------
                                                Charged to
                  Balance at     Charged to       Other                             Balance at
                 Beginning of    costs and      Accounts -       Deductions -         end of
(IN THOUSANDS)      period        expenses       Describe          Describe           period
--------------   ------------   ------------   ------------      ------------      ------------
<C>              <C>            <C>            <C>               <C>               <C>
2007             $     10,408   $     17,450   $         --      $     (9,508)(1)  $     18,350
2006                   15,083          4,953           (373)(2)        (9,255)(1)        10,408
2005                   13,328          5,123             --            (3,368)(1)        15,083
</TABLE>

(1)  Relates to either (a) receipt of previously reserved receivables related to
     LIHTC Fund  sponsorship  or (b)  receipt of  previously  reserved  interest
     receivable balances for mortgage revenue bonds.

(2)  Receipt  of  previously  reserved  interest  amounts,   net  of  additional
     reserves.

                                      150