NORTHSTAR REALTY (Form: 10-Q, Received: 08/12/2005 17:12:45)

Exhibit
No.

Description

Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ending September 30, 2004.

Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Annual Report on Form 10-K for the year ending December 31, 2004.

Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Amendment No. 1 to the Annual Report on Form 10-K for the year ending December 31, 2004.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

COMMISSION FILE NUMBER: 001-32330


NORTHSTAR REALTY FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND				11-3707493
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)				(IRS EMPLOYER IDENTIFICATION NUMBER)
527 MADISON AVENUE, 16 ^th FLOOR, NEW YORK, NY				10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)				(ZIP CODE)
(212) 319-8801
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES NO .

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

YES NO .

THE COMPANY HAS ONE CLASS OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, WITH 21,264,930 SHARES OUTSTANDING AS OF AUGUST 12, 2005.

NORTHSTAR REALTY FINANCE CORP.
QUARTERLY REPORT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005

TABLE OF CONTENTS


INDEX		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 (unaudited) and Condensed Combined Statements of Operations for the three and six months ended June 30, 2004 (unaudited)	4
	Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2005 (unaudited) and Condensed Combined Statement of Cash Flows for the six months ended June 30, 2004 (unaudited)	5
	Notes to the Condensed Consolidated and Condensed Combined Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	49
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults upon Senior Securities	51
Item 4.	Submission of Matters to a Vote of Security Holders	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
SIGNATURES		54

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Northstar Realty Finance Corp. and Subsidiaries
Condensed Consolidated Balance Sheets


	June 30, 2005		December 31, 2004
	(Unaudited)
Assets:
Cash and cash equivalents	$	36,888,000	$	47,733,000
Restricted cash		78,110,000		2,713,000
Debt securities held for trading		212,498,000		826,611,000
Operating real estate — net		88,181,000		43,544,000
Debt securities available for sale		121,813,000		37,692,000
CDO deposit and warehouse agreements		12,660,000		2,988,000
Collateral held by broker		14,605,000		24,831,000
Subordinate real estate debt investments		302,880,000		70,841,000
Investments in and advances to unconsolidated ventures		4,241,000		5,363,000
Receivables, net of allowance of $4,000 in 2005 and 2004		2,791,000		1,926,000
Unbilled rents receivable, net of allowance of $1,828,000 and $4,137,000 in 2005 and 2004		3,330,000		5,567,000
Due from affiliates		585,000		176,000
Deferred costs and intangible assets, net		16,180,000		4,233,000
Other assets		2,430,000		4,132,000
Total assets	$	897,192,000	$	1,078,350,000
Liabilities and Stockholders' Equity:
Liabilities:
Mortgage notes and loans payable	$	71,577,000	$	40,557,000
Liability to subsidiary trusts issuing preferred securities		67,020,000		—
CDO bonds payable		300,000,000		—
Credit facility		21,884,000		27,821,000
Repurchase obligations		218,912,000		800,418,000
Securities sold, not yet purchased		13,081,000		24,114,000
Obligations under capital leases		3,338,000		3,303,000
Accounts payable and accrued expenses		7,590,000		5,603,000
Due to affiliates		148,000		250,000
Other liabilities		1,765,000		528,000
Total liabilities		705,315,000		902,594,000

Minority interest		36,948,000		32,447,000
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 21,264,930 and 21,249,736 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively		213,000		212,000
Additional paid-in capital		142,727,000		145,697,000
Retained earnings (deficit)		8,439,000		(2,439,000	)
Accumulated other comprehensive income		3,550,000		(161,000	)
Total stockholders' equity		154,929,000		143,309,000
Total liabilities and stockholders' equity	$	897,192,000	$	1,078,350,000

See accompanying notes to the condensed consolidated and combined financial statements

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Condensed Consolidated and Condensed Combined Statements of Operations
(Unaudited)


	The Company (consolidated) Three Months Ended June 30, 2005			The Predecessor (combined) Three Months Ended June 30, 2004			The Company (consolidated) Six Months Ended June 30, 2005			The Predecessor (combined) Six Months Ended June 30, 2004
Revenues and other income:
Rental and escalation income	$	3,323,000		$	—		$	6,431,000		$	—
Advisory and management fee income		20,000			53,000			71,000			108,000
Advisory and management fee income – related parties		1,128,000			584,000			2,071,000			1,182,000
Interest income – debt securities		10,451,000			308,000			18,423,000			563,000
Other revenue		5,000			—			5,000			—
Total revenues		14,927,000			945,000			27,001,000			1,853,000
Expenses:
Real estate properties – operating expenses		743,000			—			1,473,000			—
Interest expense		6,979,000			—			12,946,000			—
Management fees – related party		61,000			—			118,000			—
General and administrative:
Direct:
Salaries and other compensation		1,278,000			298,000			2,539,000			600,000
Shared services – related party		344,000			—			686,000			—
Equity based compensation		959,000			—			1,759,000			—
Insurance		217,000			—			430,000			—
Accounting and auditing fees		290,000			—			1,316,000			—
Other general and administrative		1,033,000			54,000			2,011,000			101,000
Allocated:
Salaries and other compensation		—			625,000			—			1,244,000
Insurance		—			97,000			—			195,000
Other general and administrative		—			213,000			—			522,000
Total general and administrative		4,121,000			1,287,000			8,741,000			2,662,000
Depreciation and amortization		1,046,000			—			1,984,000			—
Total expenses		12,950,000			1,287,000			25,262,000			2,662,000
Income (loss) from operations		1,977,000			(342,000	)		1,739,000			(809,000	)
Equity in earnings of unconsolidated/uncombined ventures		60,000			492,000			106,000			864,000
Unrealized gain (loss) on investments and other		(498,000	)		(333,000	)		549,000			717,000
Realized gain (loss) on investments and other		(86,000	)		—			501,000			—
Net income (loss) before minority interest		1,453,000			(183,000	)		2,895,000			772,000
Minority interest		(300,000	)		—			(597,000	)		—
Net income (loss) from continuing operations	$	1,153,000		$	(183,000	)	$	2,298,000		$	772,000
Income (loss) from discontinued operations, net of minority interest		40,000			—			(50,000	)		—
Gain on sale from discontinued operations, net of minority interest		8,630,000			—			8,630,000			—
Net income (loss)	$	9,823,000		$	(183,000	)	$	10,878,000		$	772,000
Other comprehensive income:
Unrealized gain (loss) on debt securities available for sale and derivatives		1,456,000			(31,000	)		3,711,000			476,000
Comprehensive income	$	11,279,000		$	(214,000	)	$	14,589,000		$	1,248,000
Net income per share from continuing operations	$	0.06		$	—		$	0.11		$	—
Income from discontinued operations		—			—			—			—
Gain on sale of discontinued operations		0.41			—			0.41			—
Net income available to common shareholders	$	0.47			—		$	0.52			—
Weighted average number of shares of common stock:
Basic		21,250,240			—			21,250,240			—
Diluted		26,766,315			—			26,766,315			—

See accompanying notes to the condensed consolidated and combined financial statements.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Condensed Consolidated and Condensed Combined Statements of Cash Flows
(Unaudited)


	The Company (consolidated)			The Predecessor (combined)
	For the Six Months Ended June 30, 2005			For the Six Months Ended June 30, 2004
Net cash provided by operating activities	$	610,061,000	⁽¹⁾	$	1,021,000
Cash flows from investing activities:
Additions to operating real estate, net		(65,158,000	)		—
Net proceeds from disposition of operating real estate		27,988,000			—
Purchase of debt securities available for sale		(74,778,000	)		—
Subordinate real estate debt investments		(231,838,000	)		—
Increase in CDO warehouse deposits		(12,500,000	)		(3,034,000	)
Proceeds from CDO warehouse		988,000			672,000
Restricted cash (CDO IV)		(72,330,000	)		—
Contributions to unconsolidated/uncombined ventures		(2,026,000	)		(6,000	)
Distributions from unconsolidated/uncombined ventures		3,238,000			1,168,000
Net cash used in investing activities		(426,416,000	)		(1,200,000	)
Cash flows from financing activities:
Settlement of short sale obligation		(11,298,000	)		—
Collateral held by broker		10,226,000			—
Capital contributions by owners of the Predecessor		—			2,350,000
Mortgage principal repayments		(25,980,000	)		—
Mortgage borrowings		57,000,000			—
Liability to subsidiary trusts issuing preferred securities		67,020,000			—
Proceeds from credit facilities		227,652,000			—
Repayment of credit facilities		(233,589,000	)		—
Repurchase obligation repayments		(581,506,000	)		—
Distributions to owners of the Predecessor		—			(2,286,000	)
Bonds payable		300,000,000			—
Dividends and distributions		(4,015,000	)		—
Net cash (used in) provided by financing activities		(194,490,000	)		64,000
Net decrease in cash & cash equivalents		(10,845,000	)		(115,000	)
Cash & cash equivalents — beginning of period		47,733,000			1,944,000
Cash & cash equivalents — end of period	$	36,888,000		$	1,829,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	12,314,000		$	—
Supplemental disclosure of non-cash investing activities:
Reclassification of CDO deposit to debt securities available for sale	$	2,690,000		$	—
Write off of deferred cost and straight-line rents in connection with disposition of operating real estate	$	2,715,000		$	—


⁽¹⁾	Includes $613.8 million of proceeds from sales of debt securities held for trading.

See accompanying notes to the condensed consolidated and combined financial statements.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

1. Formation and Organization

NorthStar Realty Finance Corp., a Maryland corporation (the "Company"), is a self-administered and self-managed real estate investment trust ("REIT"), which was formed in October 2003 in order to continue and expand the subordinate real estate debt, real estate securities and net lease businesses conducted by NorthStar Capital Investment Corp. ("NCIC"). The Company's assets are held by, and it conducts its operations through, NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the "Operating Partnership"). On October 29, 2004, the Company closed its initial public offering (the "IPO") pursuant to which it issued 20,000,000 shares of common stock, with proceeds to the Company of approximately $160.1 million, net of issuance costs of $19.9 million. On November 19, 2004, the Company issued an additional 1,160,750 shares of common stock pursuant to the exercise of the overallotment option by the underwriters of the IPO, with proceeds to the Company of $9.7 million, net of issuance costs of $0.7 million. In connection with the IPO, the Company also issued 50,000 shares of common stock, as partial compensation for underwriting services, to the lead underwriter of the IPO. In addition, 38,886 shares of restricted common stock were granted to the Company's non-employee directors. Simultaneously with the closing of the IPO on October 29, 2004, three majority-owned subsidiaries of NCIC (the "NCIC Contributing Subsidiaries") contributed certain controlling and non-controlling interests in entities through which NCIC conducted its subordinate real estate debt, real estate securities and net lease businesses (collectively the "Initial Investments") to the Operating Partnership in exchange for an aggregate of 4,705,915 units of limited partnership interest in the Operating Partnership (the "OP Units"), approximately $36.1 million in cash (the "Contribution Transactions") and an agreement to pay certain related transfer taxes on behalf of NCIC in the amount of approximately $1.0 million. From their inception through October 29, 2004, neither the Company nor the Operating Partnership had any operations.

The combination of the Initial Investments contributed to the Operating Partnership represents the predecessor of the Company (the "Predecessor"). The Company succeeded to the business of the Predecessor upon the consummation of the IPO and the contribution of the initial investments on October 29, 2004. The ultimate owners of the entities which comprise the Predecessor were NCIC and certain other persons who held minority ownership interests in such entities.

2. Basis of Quarterly Presentation

The accompanying condensed consolidated and condensed combined financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with the Company's December 31, 2004 consolidated and combined financial statements and notes thereto included in the Company's annual report on Form 10-K, which was filed with the Securities and Exchange Commission. Capitalized terms used herein, and not otherwise defined, are defined in the Company's December 31, 2004 consolidated and combined financial statements.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

Principles of Consolidation and Combination

The Company

The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and variable interest entities where the Company is the primary beneficiary. All significant intercompany balances have been eliminated in consolidation.

The Predecessor

The combined and uncombined interests in entities contributed to the Operating Partnership have been aggregated to form the Predecessor. The interests in entities contributed to the Operating Partnership, which were controlled by NCIC, and variable interest entities where the Predecessor is deemed the primary beneficiary are reflected in the Predecessor on a combined basis. All intercompany accounts have been eliminated in combination.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

3. Property Acquisitions

Chatsworth, California

On January 14, 2005, the Company closed the acquisition of a portfolio of three net-leased office properties, totaling 257,336 square feet of rentable space in Chatsworth, CA (the "Chatsworth properties"), for $63.5 million. The properties are net leased to Washington Mutual Bank under leases that expire in June 2015. The Company financed the acquisition with a $44 million first mortgage, and a $13 million mezzanine loan which was funded by the warehouse provider under the warehouse agreement for CDO III. This mezzanine loan currently constitutes a portion of the portfolio of securities owned by CDO III. One of the properties is subject to a ground lease. The ground lease has an initial remaining term of 35 years and two five-year extension options. The ground lease also provides for periodic increases in base rent based on the change in the Consumer Price Index.

The Company has made a preliminary allocation of the purchase price to property components pending receipt of an appraisal of the office properties. The Company received the final appraisal during the third quarter of 2005 and will make a final allocation of the purchase price in accordance with FASB 141, "Business Combinations" in such quarter.

4. Debt Securities Available for Sale

The Company accounts for its investments in CDO I, CDO II and CDO III (collectively "Investment Grade CDO Investments") as debt securities available for sale pursuant to Emerging Issues Task Force ("EITF") 99-20 "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." The Company's potential loss is limited to its CDO Investments of approximately $74.4 million as of June 30, 2005. As of that date, the Company also has $47.4 million of commercial mortgage backed securities ("CMBS") investments which are recorded at fair market value, net of premium and discount. For the three and six months ended June 30, 2005, the Company recognized an unrealized gain of approximately $1.4 million and $3.7 million related to the change in fair value of these investments, respectively.

The Investment Grade CDO Investments are variable interest entities, however, neither the Company nor the Predecessor is the primary beneficiary under FASB Interpretation No 46R ("FIN 46R") "Consolidation of Variable Interest Entities" and has not consolidated these variable interest entities.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

CDO I

The following is a summary of the real estate securities, which were held by CDO I on June 30, 2005 (in thousands):


						Weighted Average
	Principal		Percentage of Principal			Rating	Coupon			Term (Years)
CMBS	$	224,990		63.20	%	BBB-		6.54	%		6.47
Unsecured REIT Debt		113,020		31.75	%	BBB/BBB-		6.45	%		7.02
Real Estate CDO		18,000		5.05	%	BBB/BBB-		7.74	%		7.51
Total	$	356,010		100.00	%	BBB/BBB-		6.57	%		6.70

The following table lists the CDO bonds payable to third parties for CDO I at June 30, 2005 (in thousands):


Class	Original Note Balance		Principal Repayments			Note Balance At 6/30/05		Interest Rate	Stated Maturity Date	Ratings (Moody's/ S&P/Fitch)
A-1	$	250,000	$	(46,200	)	$	203,800	LIBOR + 0.42%	8/1/2038	Aaa/AAA/AAA
A-2A		45,000		—			45,000	LIBOR + 0.95%	8/1/2038	Aa2/AAA/AAA
A-2B		15,000		—			15,000	5.68%	8/1/2038	Aa2/AAA/AAA
B-1		15,000		—			15,000	LIBOR + 1.675%	8/1/2038	NR/A+/A+
B-2		10,000		—			10,000	LIBOR + 1.80%	8/1/2038	A3/A/A
C-1A		5,000		—			5,000	LIBOR + 3.00%	8/1/2038	Baa3/A-/BBB+
C-1B		5,000		—			5,000	7.70%	8/1/2038	Baa3/A-/BBB+
C-2		24,000		—			24,000	7.01%	8/1/2038	NR/BBB/BBB
D-1A		10,000		—			10,000	LIBOR + 2.30%	8/1/2038	NR/BB+/BB+
D-1B		4,000		—			4,000	7.01%	8/1/2038	NR/BB+/BB+
	$	383,000	$	(46,200	)	$	336,800

The weighted average interest rate for the CDO I bonds payable was 6.03% at June 30, 2005, including the effect of the interest rate swap held by the CDO.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

CDO II

The following is a summary of the real estate securities, which are held by CDO II at June 30, 2005 (in thousands):


						Weighted Average
	Principal		Percentage of Principal			Rating	Coupon			Term (Years)
CMBS	$	284,878		71.61	%	BBB/BBB-		6.44	%		7.21
Unsecured REIT Debt		92,615		23.28	%	BBB-		5.29	%		7.94
Real Estate CDO		20,332		5.11	%	BBB-		6.33	%		8.81
Total	$	397,825		100.00	%	BBB/BBB-		6.11	%		7.46

The following table lists the CDO bonds payable to third parties for CDO II at June 30, 2005 (in thousands):


Class	Original Note Balance		Principal Repayment			Note Balance At 6/30/05		Interest Rate	Stated Maturity Date	Ratings (Moody's/ S&P/Fitch)
A-1	$	236,000	$	(4,070	)	$	231,930	LIBOR + 0.35%	6/1/2039	Aaa/AAA/AAA
A-2A		42,000		—			42,000	LIBOR + 0.55%	6/1/2039	NR/AAA/AAA
A-2B		15,000		—			15,000	5.55%	6/1/2039	NR/AAA/AAA
B-1		12,000		—			12,000	LIBOR + 0.8%	6/1/2039	A2/A/A
B-2		14,000		—			14,000	LIBOR + 1.05%	6/1/2039	A3/A-/A-
C-1		24,000		—			24,000	LIBOR + 2.00%	6/1/2039	Baa3/BBB+/BBB+
C-2a		6,000		—			6,000	LIBOR + 2.35%	6/1/2039	NR/BBB/BBB
C-2b		16,000		—			16,000	6.591%	6/1/2039	NR/BBB/BBB
	$	365,000	$	(4,070	)	$	360,930

The weighted average interest rate for the CDO II bonds payable was 5.37% at June 30, 2005, including the effect of the interest rate swap held by the CDO.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

CDO III

In March 2005, the Company closed its third CDO issuance ("CDO III") and acquired all of the unrated income notes of CDO III for $17.5 million with a face amount of $23 million and also purchased the BB-rated Class D Notes, with a face amount of $16.0 million, for $14.1 million. The Company partially financed the acquisition of the Class D Notes with a $9.1 million advance from our DBAG facility, defined herein.

The following is a summary of the real estate securities, which are held by CDO III at June 30, 2005 (in thousands):


						Weighted Average
	Principal		Percentage of Principal			Rating	Coupon			Term (Years)
CMBS	$	284,748		71.04	%	BBB-/BB+		6.09	%		6.51
Unsecured REIT Debt		61,580		15.36	%	BBB-		5.82	%		8.55
Other Real Estate Interests		28,583		7.13	%	A-		6.80	%		7.83
Real Estate CDO		25,945		6.47	%	BBB/BBB-		6.28	%		7.82
Total	$	400,856		100.00	%	BBB-		6.12	%		7.00

The following table lists the CDO bonds payable to third parties for CDO III at June 30, 2005 (in thousands):


Class	Original Note Balance		Principal Repayments		Note Balance At 6/30/05		Interest Rate	Stated Maturity Date	Ratings (S&P/Fitch)
A-1	$	294,000	$	—	$	294,000	LIBOR + 0.28%	6/1/2040	AAA/AAA
A-2A		15,000		—		15,000	LIBOR + 0.50%	6/1/2040	AA/AA
A-2B		5,000		—		5,000	5.042%	6/1/2040	AA/AA
B		17,000		—		17,000	LIBOR + 0.85%	6/1/2040	A-/A-
C-1a		10,000		—		10,000	LIBOR + 1.25%	6/1/2040	BBB+/BBB+
C-1b		6,000		—		6,000	5.804%	6/1/2040	BBB+/BBB+
C-2a		12,000		—		12,000	LIBOR + 1.55%	6/1/2040	BBB/BBB
C-2b		2,000		—		2,000	6.135%	6/1/2040	BBB/BBB
	$	361,000	$	—	$	361,000

The weighted average interest rate for the CDO III bonds payable was 3.37% at June 30, 2005.

5. CDO Deposit and Warehouse Agreements

Warehouse Agreement CDO V

On May 4, 2005, the Company entered into a warehouse arrangement with a major commercial bank whereby the bank has agreed to purchase up to $400 million of CMBS and other real estate debt securities under the Company's direction, with the expectation of selling such securities to the Company's fourth investment grade CDO issuance ("CDO V"). As of June 30, 2005, the Company has deposited $12.5 million as security for the purpose of covering a portion of any losses or costs associated with the accumulation of these securities under the warehouse agreement and will be required to deposit additional equity based on accumulations of securities that will be made under the warehouse agreement. The bank has accumulated approximately $238.0 million of real estate securities under the terms of the warehouse agreement as of June 30, 2005. The CDO V warehouse agreement also provides for the Company's notional participation in the income that the assets generate after deducting a notional debt cost. The agreement is being treated as a non-hedge derivative for accounting purposes and is marked-to-market through income. The Company recorded

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

an unrealized gain of $0.2 million for the three and six months ended June 30, 2005 related to the change in fair value of the warehouse agreement. The collateral being accumulated under this agreement is expected to be included in a securitization transaction in which the Company would acquire all of the equity interests.

6. Debt Securities Held for Trading

As of June 30, 2005, the Company's debt securities held for trading had a market value of $212.5 million and the remaining obligations under the related repurchase agreements amounted to $207.3 million. Four issuers of these debt securities represent 22%, 15%, 15% and 12%, respectively, of the total market value of the debt securities held for trading at June 30, 2005. The Company recorded an unrealized loss related to the change in fair value of these securities of $84,000 and $102,000 and a realized loss of $86,000 and $189,000 related to the sales for the three and six months ended June 30, 2005, respectively.

7. Subordinate Real Estate Debt Investments and Debt Securities Available for Sale

In June 2005, the Company closed its fourth CDO issuance ("CDO IV") and retained all of the below investment grade securities and income notes, as listed below of approximately $100 million. The Company issued $300 million face amount of the CDO bonds and sold them in a private placement to third parties. The proceeds of the CDO issuance were used to repay the entire outstanding principal balance of the DBAG Facility of $233.6 million at closing. The CDO bonds are collateralized by the assets listed below and approximately $72.3 million of cash is available to complete the ramp-up of CDO IV which is recorded in the condensed consolidated balance sheet in restricted cash at June 30, 2005.

CDO IV is a variable interest entity under FIN 46R. In determining whether the Company is the primary beneficiary, management considered the impact of all cash flows from the Company's equity interest in CDO IV, the BB and B notes and all collateral management fees to be received by the Company from CDO IV. The Company's variable interest in these cash flows was compared to the other variable interests. Based on management's analysis, the Company was deemed to be the primary beneficiary. Accordingly, CDO IV was consolidated into the condensed consolidated financial statements of the Company as of June 30, 2005.

At June 30, 2005, the Company's investments in subordinate real estate debt investments and debt securities available for sale, listed below, are assets of CDO IV and serve as collateral for the CDO IV bonds payable (in thousands):

Loan
Name/Collateral

Loan Type

Principal Amount

Initial Maturity

Interest Rate or
Index and
Spread

Interest Rate -
June 30, 2005

New York Office Building

Junior Participation

24,000

8/9/2006

LIBOR +
3.75%

6.97%

Hotel Portfolio

Mezzanine Loan

22,000

7/9/2006

LIBOR +
4.75%

7.97%

Residential Condominium Conversion

Junior Participation ⁽¹⁾

24,841

10/9/2006

LIBOR +
5.60%

8.82%

Florida Multifamily

Junior Participation

21,200

7/31/2006

LIBOR +
5.50%

8.72%

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

Loan
Name/Collateral

Loan Type

Principal Amount

Initial Maturity

Interest Rate or
Index and
Spread

Interest Rate -
June 30, 2005

New York Hotel

Junior Participation

30,000

12/9/2006

LIBOR +
5.55%

8.77%

Boston Hotel

Junior Participation

13,000

4/1/2007

LIBOR +
5.15%

8.28%

Storage Portfolio

Junior Participation

7,820

11/1/2007

LIBOR +
4.68%

7.80%

Hotel Portfolio

Junior Participation

4,500

9/1/2006

LIBOR +
6.90%

10.03%

Retail Portfolio

Junior Participation

10,000

9/9/2006

LIBOR +
2.40%

5.62%

Hotel Portfolio

Junior Participation

13,700

7/9/2006

LIBOR +
3.00%

6.22%

Hotel Portfolio

Mezzanine Loan

14,277

2/9/2007

LIBOR +
3.5%

6.72%

Hotel Portfolio

Junior Participation

5,766

1/9/2006

LIBOR +
3.25%

6.49%

New York Office

Mezzanine Loan

20,000

10/5/2006

LIBOR +
4.51%

7.73%

California Office

Mezzanine Loan

18,000

1/9/2007

LIBOR +
5.35%

8.57%

Las Vegas Retail

Junior Participation

19,000

10/5/2006

LIBOR +
3.35%

6.57%

Chicago Office

Junior Participation

15,000

5/6/2006

LIBOR +
1.84%

5.06%

Subtotal

263,104

Discount

(888

)

Total subordinate real estate debt investments

262,216

CMBS Bonds

CMBS

49,813

11/2026 –
4/2040

4.90% -
7.00%

CDO III

CDO - BBs

16,000

4/5/2040

6.46%

Subtotal

65,813

Discount and FMV adjustment

(4,363

)

Debt securities available for sale

61,450

Total

323,666

As of June 30, 2005, all loans were performing in accordance with the terms of the loan agreements.


	⁽¹⁾ Borrower repaid loan on July 20, 2005.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

The Company has acquired $41.3 million of subordinate real estate debt investments which are not collateral for CDO IV. The table below summarizes these additional investments held at June 30, 2005 (in thousands):

Loan
Name/Collateral

Loan Type

Principal Amount

Initial
Maturity

Interest Rate
or
Index and
Spread

Interest Rate-
June 30, 2005

Chicago Office

Junior Participation

31,263

11/1/2007

LIBOR +
6.25%

9.36%

Chicago Office

Junior Participation

10,000

5/6/2006

LIBOR +
1.84%

5.06%

Subtotal

41,263

Discount

(599

)

Total

40,664

8. Borrowings

The following is a table of our outstanding borrowings as of June 30, 2005 and December 31, 2004:


	Stated Maturity	Interest Rate	Balance 6/30/05 (in thousands)		Balance 12/31/04 (in thousands)
Mortgage notes payable (ALGM) (non-recourse)	1/01/2006	The greater of LIBOR or 2% + 3.6%	$	14,673	$	40,557
Mortgage notes payable (Chatsworth) (non-recourse)	5/1/2015	5.65%		43,904		—
Mezzanine loan payable (Chatsworth) (non-recourse)	5/1/2014	6.64%		13,000		—
Repurchase obligations	See Repurchase Obligations below	LIBOR + 0.06% to 1.25%		218,912		800,418
DBAG facility	12/21/2007	LIBOR + 0.75% to 2.25%		—		27,821
WA Temporary Repurchase Agreement	7/13/2005	LIBOR + 2.25%		21,884		—

CDO bonds payable – CDO IV	7/1/2040	LIBOR + 0.62% (average spread)		300,000		—
Liability to subsidiary trusts issuing preferred securities
Trust I	3/30/2035	8.15%		41,240		—
Trust II	6/30/2035	7.74%		25,780		—
			$	679,393	$	868,796

Mortgage Notes Payable

In connection with the acquisition of the Chatsworth Properties, a subsidiary of the Company entered into a loan agreement (the "Chatsworth Mortgage") with German American Capital

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

Corporation (the "Lender") for a non-recourse mortgage in the principal amount of $44.0 million (the "Loan"). The Loan is secured by first mortgage liens and security interests on the Chatsworth Properties, including two fee owned properties and the leasehold interest in the other property, including assignments of leases and rents.

The Chatsworth Mortgage matures on May 1, 2015 and bears interest at a fixed rate of 5.65%. The Loan requires monthly payments of $230,906 representing interest in arrears and principal sufficient to amortize the loan to a balance of approximately $40.5 million at maturity, as well as monthly escrow deposits for ground lease payments required under the ground lease for the leasehold property. Commencing on the 112th payment date all excess cash flow, as defined in the Chatsworth Mortgage, is required to be deposited into a cash sweep reserve until $3.0 million has been deposited, through maturity of the mortgage. The Chatsworth Mortgage is not prepayable prior to maturity and is subject to yield maintenance for any unscheduled principal prepayments prior to maturity.

The Company and its subsidiaries have agreed to comply with environmental laws and have indemnified the Lender against all liabilities and expenses related thereto. The principal balance of the Chatsworth Mortgage was $43.9 million at June 30, 2005. Interest expense incurred on the Loan totaled $0.6 million and $1.2 million for the three and six months ended June 30, 2005, respectively.

Mezzanine Loan Payable

In connection with the acquisition of the Chatsworth Properties, a subsidiary of the Company entered into a non-recourse mezzanine loan agreement (the "Chatsworth Mezzanine Loan") which was assigned to, then funded by, the warehouse provider for CDO III (the "Chatsworth Mezzanine Lender") for a mezzanine loan in the principal amount of $13.0 million. The Chatsworth Mezzanine Loan bears interest at a fixed rate of 6.64%, and requires monthly payments of interest only of $71,955 for the period February 1, 2005 through February 1, 2006. Principal and interest payments of $170,914 are due thereafter, will fully amortize the Chatsworth Mezzanine Loan by maturity, May 1, 2014. The Chatsworth Mezzanine Loan is secured by a pledge of our equity interest in an affiliate under the borrower of the Chatsworth Mortgage. The Chatsworth Mezzanine Loan currently constitutes a portion of the portfolio of securities owned by CDO III.

Repurchase Obligations

The Company's temporary investments, which are primarily AAA-rated, short term, floating rate securities, backed by commercial or residential mortgage loans, were financed with repurchase agreements with Citigroup and Greenwich Capital Markets, Inc. The Company initially borrowed approximately $1.25 billion under repurchase agreements, of which $207.3 million was outstanding at June 30, 2005, with approximately $172.2 million owed to Citigroup and $35.1 million owed to Greenwich. These repurchase obligations mature every thirty days with an interest rate of LIBOR plus 0.06% to 1.0%, and carry a weighted average aggregate interest rate of 3.21% at June 30, 2005. These repurchase agreements are being accounted for as secured borrowings since the Company maintains effective control of the financed assets.

WA Temporary Repurchase Agreement

On June 21, 2005, the Company entered into a temporary repurchase agreement with Wachovia Bank, National Association, to temporarily finance the acquisition of loan participation interests until the Wachovia Master Repurchase Agreement was closed. The Company borrowed approximately $21.9 million under the temporary repurchase agreement. The advance bore interest at LIBOR plus 2.25%. The temporary repurchase agreement will mature at the closing of the Wachovia Master Repurchase Agreement on July 13, 2005 and the principal balance outstanding will be rolled into the new facility. See Note 17.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

DBAG Credit Facility

On December 21, 2004, the Company entered into a $150 million master repurchase agreement with Deutsche Bank AG, Cayman Islands Branch (as amended, the "DBAG Facility"). On March 21, 2005, this facility was amended and restated (as amended, the "DBAG Facility") to allow the Company to borrow up to $300 million in order to finance the acquisition of primarily subordinate real estate debt and other real estate loans and securities. The additional capacity and flexibility under the amendment of the DBAG Facility allowed the Company to accumulate sufficient collateral for CDO IV, and to continue to finance other investments. Pursuant to the terms of the DBAG Facility the availability under the DBAG Facility was reduced to $150 million upon closing of CDO IV on June 14, 2005.

The DBAG Facility has an initial three-year term, which may be extended for one additional year if the Company is not in default and pays an extension fee of 0.25% of the aggregate outstanding amount under the facility. If the Company extends the term of the facility, it will be required to retire 25% of the aggregate outstanding amount each quarter during the remaining year of the term.

Under the terms of the DBAG Facility, the Company is able to finance the acquisition of mortgage loans secured by first liens on commercial or multifamily properties, junior participation interests in mortgage loans secured by first or second liens on commercial or multifamily properties, mezzanine loans secured by a pledge of the entire ownership interest in a commercial or multifamily property, B or higher rated commercial mortgage backed securities and BB or higher rated real estate CDOs, debt securities issued by a REIT and syndicated bank loans.

Advances under the DBAG Facility from December 31, 2004 through March 20, 2005 bore interest at one month LIBOR, which is reset monthly, plus a spread ranging from 0.75% to 2.25%. During the period from March 21, 2005 until the close of CDO IV, (the "CDO Ramp-Up Period"), amounts advanced under the DBAG Facility in order to finance the acquisition of assets to be included in CDO IV bore interest at one-month LIBOR plus a spread of 1.00% and amounts advanced for all other assets bore interest at one-month LIBOR plus a spread which ranges from 0.75% to 2.25%. After the CDO Ramp-Up Period, all amounts advanced under the amended DBAG Facility bear interest at a rate of one-month LIBOR plus the spread which ranges from 0.75% to 2.25%.

During the CDO Ramp-Up Period and thereafter, assets will be financed at advance rates ranging from 40% to 92.5% of the value of the assets as applicable to the asset category.

Effective April 1, 2005, the covenants under the DBAG Facility require the Company to remain at a certain minimum tangible net worth, a certain minimum debt service coverage ratio, a certain range of ratios of recourse indebtedness to net worth and certain minimum amounts of cash or marketable securities based on our ratio of recourse indebtedness to net worth. At June 30, 2005, the Company is in compliance with all covenants under the DBAG Facility.

The debt that may be outstanding under the DBAG Facility is subject to a number of terms, conditions and restrictions including, without limitation, the maintenance of certain margin percentages on amounts outstanding under the DBAG Facility. If the market value of an asset securing the outstanding debt declines, cash flow due the Company may be suspended and if market value continues to decline, the Company may be required to satisfy a margin call by paying cash or providing additional collateral. Failure to meet any margin call could result in an event of default which would enable Deutsche Bank AG to exercise various rights and remedies including acceleration of the maturity date of the debt outstanding under the DBAG Facility or the sale of the assets financed thereunder.

Prior to June 14, 2005, the Company had financed the acquisition of securities for CDO IV through borrowings under the DBAG Facility. The Company used a portion of the proceeds from the

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

sale of the transferred assets to repay approximately $234 million of the amount outstanding under the DBAG Facility. As of June 30, 2005 there are no outstanding borrowings under the DBAG facility.

The Company incurred interest expense of $2.0 million and $3.0 million for the three and six months ended June 30, 2005, respectively.

Liability to Subsidiary Trusts Issuing Preferred Securities

On April 12, 2005 and May 25, 2005, NorthStar Realty Finance Trust and NorthStar Realty Finance Trust II, (the "Trusts") sold, in two private placements, trust preferred securities for an aggregate amount of $40 million and $25 million, respectively. The Company owns all of the common stock of the Trusts. The Trusts used the proceeds to purchase the Company's junior subordinated notes which mature on March 30, 2035 and June 30, 2035, respectively, these notes represent all of the Trusts' assets. The terms of the junior subordinated notes are substantially the same as the terms of the trust preferred securities. The trust preferred securities have a fixed interest rate of 8.15% and 7.74% per annum, respectively, during the first ten years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum.

Under the provisions FIN 46R, the Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has reflected the obligation to the Trusts under the caption "Liability to subsidiary trusts issuing preferred securities" in the condensed consolidated balance sheet and will account for the investment in the common stock of the Trusts, which is reflected in Investments in and advances to unconsolidated ventures in the condensed consolidated balance sheet, under the equity method of accounting.

The Company may redeem the notes, in whole or in part, for cash, at par, after March 30, 2010 and June 30, 2010, respectively. To the extent the Company redeems notes, the Trusts are required to redeem a corresponding amount of trust preferred securities.

The ability of the Trusts to pay dividends depends on the receipt of interest payments on the notes. The Company has the right, pursuant to certain qualifications and covenants, to defer payments of interest on the notes for up to six consecutive quarters. If payment of interest on the notes is deferred, the Trust will defer the quarterly distributions on the trust preferred securities for a corresponding period. Additional interest accrues on deferred payments at the annual rate payable on the notes, compounded quarterly.

The indenture for NorthStar Realty Finance Trust II has certain covenants that are substantially similar to those under the DBAG Facility and certain restrictions on issuing any additional trust preferred securities and other subordinate unsecured debt. At June 30, 2005, the Company is in compliance with all covenants under Trust II.

The terms are summarized as follows:


	Trust I	Trust II
Trust Preferred Securities Outstanding as of June 30, 2005	$40 million	$25 million
Interest Rate as of June 30, 2005	8.15%	7.74%
Redemption period at Company's option	3/30/2010	6/30/2010
Maturity date	3/30/2035	6/30/2035

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

Scheduled principal payment requirements on the Company's borrowings are as follows as of June 30, 2005 (in thousands):


	Total		Mortgage and Mezzanine loans		WA Temporary Repurchase Agreement		Liability to Subsidiary Trusts Issuing Preferred Securities		Repurchase obligations		CDO Bonds Payable ⁽¹⁾
2005	$	242,748	$	1,952	$	21,884	$	—	$	218,912	$	—
2006		14,133		14,133		—		—		—		—
2007		1,581		1,581		—		—		—		—
2008		1,679		1,679		—		—		—		—
2009		1,799		1,799		—		—		—		—
Thereafter		417,453		50,433		—		67,020		—		300,000
Total	$	679,393	$	71,577	$	21,884	$	67,020	$	218,912	$	300,000


	⁽¹⁾ Based on scheduled repayment date of related CDO collateral, stated maturity is 7/1/2040.

9. Related Party Transactions

Shared Facilities and Services Agreement

Total fees and expenses incurred by the Company under the shared facilities and services agreement amounted to $0.3 million and $0.6 million for the three and six months ended June 30, 2005. No amounts were payable to NCIC at June 30, 2005.

Advisory and Management Fee Income

NS Advisors LLC

CDO I, CDO II and CDO III entered into agreements with the Predecessor and the Company, through NS Advisors LLC, a subsidiary, to perform certain advisory services.

The Company earned total fees of approximately $1,019,000 and $1,771,000 for the three and six months ended June 30, 2005. The Predecessor earned total fees of $344,000 and $689,000 for the three and six months ended June 30, 2004. Unpaid advisory fees of $570,000 and $82,000 are included in due from affiliates in the Company's condensed consolidated balance sheets as of June 30, 2005 and December 31, 2004, respectively.

The Company also earned a structuring fee of $500,000 in connection with the closing of CDO III in March 2005, which was used to reduce its investment in CDO III which is included in debt securities available for sale in the condensed consolidated balance sheet.

NSF Venture

The Company earned and recognized advisory fees of approximately $109,000 and $300,000 for the three and six months ended June 30, 2005. The Predecessor earned and recognized $240,000 and $493,000 for the three and six months June 30, 2004.

Management Fees

On December 28, 2004, ALGM terminated its existing asset management agreement with Emmes Asset Management Co. LLC ("Emmes"), an affiliate of NCIC. Pursuant to the termination provisions of the agreement, ALGM paid Emmes a contractual termination payment of approximately $385,000,

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

which is equal to two quarters of payments of the annual existing fee. In addition, ALGM and Emmes entered into a new asset management agreement, which is cancelable on 30 days notice. The annual asset management fee under the new agreement is equal to 3.5% of gross collections from tenants of the properties not to exceed $350,000 or be less than $300,000 per year, subject to certain provisions. Total fees incurred under this agreement amounted to $61,000 and $118,000 for the three and six months ended June 30, 2005.

10. Derivatives and Hedging Activities

To limit the exposure to the variable LIBOR interest rate, the Company entered into various swap agreements to fix the LIBOR rate on a portion of the Company's variable rate debt. The fixed LIBOR rate ranges from 4.18% to 5.03%. The following table summarizes the notional amounts and fair (carrying) values of the Company's derivative financial instruments as of June 30, 2005 (in thousands):

Notional
Amount

Fair Value

Range of Maturity

Interest rate swaps, treated as hedges (a)

$26,349

($663)

December 2010 - August 2018


	(a) Included in Other liabilities.

11. Stockholders' Equity

Common Stock

On June 24, 2005, the Company issued 15,194 shares to its Board of Directors, as part of their annual grants.

Dividends

On April 21, 2005, the Company declared a cash dividend of $0.15 per share of common stock. The dividend was paid on May 16, 2005 to the shareholders of record as of the close of business on May 2, 2005.

12. Earnings Per Share

The Company's basic earnings per share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. For purposes of calculating earnings per share, the Company considered all unvested restricted stock which participate in the dividends of the Company to be outstanding. The computation of diluted EPS considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted to common stock, where such exercise or conversion would result in a lower EPS amount. This also includes units of limited partnership interest in the Operating Partnership which are considered convertible securities. The operating partnership units are exchangeable for common shares on a one for one basis. Additionally, income is allocated to all unit holders including the Company on a prorata basis. The conversion of these units to common shares are not dilutive to earnings per share.

13. Operating Real Estate Disposition

The Company sold its interest in a 19,618 square foot retail condominium unit at 729 Seventh Avenue ("729") in New York City for $29.0 million. The transaction closed on June 30, 2005. The gain on sale was approximately $8.6 million, net of minority interest, for the three and six months ended June 30, 2005.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

The proceeds of the sale were used to pay down approximately $25.1 million of an existing mortgage on the ALGM portfolio and the remaining balance will be reinvested into a similar property acquisition to effectuate a 1031-tax free exchange.

In connection with the sale, 729 7th Realty Corp., an affiliate of the Riese Organization's National Restaurant Management Inc., agreed to discontinue the legal action that it had brought against the Company, settling the Company's only material pending legal action. See Note 14.

For the three and six months ended June 30, 2005 and 2004, discontinued operations included the results of operations of 729. The following table summarizes Income (loss) from discontinued operations, net of minority interest and related gain on sale of discontinued operations, net of minority interest (in thousands):


	Three Months Ended June 30, 2005			Three Months Ended June 30, 2004		Six Months Ended June 30, 2005			Six Months Ended June 30, 2004
Revenue:
Rental and escalation income	$	639		$	—	$	1,387		$	—
Interest and other		5			—		5			—
Total revenue		644			—		1,392
Operating Expenses:
Real estate property operating expenses		32			—		220			—
Accounting and audit fee		—			—		66			—
Interest expense		562			—		1,084			—
Depreciation and amortization		—			—		85			—
Total expenses		594			—		1,455			—
Income (loss) from discontinued operations		50			—		(63	)		—
Gain on disposition of discontinued operations		10,871			—		10,871			—
Income from discontinued operations before minority interest		10,921			—		10,808			—
Minority interest		(2,251	)		—		(2,228	)		—
Income from discontinued operations, net of minority interest	$	8,670		$	—	$	8,580		$	—

14. Contingency

On August 21, 2003, an action was filed against ALGM in New York State Supreme Court, New York County (the "Complaint"). The Complaint was brought by 729 7th Realty Corp. (the "Tenant"), a subsidiary of NRMI that is the net lessee of the Condominium, to enforce certain rights it claims to have under its net lease with ALGM (the "Net Lease").

In connection with the sale of 729, the tenant agreed to discontinue the legal action that it had brought against the Company, settling the Company's only material pending legal action, at no cost to the Company.

15. Equity Based Compensation

Long Term Incentive Bonus Plan

The Company has granted certain restricted awards to certain employees and co-employees of the Company and NCIC employees who provide services to the Company pursuant to a shared service agreement. These restricted awards are subject to both employment and the Company attaining

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

certain performance hurdles. At June 30, 2005, management has made its best estimate of the Company's performance during the performance periods, based on the facts and information currently available and assumptions regarding the investment of the remaining proceeds of the Company's initial public offering pursuant to our stated business strategy and returns on future investments. On the basis of the foregoing, management has estimated that the Company would not meet the return hurdle in either of these performance periods. If the Company does not meet the return hurdle during the performance periods, the Company will not grant any awards under this program to members of management, other of our employees and the employees of NCIC who provide services to the Company. Accordingly, no compensation expense, with respect to provisional awards under the 2004 Long Term Incentive Bonus Plan, has been recognized in the condensed consolidated financial statements for the three or six months ended June 30, 2005.

Employee Outperformance Plan

In connection with the employment agreement of the Company's chief investment officer, he is eligible to receive incentive compensation equal to 15% of the annual net profits from the Company's real estate securities business in excess of a 12% return on invested capital (the annual bonus participation amount). The Company will have the option of terminating this incentive compensation arrangement at any time after the third anniversary of the date of its IPO by paying the Company's chief investment officer an amount based on a multiple of the estimated annual bonus participation amount, at the time it exercises this buyout option. If the Company exercises this buyout option, the fixed amount due for terminating this arrangement will vest ratably and be paid in four installments over a three-year period with 25% paid on termination. If the Company's chief investment officer voluntarily terminates his employment with the Company prior to any exercise of the Company's buyout option, he will be eligible to receive a portion of the future annual payments otherwise payable to him while employed based on a reverse vesting formula. The portion of the annual benefit to which the chief investment officer is eligible after voluntary termination ranges from 20% of what he would otherwise recieve for most recently created income streams to 100% of eligible income streams that are five or more years old. No compensation has been earned by the Company's chief investment officer under this plan for the three or six months ended June 30, 2005.

Omnibus Stock Incentive Plan

On January 30, 2005, our operating partnership granted an aggregate of 22,500 LTIP units, which are operating partnership units that are structured as profits interests, to certain employees of the Company pursuant to the 2004 Omnibus Stock Incentive Plan. The LTIP units vest to the individual recipient at a rate of one-twelfth of the total amount granted as of the end of each quarter beginning with the quarter ended April 29, 2005. In addition, the LTIP unit holders are entitled to dividends on the entire grant.

16. Segment Reporting

The Predecessor and the Company have three reportable segments: (i) subordinate real estate debt, (ii) real estate securities and (iii) net lease real estate investments. The Company evaluates performance primarily based on its proportionate share of the earnings of such investments. General and administrative expenses were not allocated by management to various segments and therefore are presented as unallocated. The reportable segments are managed separately due to the differing nature of the business operations. The following tables set forth certain segment information for the Company on a consolidated basis and for the Predecessor on a combined basis, as of and for the three and six months ended June 30, 2005 and 2004 (in thousands):

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)


Three Months Ended June 30, 2005	Net Lease Investments			Subordinate Real Estate Debt			Investment Grade Real Estate Securities			Unallocated ⁽¹⁾			Consolidated Total

Rental revenue	$	3,323		$	—		$	—		$	—		$	3,323
Advisory and management fees		—			129			1,019			—			1,148
Interest income and other		3			5,979			1,851			2,623			10,456
Equity in earnings of uncombined ventures		—			60			—			—			60
Gain (loss) in investment and other		—			(42	)		(372	)		(170	)		(584	)
Interest expense		1,267			2,469			266			2,977			6,979
Other expenses		1,833			65			402			3,671			5,971
Minority interest		(2,251	)		—			—			(300	)		(2,551	)
Gain from discontinued operations		10,921			—			—			—			10,921
Net income (loss)	$	8,896		$	3,592		$	1,830		$	(4,495	)	$	9,823
Total assets	$	105,002		$	444,443		$	87,275		$	260,472		$	897,192


(1)	Unallocated interest income and interest expense relates to our temporary investments. Unallocated other expenses is comprised of corporate level general & administrative expenses.


Six Months Ended June 30, 2005	Net Lease Investments			Subordinate Real Estate Debt			Investment Grade Real Estate Securities		Unallocated ⁽¹⁾			Consolidated Total

Rental revenue	$	6,431		$	—		$	—	$	—		$	6,431
Advisory and management fees		—			371			1,771		—			2,142
Interest income and other		12			8,636			3,149		6,631			18,428
Equity in earnings of uncombined ventures		—			106			—		—			106
Gain (loss) in investment and other		—			(13	)		1,354		(291	)		1,050
Interest expense		2,406			3,463			511		6,566			12,946
Other expenses		3,681			107			819		7,709			12,316
Minority interest		(2,228	)		—			—		(597	)		(2,825	)
Gain from discontinued operations		10,808			—			—		—			10,808
Net income (loss)	$	8,936		$	5,530		$	4,944	$	(8,532	)	$	10,878


Three Months Ended June 30, 2004	Net Lease Investments		Subordinate Real Estate Debt		Investment Grade Real Estate Securities			Unallocated			Combined Total
Advisory and management fees	$	—	$	292	$	345		$	—		$	637
Interest income		—		—		308			—			308
Equity in earnings of uncombined ventures		349		143		—			—			492
Gain (loss) in investment and other		—		—		(333	)		—			(333	)
Other expenses		—		—		352			935			1,287
Net income (loss)	$	349	$	435	$	(32	)	$	(935	)	$	(183	)

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)


Six Months Ended June 30, 2004	Net Lease Investments		Subordinate Real Estate Debt		Investment Grade Real Estate Securities		Unallocated			Combined Total
Advisory and management fees	$	—	$	600	$	690	$	—		$	1,290
Interest income		—		—		563		—			563
Equity in earnings of uncombined ventures		600		264		—		—			864
Gain (loss) in investment and other		—		—		717		—			717
Other expenses		—		—		701		1,961			2,662
Net income (loss)	$	600	$	864	$	1,269	$	(1,961	)	$	772

17. Subsequent Events

Wachovia Credit Facility

On July 13, 2005, NRFC WA Holdings, LLC ("NRFC WA"), a subsidiary of the Company entered into a master repurchase agreement with Wachovia Bank, National Association, ("Wachovia Bank"). NRFC WA may borrow up to $150 million (the "WA Facility") (which maximum borrowing amount may be increased to $300 million in Wachovia Bank's sole discretion) under this credit facility in order to finance the acquisition of first priority mortgage loans, senior or junior participation interests or B notes in first priority mortgage loans, mezzanine loans secured by commercial and multi-family properties and commercial properties in which the property is 100% leased under a credit tenant lease to, or guaranteed in full by, a credit tenant and B- or higher rated CMBS.

Advance rates under the WA Facility range from 55% to 95% of the value of the assets for which the advance is made. Amounts borrowed under the facility bear interest at one-month LIBOR plus a spread which ranges from 0.20% to 3.00%, depending on the type of asset for which the amount is borrowed. The facility has an initial term of three years and an initial maturity date of July 12, 2008. In addition, NRFC WA must pay an unused facility fee equal to 0.25% of the unused portion of the facility, commencing 120 days after July 13, 2005, payable quarterly in arrears. The Company has agreed to guaranty amounts borrowed by NRFC WA under the facility up to a maximum of $20 million.

NRFC WA may extend the term of the WA Facility for one year if it is not in default and pays an extension fee of 0.25% of the aggregate amount then outstanding under the facility. If NRFC WA extends the facility's term, it will be required to retire 25% of the aggregate amount then outstanding under the facility during each quarter of the remaining year of the term.

NRFC WA paid Wachovia Bank a $750,000 structuring fee in connection with the execution of this facility.

The debt outstanding under the facility is subject to a number of terms, conditions and restrictions including, without limitation, scheduled interest payments, the maintenance of certain margin percentages on amounts outstanding under the facility. If the market value of an asset securing outstanding debt declines, NRFC WA may be required to satisfy a margin call by paying cash or providing additional collateral. Failure to meet any margin call could result in an event of default which would enable Wachovia Bank to exercise various rights and remedies including acceleration of the maturity date of the debt outstanding under the facility and the sale of the collateral.

Northstar Realty Finance Corp. and Subsidiaries and Northstar Realty Finance Corp. Predecessor
Notes to Condensed Consolidated and Condensed Combined Financial Statements
(Unaudited)

Subordinate Real Estate Debt Investments

The following investments were acquired subsequent to June 30, 2005:

Date of
Acquisition

Loan
Name/Collateral

Loan Type

Principal
Amount
(in thousands)

Initial
Maturity

Interest Rate
Index and
Spread

7/01/05

Office Building

Junior
Participation

4,250

1/2007

LIBOR +
2.50%

7/01/05

Office Building

Mezzanine
Loan

5,000

1/2007

LIBOR +
5.00%

7/15/05

Office Building

Junior
Participation

10,000

7/2007

LIBOR +
7.00%

8/1/05

Multifamily

Junior
Participation

35,000

8/2007

LIBOR +
5.25%

Total

54,250

These investments were acquired as part of the ramp-up of CDO IV.

Real Estate Securities

From June 30, 2005 through August 9, 2005, the bank has acquired approximately $104.0 million in real estate securities under the terms of the CDO V warehouse agreement which are expected to be included in a securitization transaction.

Salt Lake City Property

On August 2, 2005, the Company closed a $22.0 million acquisition of a 117,553 square foot office building in Salt Lake City, Utah, which is 100% leased to the General Services Administration under a lease that expires in April 2012. The property is financed with a 5.16% fixed rate, seven year non-recourse first mortgage loan of $17 million.

Dividends

On July 28, 2005, the Company declared a cash dividend of $0.15 per share of common stock. The dividend is expected to be paid on August 15, 2005 to the shareholders of record as of the close of business on August 8, 2005.

Operating Real Estate Disposition

In July 2005, the Company formally initiated an effort to market for sale one of its operating real estate properties located at 1552 Broadway.

On July 28, 2005, the Company obtained Board approval for the sale and determined that the plan for sale criteria in FASB Statement No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets" has been met. Accordingly, since the criteria was met subsequent to June 30, 2005, the property will not be classified to held for sale until the third quarter ending September 30, 2005.


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our and our predecessor's financial statements and notes thereto included in this report.

Organization and Overview

We are an internally-managed REIT that was formed to continue and expand the subordinate real estate debt, real estate securities and net lease businesses of NorthStar Capital Investment Corp., or NorthStar Capital. Upon the consummation of our initial public offering, or IPO, on October 29, 2004, three subsidiaries of NorthStar Capital contributed 100% of their respective interests in entities through which NorthStar Capital engaged in these businesses in exchange for units of limited partnership interest in our operating partnership and approximately $36.1 million. Our management team consists primarily of the same individuals who managed these businesses for NorthStar Capital.

We commenced operations upon the consummation of our IPO. We conduct substantially all of our operations and make our investments through our operating partnership, NorthStar Realty Finance Limited Partnership, or NorthStar Partnership, of which we are the sole general partner. Through our operating partnership, we:


•	acquire, originate and structure subordinate and other high-yielding debt investments secured by income-producing commercial and multifamily properties;


•	create, manage and issue collateralized debt obligations, or CDOs, backed by commercial real estate debt securities; and


•	acquire properties that are primarily net leased to corporate tenants.

Basis of Quarterly Presentation

Set forth below is a discussion of the financial condition and results of operations of our predecessor for the three and six months ended June 30, 2004 and NorthStar Realty Finance Corp. for the three and six months ended June 30, 2005.

Our predecessor is an aggregation of the entities through which NorthStar Capital owned and operated its subordinate real estate debt, real estate securities and net lease properties businesses and was not a separate legal operating entity. The ultimate owners of these entities were NorthStar Capital and their minority owners. NorthStar Partnership, L.P., the operating partnership of NorthStar Capital, was the managing member with day-to-day operational responsibility of the entities controlled by NorthStar Capital. These entities are combined in our predecessor's historical financial statements. Where our predecessor had a non-controlling interest in any of the entities that comprised our predecessor, such entities are presented as part of our predecessor on an uncombined basis. Because the discussion of the financial condition and results of operations for the three and six months ended June 30, 2004, which is set forth below, relates to the entities comprising our predecessor, it reflects the historical financing and operational strategies of these entities.

Although the entities comprising our predecessor operated as separate businesses of NorthStar Capital, these businesses utilized certain of NorthStar Capital's employees, insurance and administrative services. General and administrative expenses incurred by NorthStar Capital on behalf of all of its business units which include salaries and benefits, rent, furniture, equipment, travel and entertainment, accounting, legal services and other expenses were allocated to our predecessor by NorthStar Capital through identification of specific expense items, where practical, and otherwise through an estimation of the level of effort devoted by certain of NorthStar Capital's employees. In the opinion of management, the methods used to allocate general and administrative expenses and other costs were reasonable.

Upon the contribution of the initial investments to our operating partnership, these businesses became fully integrated and therefore we present our financial statements on a consolidated basis for

all periods thereafter. Simultaneously with this contribution, we entered into a shared facilities and services agreement with NorthStar Capital, pursuant to which certain general and administrative services required to run these businesses are provided by NorthStar Capital for a period of one year in exchange for a fixed annual fee.

Sources of Operating Revenues

Historically, our predecessor primarily derived operating revenues from earnings of uncombined ventures which consisted of our predecessor's proportionate share of the net income from the rental operations of the New York property portfolio and from subordinate real estate debt investments. In more recent periods, our predecessor also derived operating revenues from advisory fees related to our real estate securities and subordinate real estate debt businesses, from the residual interests in the cash flows of its investment grade CDOs based on our equity interests in such CDOs and from the interest income on our junior debt investments in its investment grade CDOs.

Subsequent to our IPO and the integration of the subordinate real estate debt, real estate securities and net lease properties businesses, we primarily derived operating revenues from rental income, from the rental operations of the consolidated net lease real estate portfolio, from interest income on our consolidated investments in subordinate real estate debt, from the residual interests in the cash flows of our investment grade CDOs based on our equity interests in such CDOs and from the interest income on our junior debt investments in our investment grade CDOs, from earnings of an unconsolidated venture which consists of our proportionate share of the net income of that venture's subordinate debt investments and from advisory fees related to our real estate securities and subordinate real estate debt businesses.

Subordinate Real Estate Debt

Direct Investments. The additional liquidity provided by the net proceeds of our IPO allowed us to increase the number and range of subordinate real estate debt in which we invest. We used a portion of the net proceeds of our IPO to make investments in subordinate real estate debt which are consolidated on our balance sheet, including the assets of our first subordinate real estate debt CDO or CDO IV. We earn interest income and origination fees on these consolidated investments, any advisory fees earned on these investments are eliminated in consolidation.

NSF Venture. NorthStar Capital commenced its business of investing in subordinate real estate debt in 2001 through an arrangement we refer to as the NSF Venture. NorthStar Funding Managing Member LLC, a majority-owned subsidiary of NorthStar Capital prior to the contribution of the initial investments to our operating partnership, is the managing member and holder of 50% of the outstanding membership interests in NorthStar Funding Management LLC, the managing member of the NSF Venture. NorthStar Funding Management LLC is responsible for the origination, underwriting and structuring of all investments made by the NSF Venture. Moreover, the NSF Venture investor has the right to approve all investments that NorthStar Funding Management LLC proposes to make on behalf of the NSF Venture.

NorthStar Funding Investor Member LLC, a majority-owned subsidiary of NorthStar Capital prior to the contribution of the initial investments to our operating partnership, owns a 5% interest in the NSF Venture and the NSF Venture Investor owns the remaining 95%. Prior to July 10, 2003, NorthStar Funding Investor Member LLC held a 10% interest in the NSF Venture. On July 10, 2003, the terms of the NSF Venture were amended to increase NorthStar Funding Investor Member LLC's capital commitment to $190 million, or 95% of $200 million, and reduce NorthStar Funding Investor Member LLC's interest to 5%. NorthStar Capital contributed its interests in the NSF Venture to our operating partnership upon consummation of our IPO.

We receive an advisory fee of 1% of contributed capital per annum as compensation for NorthStar Funding Management LLC's management of the NSF Venture's investments. We are also entitled to a profit participation equal to 10% of the profit after a minimum return on the NSF Venture's capital and a return of capital based upon the performance of the NSF Venture's

investments. NorthStar Funding Managing Member LLC receives 75% of this 10% profit participation. We also earn an additional advisory fee from the NSF Venture Investor for underwriting and placing the senior participation and sub-participation interests that are acquired by the NSF Venture Investor directly from the NSF Venture.

Our equity in earnings of the NSF Venture includes interest income and origination fees on investments.

Real Estate Securities

We invest in commercial mortgage-backed securities, or CMBS, and other real estate securities which are primarily investment grade and are financed with long term debt through the issuance of investment grade CDOs, thereby matching the terms of the assets and the liabilities.

We earn a spread between the yield on the assets and the interest expense incurred on the CDO debt issued through our investments in the equity interests and the junior CDO debt of each CDO issuer.

We also earn ongoing management fees for our management and monitoring of the CDO collateral of our investments in CDO I, CDO II and CDO III, which fees equal 0.35% of the related CDO collateral.

Prior to a new investment grade CDO issuance, there is a period during which real estate securities are identified and acquired for inclusion in a CDO, known as the warehouse accumulation period. During this period, we direct the acquisition of securities under a warehouse facility from a bank that will be the lead manager of the CDO. The warehouse provider then purchases the securities and holds them on its balance sheet. We direct the acquisition of securities by the warehouse provider during this period, but we do not earn any fees for providing this service to either the warehouse provider or the issuer of the CDO, which will receive such securities upon the closing of the CDO. We contribute cash and other collateral, which is held in escrow by the warehouse provider, to back our commitment to purchase equity in the CDO and to cover our share of losses should securities need to be liquidated. Pursuant to the warehouse agreement, we share gains, including the net interest earned during the warehouse period, and losses, if any, with the warehouse provider.

During the warehouse period, our participation under the warehouse agreement is reflected in our consolidated financial and our predecessor's combined financial statements as a non-hedge derivative, which is reflected at fair value and any unrealized gain or loss is charged to operations. Based on an analysis of our and our predecessor's interest in CDO I as a variable interest entity under FASB Interpretation No. 46R "Consolidation of Variable Interest Entities," the financial statements of CDO I were not consolidated into our predecessor's financial statements for the three and six months ended June 30, 2004 or in our financial statements for the three and six months ended June 30, 2005 and for the period from October 29, 2004 to December 31, 2004, since neither our predecessor nor we were the primary beneficiary of CDO I. Similarly, the financial statements of CDO II and CDO III were not consolidated into our financial statements since we were not the primary beneficiary of CDO II or CDO III. Accordingly, we have designated the beneficial interests in preferred equity of CDO I and the unrated income notes of CDO II and CDO III as debt securities available for sale as they meet the definition of debt instruments due to their underlying redemption provisions.

Net Lease Properties

We earn rental income from office, industrial and retail properties that are net leased to corporate tenants.

We had two fee and six leasehold interests in a portfolio of retail and commercial properties located in the Times Square and midtown area of Manhattan which we refer to as the New York property portfolio. This portfolio is owned by our subsidiary, ALGM I Owners LLC, or ALGM. Our predecessor held a 97.5% non-managing equity interest in ALGM. Two of ALGM's leases expired in 2003, one in March and one in October. The Company sold its interest in one of ALGM's fee properties, 729 Seventh Avenue ("729") for $29.0 million on June 30, 2005.

As of June 30, 2005, ALGM owned seven properties, which vary in size from 4,200 square feet to 21,140 square feet and had a total of 76,496 net rentable square feet. Three of the properties are primarily leased or subleased to single users and four are leased or subleased to multiple tenants.

The results of operations for these properties were reflected in our predecessor's equity in earnings of uncombined ventures because our predecessor owned a 97.5% non-managing equity interest in ALGM. Concurrently with the contribution of the initial investments to our operating partnership, we purchased the remaining 2.5% managing equity interest from ALGM I Equity LLC with $1.6 million of the proceeds of our IPO. The results of operations of ALGM have been consolidated in our financial statements subsequent to our IPO.

On January 14, 2005, we closed the acquisition of a portfolio of three net-leased office properties, totaling 257,336 square feet of rentable space in Chatsworth, CA, or the Chatsworth properties, for $63.5 million. The Chatsworth properties are net leased to Washington Mutual Bank under leases that expire in June 2015. We financed the acquisition with a $44 million first mortgage and a $13 million mezzanine loan which was funded by the warehouse provider under the warehouse agreement for CDO III. This mezzanine loan currently constitutes a portion of the portfolio of securities owned by CDO III.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or US GAAP, requires the use of estimates and assumptions that could affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management has identified certain critical accounting policies that affect the more significant judgments and estimates used by management in the preparation of our predecessor's combined financial statements and our consolidated financial statements. Management evaluates on an ongoing basis estimates related to critical accounting policies, including those related to revenue recognition, allowances for doubtful accounts receivable and impairment of investments in uncombined ventures and debt securities available for sale. The estimates are based on information that is currently available to management, as well as on various other assumptions that management believes are reasonable under the circumstances.

Principles of Consolidation

The consolidated financial statements include our accounts and our majority-owned subsidiaries, and interests in variable interest entities where we are deemed the primary beneficiary in accordance with FIN 46R. All significant intercompany balances have been eliminated in consolidation.

Debt Securities Available for Sale

Debt securities available for sale are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. The equity investments in CDO I, CDO II and CDO III are relatively illiquid, and the value of such investments must be estimated by management. Fair value is based primarily upon broker quotes or management's estimates. These estimated values are subject to significant variability based on market conditions, such as interest rates and spreads. Changes in the valuations do not affect reported income or cash flows, but impact stockholders' equity.

Subordinate Real Estate Debt Investments

We must periodically evaluate each of our direct investments in subordinate real estate debt for possible impairment. Impairment is indicated when it is deemed probable that we will be unable to collect all amounts due according to the contractual terms of the loan. Upon a determination of impairment, we would establish a specific valuation allowance with a corresponding charge to earnings. Significant judgment is required both in determining impairment and in estimating the

resulting loss allowance. Allowances for loan investment losses are established based upon a periodic review of the loan investments. Income recognition is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. In performing this review, management considers the estimated net recoverable value of the loan as well as other factors, including the fair market value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the economic conditions in the region where the borrower does business. Because this determination is based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized from the loan investments may differ materially from the carrying value as of the balance sheet date. To date, all of our direct investments in subordinate real estate debt are fully performing and we have determined that no loss allowances have been necessary with respect to the loans.

Revenue Recognition

Our rental revenue from our net lease real estate portfolio is recognized on a straight-line basis over the initial term of the respective leases. The excess of straight-line rents recognized over amounts contractually due pursuant to the underlying leases are included in straight-line unbilled rents receivable in our condensed consolidated balance sheet. Management provides an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent and other payments as due. Additionally, management establishes, on a current basis, an allowance for future tenant credit losses on unbilled rents receivable based upon an evaluation of the collectibility of such amounts. Management is required to make subjective assessments about the collectibility of the deferred rent receivable that in many cases will not be billed to tenants for many years from the balance sheet date. Management's determination is based upon an assessment of credit worthiness of private company tenants for which financial information is not readily available and as such is not subject to precise quantification.

Interest income on our subordinate real estate debt investments is recognized over the life of the investment using the effective interest method and recognized on an accrual basis. Fees received in connection with loan commitments are recognized over the term of the loan as an adjustment to yield. Anticipated exit fees, whose collection is expected, are also recognized over the term of the loan as an adjustment to yield.

Performance-Based Compensation

Our board of directors has adopted the NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan, or the incentive bonus plan, in order to retain and incentivize officers and certain key employees of us, co-employees of us and NorthStar Capital and employees of NorthStar Capital who provide services to us pursuant to the shared facilities and services agreement which we collectively refer to as the eligible participants. As of November 19, 2004, the compensation committee of our board of directors had allocated an aggregate of 665,346 shares of our common stock to certain of the eligible participants as potential awards pursuant to the incentive bonus plan if we achieve the return hurdles established by the compensation committee for the two one-year performance periods beginning October 1, 2005 and October 1, 2006. The compensation committee has established a return hurdle for these performance periods of a 12.5% annual return on paid in capital, as defined in the incentive bonus plan. If we achieve these return hurdles, these awards may be paid in cash, shares of common stock, LTIP units or other shared-based form.

Each of the eligible participants will be entitled to receive half of his or her allocated award if we meet the return hurdle for the one-year period beginning October 1, 2005 and such eligible participant is employed through the end of this first performance period. Each of the eligible participants will be entitled to the other half of his or her total allocated award amount if we meet the return hurdle for the one-year period beginning on October 1, 2006 and such eligible participant is employed through the end of this second performance period. If we do not meet the return hurdle for the one-year

period beginning October 1, 2005, but we meet the return hurdle for the two-year period beginning October 1, 2005 (determined by averaging our performance over the two-year period) and an eligible participant is employed through the end of this two-year period, such eligible participant will be entitled to receive his or her total allocated award amount.

On June 30, 2005, management has made its best estimate of our performance during these two performance periods, based on the facts and information currently available and assumptions regarding the investment of the remaining proceeds of our IPO pursuant to our business strategy and returns on future investments. On the basis of the foregoing, management has estimated that we will not meet the return hurdle in either of these performance periods. If we do not meet the return hurdle during the performance periods, we will not grant any awards under the incentive bonus plan to any of the eligible participants.

Unconsolidated/Uncombined Ventures

Management is required to make subjective assessments as to whether there are impairments in the values of its and our predecessor's investments in unconsolidated/uncombined ventures which are accounted for using the equity method. As no public market exists for these investments, management estimates the recoverability of these investments based on projections and cash flow analysis. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income. The following is a summary of the accounting policies relating to unconsolidated/uncombined ventures that are most affected by judgments, estimates and assumptions.

Subordinate Real Estate Debt Investments. The NSF Venture records the transfer of a participation or sub-participation in a loan investment of the NSF Venture as a sale when the attributes of the transaction meet the criteria for sale of SFAS 140, "Accounting for Transfers of Financial Assets and Extinguishments of Liabilities," including transferring the financial interest beyond the reach of its creditors and placing no substantive restrictions on the resale of the participation or sub-participation by the purchaser.

Revenue Recognition. ALGM was accounted for as an uncombined venture until our purchase of the 2.5% managing membership interest in ALGM on October 29, 2004. Prior to such date, management applied the same revenue recognition policy with respect to properties in the New York property portfolio as described under "— Critical Accounting Policies — Revenue Recognition" above.

RESULTS OF OPERATIONS

Our predecessor's results of operations for the three and six months ended June 30, 2004 are not necessarily indicative of our future results of operations due to the impact of our IPO, the acquisition of additional interests in ALGM and its resulting consolidation, the expansion of our real estate securities and subordinate real estate debt businesses, and our new investments and their related debt financing.

We sold one of the ALGM properties on June 30, 2005 and have classified its operations for 2005 as discontinued operations for the periods ending June 30, 2005 and 2004.

Comparison of the Three Months Ended June 30, 2005 to the Three Months Ended June 30, 2004

Revenues

Rental and escalation income

Rental and escalation income for the three months ended June 30, 2005 totaled $3.3 million representing a $3.3 million increase compared to the three months ended June 30, 2004. The increase was primarily attributable to $1.9 million of rental income from our net lease portfolio (ALGM)

which was accounted for under the equity method of accounting in the three months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005. We also acquired the Chatsworth properties on January 14, 2005, which contributed an additional $1.4 million of rental income.

Advisory and management fee income

Advisory and management fee income totaled $20,000 representing a decrease of $33,000, or 62%, for the three months ended June 30, 2005, compared to the three months ended June 30, 2004, due to a lower average portfolio balance in the second quarter of 2005.

Advisory and management fee income – related parties

Advisory fees from related parties for the three months ended June 30, 2005 totaled $1.1 million representing an increase of approximately $0.5 million, or 93%, compared to the three months ended June 30, 2004. The increase is comprised primarily of $0.3 million of fees each earned from CDO I, CDO II (which closed in July 2004) and CDO III (which closed March 10, 2005). This increase was offset by a decrease in fees earned from the NSF Venture of approximately $0.1 million which was due to a lower average portfolio loan balance for the three months ended June 30, 2005.

Interest income

Interest income for the three months ended June 30, 2005 totaled $10.5 million representing an increase of $10.1 million or 3293% compared to the three months ended June 30, 2004. The increase is attributable to interest on investments, which did not exist in the comparable quarter. The interest income on these investments included $2.6 million of interest income earned from our investments in AAA-rated, short term, floating rate securities, from interest income of approximately $6.0 million on subordinate real estate debt investments, and approximately $1.9 million of interest income from debt securities available for sale which is comprised of (1) approximately $1.5 million from the investments in the equity of our three CDOs, (2) approximately $0.3 million from our "BB" rated junior classes of debt securities and unrated income notes of CDO II and (3) approximately $0.1 million on cash collateralizing our short security sales. For the three months ended June 30, 2004, interest income of $0.3 million was earned from CDO I.

Expenses

Real estate properties – operating expenses

Property operating expenses for the three and months ended June 30, 2005 totaled $0.7 million, representing an increase of $0.7 million compared to the three months ended June 30, 2004. The increase was primarily attributable to $0.5 million of property operating expenses from our net lease portfolio which was accounted for under the equity method of accounting in the three months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005. We also acquired the Chatsworth properties on January 14, 2005 which contributed an additional $0.2 million of property operating expenses.

Interest expense

Interest expense for the three months ended June 30, 2005 totaled approximately $7.0 million, representing an increase of $7.0 million compared to the three months ended June 30, 2004. This increase was primarily attributable to the following: $2.0 million of interest on financing from our investments in AAA-rated, short term, floating rate securities and $0.3 million on our investment in the "BB" rated junior classes of debt securities and unrated income securities of CDO II and interest expense on securities underlying short sales we entered into during 2004, $1.2 million related to our net lease portfolio, $1.9 million on the DBAG facility, $0.6 million relating to issuance of CDO bonds in the second quarter and $1.0 million of interest on liabilities to subsidiary trusts that issued preferred securities in the second quarter.

Management fees – related party

Management fees – related party for the three months ended June 30, 2005 totaled $61,000, representing an increase of $61,000 compared to the three months ended June 30, 2004. The increase was primarily attributable to the net lease portfolio which was accounted for under the equity method of accounting in the three months ended June 30, 2004. ALGM incurred a management fee during the three months ended June 30, 2004 of $128,000. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005.

General and Administrative

General and administrative expenses for the three months ended June 30, 2005 totaled $4.1 million representing an increase of $2.8 million, or 220%, compared to $1.3 million for the three months ended June 30, 2004. The increase is comprised of the following:

Salaries and other compensation (direct and allocated) for the three months ended June 30, 2005 totaled $1.3 million representing an increase of approximately $0.4 million or 38% compared to the three months ended June 30, 2004. The increase is primarily attributable to an increase in salaries due to higher staffing levels to accommodate the expansion of our three businesses subsequent to our IPO.

Shared services – related party for the three months ended June 30, 2005 totaled $0.3 million, representing an increase of approximately $0.3 million compared to the three months ended June 30, 2004. The increase was attributable to the shared facilities and services agreement we entered into with NorthStar Capital on October 29, 2004.

Equity based compensation expense for the three months ended June 30, 2005 totaled $1.0 million, representing an increase of $1.0 million compared to the three months ended June 30, 2004. The increase is attributable to approximately $0.2 million of compensation expense in connection with the buyout of a profits interest (a compensation arrangement) in NS Advisors from one of our employees, and approximately $0.6 million in connection with the three-year vesting of equity based awards issued under our 2004 Omnibus Stock Incentive Plan. In addition, compensation expense of $0.2 million was recognized in connection with a grant of 15,194 shares to our Board of Directors on June 24, 2005.

Insurance (direct and allocated) for the three months ended June 30, 2005 totaled $217,000 representing an increase of $120,000 or 124% compared to the three months ended June 30, 2004. The increase was attributable to the directors and officers policies we acquired subsequent to the IPO.

Accounting and auditing fees for the three months ended June 30, 2005 totaled $0.3 million representing an increase of $0.3 million compared to the three months ended June 30, 2004. The increase is attributable to services provided in 2005, including quarterly review and compliance work during the three months ended June 30, 2005. Our predecessor did not incur similar accounting and auditing fees during the three months ended June 30, 2004.

Other general and administrative expenses (direct and allocated) for the three months ended June 30, 2005 totaled $1.0 million representing an increase of approximately $0.8 million, or 287%, compared to the three months ended June 30, 2004. This increase is primarily attributable to legal costs of $244,000 associated with general corporate matters, consulting fees of $170,000 associated with periodic reporting obligations, various public company expenses of $110,000, and public relations costs of $30,000.

Depreciation and amortization

Depreciation and amortization expense for the three months ended June 30, 2005 totaled $1.0 million representing an increase of $1.0 million compared to the three months ended June 30, 2004. The increase was primarily attributable to $0.5 million from our net lease portfolio which was accounted for under the equity method of accounting for the three months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly

the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005. We also acquired the Chatsworth properties on January 14, 2005 which contributed an additional $0.5 million of depreciation and amortization expense.

Equity in earnings of unconsolidated/uncombined ventures

Equity in earnings for the three months ended June 30, 2005 totaled $60,000 representing a decrease of $432,000 or 88% compared to the three months ended June 30, 2004. The decrease was attributable to the decrease in the equity in earnings of the NSF Venture of approximately $0.1 million due to a lower average portfolio loan balance in 2005 and a decrease of $0.3 million from our net lease portfolio which was accounted for under the equity method of accounting in 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005.

Unrealized gain (loss) on investments and other

Unrealized gain (loss) on investments and other increased by $0.2 million for the three months ended June 30, 2005 compared to the three months ended June 30, 2004. Unrealized losses on investments for the three months ended June 30, 2005 of approximately $0.5 million consisted of an unrealized gain on the CDO V warehouse agreement of approximately $0.2 million which was offset by $0.5 million and $0.1 million of unrealized losses on short sales of securities and short term investments, respectively. Unrealized losses on investments of $0.3 million for the three months ended June 30, 2004 related to the CDO II warehouse agreement. Unrealized gain(loss) on investments relating to each of these CDO warehouse agreements represent the changes in fair value of each warehouse agreement during the portion of the warehouse term in the financial reporting period.

Realized gain (loss) on investments and other

Realized gain (loss) on investments and other for the three months ended June 30, 2005 totaled approximately $0.1 million representing an increase of $0.1 million compared to the three months ended June 30, 2004. The increase is attributable to realized losses of $0.1 million related to the sale of a portion of our investments in AAA-rated, short term, floating rate securities.

Income (loss) from discontinued operations, net of minority interest

We sold our interest in 729 Seventh Avenue ("729"). Accordingly, the property's operations were reclassified to Income (loss) from discontinued operations. This property was accounted for under the equity method of accounting for the three months ended June 30, 2004, as part of net lease portfolio. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005.

Gain on Sale from discontinued operations, net of minority interest

We sold our interest in 729 for $29 million, recognizing a gain on sale, net of minority interest of $8.6 million for the three months ended June 30, 2005.

Comparison of the Six Months Ended June 30, 2005 to the Six Months Ended June 30, 2004

Revenues

Rental and escalation income

Rental and escalation income for the six months ended June 30, 2005 totaled $6.4 million representing, a $6.4 million increase compared to the six months ended June 30, 2004. The increase was primarily attributable to $3.7 million from our net lease portfolio (ALGM) which was accounted

for under the equity method of accounting in the six months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005. We also acquired the Chatsworth properties on January 14, 2005, which contributed an additional $2.7 million of rental income.

Advisory and management fee income

Advisory and management fee income decreased by $37,000, or 34%, to $71,000 for the six months ended June 30, 2005, compared to the six months ended June 30, 2004, due to a lower average portfolio balance in 2005.

Advisory and management fee income – related parties

Advisory fees from related parties for the six months ended June 30, 2005 totaled $2.1 million, representing an increase of approximately $0.9 million, or 75%, compared to the six months ended June 30, 2004. The increase is comprised primarily of $0.7 million of fees earned for CDO II (which closed in July 2004) and $0.4 million of fees earned for CDO III (which closed March 10, 2005). This increase was offset by a decrease in fees earned from the NSF Venture of approximately $0.2 million, which was due to a lower average portfolio loan balance for the six months ended June 30, 2005.

Interest income

Interest income for the six months ended June 30, 2005 totaled $18.4 million representing an increase of $17.8 million compared to the six months ended June 30, 2004. The increase is attributable to interest on investments, which did not exist in the comparable period. The interest on these investments included $6.6 million of interest income earned from our investments in AAA-rated, short term, floating rate securities, approximately $8.6 million on subordinate real estate debt investments, and approximately $3.1 million of interest income from debt securities available for sale which is comprised of (1) approximately $2.4 million from the investments in the equity of our three CDOs, (2) approximately $0.6 million from our "BB" rated junior classes of debt securities and unrated income notes of CDO II and (3) approximately $0.1 million on cash collateralizing our short security sales. For the six months ended June 30, 2004, interest income of $0.6 million was earned from CDO I.

Expenses

Real estate properties – operating expenses

Property operating expenses for the six months ended June 30, 2005 totaled $1.5 million, representing an increase of $1.5 million compared to the six months ended June 30, 2004. The increase was primarily attributable to $1.1 million of property operating expenses from our net lease portfolio which was accounted for under the equity method of accounting in the six months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005. We also acquired the Chatsworth properties on January 14, 2005 which contributed an additional $0.4 million of property operating expenses.

Interest expense

Interest expense for the six months ended June 30, 2005 totaled approximately $12.9 million, representing an increase of $12.9 million compared to the six months ended June 30, 2004. This increase was primarily attributable to the following $5.6 million of interest on financing from our investments in AAA-rated, short term, floating rate securities, approximately $0.5 million on our investment in the "BB" rated junior classes of debt securities and unrated income securities of CDO II and on securities underlying short sales we entered into during 2004, $2.4 million related to our net lease portfolio, $2.9 on the DBAG Facility, approximately $0.6 million on CDO IV, and approximately $1.0 million on liabilities to subsidiary trusts that issued preferred securities in the second quarter.

Management fees – related party

Management fees – related party for the six months ended June 30, 2005 totaled $118,000, representing an increase of $118,000 compared to the six months ended June 30, 2004. The increase was primarily attributable to the net lease portfolio which was accounted for under the equity method of accounting in the six months ended June 30, 2004. ALGM incurred a management fee during the six months ended June 30, 2004 of $258,000. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005.

General and Administrative

General and administrative expenses for the six months ended June 30, 2005 totaled $8.8 million, representing an increase of $6.1 million, or 228%, compared to $2.7 million for the six months ended June 30, 2004. The increase is comprised of the following:

Salaries and other compensation (direct and allocated) for the six months ended June 30, 2005 totaled $2.5 million, representing an increase of approximately $0.7 million, or 38%, compared to the six months ended June 30, 2004. The increase is primarily attributable to an increase in salaries due to higher staffing levels to accommodate the expansion of our three businesses subsequent to our IPO.

Shared services – related party for the six months ended June 30, 2005 totaled $0.7 million, representing an increase of approximately $0.7 million compared to the six months ended June 30, 2004. The increase was attributable to the shared facilities and services agreement we entered into with NorthStar Capital on October 29, 2004.

Equity based compensation expense for the six months ended June 30, 2005 totaled $1.8 million, representing an increase of $1.8 million compared to the six months ended June 30, 2004. The increase is attributable to approximately $0.4 million of compensation expense in connection with the buyout of a profits interest (a compensation arrangement) in NS Advisors from one of our employees, and approximately $1.2 million in connection with the three-year vesting of equity based awards issued under our 2004 Omnibus Stock Incentive Plan. In addition, compensation expense of $0.2 million was recognized in connection with a grant of 15,194 shares to our Board of Directors on June 24, 2005.

Insurance (direct and allocated) for the six months ended June 30, 2005 totaled $430,000 representing an increase of $235,000 or 121% compared to the six months ended June 30, 2004. The increase was attributable to the directors and officers policies we acquired subsequent to the IPO.

Accounting and auditing fees for the six months ended June 30, 2005 totaled $1.3 million, representing an increase of $1.3 million compared to the six months ended June 30, 2004. The increase is attributable to 2004 audit fees, the first quarter review performed by our auditors and compliance work during the six months ended June 30, 2005. Our predecessor did not incur similar accounting and auditing fees during the six months ended June 30, 2004.

Other general and administrative expenses (direct and allocated) for the six months ended June 30, 2005 totaled $2.0 million, representing an increase of approximately $1.4 million, or 223%, compared to the six months ended June 30, 2004. This increase is primarily attributable to legal costs of $0.5 million associated with general corporate matters, consulting fees of approximately $0.4 million associated with year end and periodic reporting obligations, recruiting fees of approximately $55,000 and various public company expenses of $124,000, and public relations costs of $60,000.

Depreciation and amortization

Depreciation and amortization expense for the six months ended June 30, 2005 totaled $2.0 million, representing an increase of $2.0 million compared to the six months ended June 30, 2004. The increase was primarily attributable to $0.9 million from our net lease portfolio which was accounted for under the equity method of accounting for the six months ended June 30, 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in

2005. We also acquired the Chatsworth properties on January 14, 2005, which contributed an additional $1.0 million of depreciation and amortization expense and $0.1 million related to the amortization of the intangible assets.

Equity in earnings of unconsolidated/uncombined ventures

Equity in earnings for the six months ended June 30, 2005 totaled $106,000, representing a decrease of $758,000, or 88%, compared to the six months ended June 30, 2004. The decrease was attributable to the decrease in the equity in earnings of the NSF Venture of approximately $0.1 million due to a lower average portfolio loan balance in 2005 and a decrease of $0.6 million from our net lease portfolio which was accounted for under the equity method of accounting in 2004. We acquired the 2.5% managing interest in the net lease portfolio on October 29, 2004 and accordingly the operations of these properties have been consolidated into the condensed consolidated financial statements in 2005.

Unrealized gain (loss) on investments and other

Unrealized gain (loss) on investments and other decreased by approximately $0.2 million, or 23%, from $0.7 million for the six months ended June 30, 2005, compared to the six months ended June 30, 2004. Unrealized gains on investments of approximately $0.5 million consisted of unrealized gains of $0.7 million on the CDO III warehouse agreement and approximately $0.2 million on the CDO V warehouse agreement, offset by $0.3 million of unrealized combined losses on short sales of securities and short term investments. Unrealized gains on investments of $0.7 million for the six months ended June 30, 2004 related to the CDO II warehouse agreement. Unrealized gains on investments relating to each of these CDO warehouse agreements represent the changes in fair value of each warehouse agreement during the portion of the warehouse term in the financial reporting period.

Realized gain (loss) on investments and other

Realized gain (loss) on investments and other for the six months ended June 30, 2005 totaled $0.5 million, representing an increase of $0.5 million compared to the six months ended June 30, 2004. The increase is attributable to realized gains of $0.7 million, representing the increase in fair value of the CDO III warehouse agreement through March 10, 2005, when the warehouse agreement was terminated and the assets of the warehouse were transferred to CDO III. This increase was offset by a $0.2 million loss related to the sale of a portion of our investments in AAA-rated, short term, floating rate securities.

Income (loss) from discontinued operations, net of minority interest

Gain on Sale from discontinued operations, net of minority interest

We sold our interest in 729 for $29 million, recognizing a gain on sale, net of minority interest of $8.6 million for the six months ended June 30, 2005.

Liquidity and Capital Resources

As of June 30, 2005, we had an unrestricted cash and cash equivalents balance of $36.9 million. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid

federal income tax and the nondeductible excise tax. We believe that our unrestricted cash balances together with the available borrowing capacity under both the DBAG Facility and Wachovia credit facility described below, the net proceeds realized from the private placement of $65 million of trust preferred securities, completed in April and May 2005, cash flow provided from our operations, will be sufficient to allow us to fund the equity portion of our new investments, make distributions necessary to enable us to continue to qualify as a REIT and fund our operations for at least the next 12 months. In order to fund investments that we may make in the next 12 months, we may borrow additional funds under our current credit facilities, issue debt securities or by raising equity capital.

We expect to meet our long term liquidity requirements, including the repayment of debt and our investment funding needs, through existing cash resources and additional borrowings, the issuance of debt and/or equity securities and the liquidation or refinancing of assets at maturity. We believe that the value of the net lease portfolio is, and will continue to be, sufficient to allow us to refinance the mortgage debt on this portfolio at maturity.

Debt Obligations

As of June 30, 2005, we had the following debt outstanding:


	Carrying Amount at 6/30/05 (in thousands)		Stated Maturity	Interest Rate	Weighted Average Expected Life (in years)
Mortgage notes payable (ALGM) (non-recourse)	$	14,673	1/1/2006	The greater of LIBOR or 2% + 3.60%	1.0
Mortgage notes payable (Chatsworth) (non-recourse)		43,904	5/1/2015	5.65%	11.0
Mezzanine loan payable (Chatsworth) (non-recourse)		13,000	5/1/2014	6.64%	10.0
Repurchase obligations		218,912	See Repurchase Obligations below	LIBOR + 0.6% to 1.25%	Various, generally 30 days
CDO Bonds Payable		300,000	7/1/2040	LIBOR + 0.62% (Average Spread)	—
Liability to subsidiary trusts issuing preferred securities Trust I		41,240	3/30/2035	8.15%	—
Trust II		25,780	6/30/2035	7.74%	—
WA Temporary Repurchase Agreement		21,884	7/13/2005	LIBOR + 2.25%	30 days
DBAG facility		—	12/21/2007	LIBOR + 0.75% to 2.25%	3.0
	$	679,393

ALGM Mortgage Loan. The ALGM mortgage loan bears interest at the higher of one-month LIBOR or 2%, plus a spread of 3.60%, or an aggregate of 6.725% at June 30, 2005. The loan originally matured on January 1, 2005 and was extended until January 1, 2006. This non-recourse loan may be extended at ALGM's option for two additional one-year extension periods, subject to ALGM satisfying certain conditions provided for under the loan, including payment of a fee equal to 0.75% of the loan balance as a condition to exercising the second and third extension options. The ALGM mortgage loan agreement includes the following financial covenants and restrictions: (a) ALGM must maintain a debt service coverage ratio in excess of 1.15 to 1, computed using an annual interest rate of 10.09%, and (b) ALGM must establish and maintain certain escrow reserve accounts for, among other things, payment of real estate taxes, capital expenditures and tenant rollover costs. ALGM is

uncombined in our predecessor's financial statements as of June 30, 2004 and is consolidated in our financial statements at June 30, 2005 and December 31, 2004.

Chatsworth Mortgage Loan. The Chatsworth Mortgage matures on May 1, 2015 and bears interest at a fixed rate of 5.65%. This non-recourse loan requires monthly payments of $230,906 representing interest in arrears and principal sufficient to amortize the loan to a balance of approximately $40.5 million at maturity, as well as monthly escrow deposits for ground lease payments required under the ground lease for the leasehold property.

Chatsworth Mezzanine Loan. This non-recourse loan bears interest at a fixed rate of 6.64%, and requires monthly payments of interest only of $71,955 for the period February 1, 2005, through February 1, 2006, and principal and interest payments of $170,914, thereafter, which will fully amortize the loan by the maturity date of May 1, 2014.

Repurchase Obligations. Our temporary investments, which are primarily AAA-rated, short term, floating rate securities, backed by commercial or residential mortgage loans, were financed with repurchase agreements with Citigroup and Greenwich Capital Markets, Inc. We initially borrowed approximately $1.25 billion under repurchase agreements, of which $207.3 million was outstanding at June 30, 2005, approximately $172.2 million with Citigroup and $35.1 million with Greenwich. These repurchase obligations mature every 30 days.

The balance represents a repurchase agreement with Citigroup which was used to finance the acquisition of the "BB" rated junior classes of debt securities of CDO II. The debt matures on July 21, 2006 and bears interest at LIBOR plus 1.25% per annum.

DBAG Facility and CDO Bonds payable. On December 21, 2004, NRFC DB Holdings, LLC, one of our subsidiaries, entered into a $150 million master repurchase agreement with Deutsche Bank AG, Cayman Islands Branch, which we refer to as the DBAG facility. On March 21, 2005, the DBAG facility was amended and restated to allow NRFC DB Holdings to borrow up to $300 million in order to finance the acquisition of primarily subordinate real estate debt and other real estate loans and securities. The additional capacity and flexibility under the amendment of the DBAG facility allowed us to accumulate sufficient collateral for CDO IV, and to continue to finance other investments.

On June 14, 2005, we closed CDO IV and issued $300 million face amount of the CDO Bonds which were sold in a private placement to third parties. The proceeds of the CDO IV issuance were used to repay the entire outstanding principal balance of the DBAG Facility of $233.6 million at closing. The availability under the DBAG facility was reduced to $150 million subsequent to the closing of CDO IV.

The DBAG facility has an initial three-year term, which may be extended for one additional year if NRFC DB Holdings is not in default and pays an extension fee of 0.25% of the aggregate outstanding amount under the facility. If NRFC DB Holdings extends the term of the facility, it will be required to retire 25% of the aggregate outstanding amount each quarter during the remaining year of the term.

Under the terms of the DBAG facility, NRFC DB Holdings is able to finance the acquisition of mortgage loans secured by first liens on commercial or multifamily properties, junior participation interests in mortgage loans secured by first or second liens on commercial or multifamily properties, mezzanine loans secured by a pledge of the entire ownership interest in a commercial or multifamily property, B or higher rated commercial mortgage backed securities and BB or higher rated real estate CDOs, debt securities issued by a REIT and syndicated bank loans.

During the period from March 21, 2005 through June 14, 2005, amounts advanced under the DBAG facility in order to finance the acquisition of assets that were included in CDO IV bore interest at one-month LIBOR plus a spread of 1.00% and amounts advanced for all other assets bore interest at one-month LIBOR plus a spread which ranges from 0.75% to 2.25%. After June 14, 2005, all amounts advanced under the amended DBAG facility will bear interest at a rate of one-month LIBOR plus the spread which ranges from 0.75% to 2.25%. Assets will be financed at advance rates ranging from 40% to 92.5% of the value of the assets as applicable to the asset category.

Effective April 1, 2005, the covenants under the DBAG facility require us to remain at a certain minimum tangible net worth, a certain minimum debt service coverage ratio, a certain range of ratios of recourse indebtedness to net worth and certain minimum amounts of cash or marketable securities based on our ratio of recourse indebtedness to net worth.

The debt that may be outstanding under the DBAG facility is subject to a number of terms, conditions and restrictions including, without limitation, the maintenance of certain margin percentages on amounts outstanding under the facility. If the market value of an asset securing the outstanding debt declines, cash flow due NRFC DB Holdings may be suspended and if market value continues to decline, NRFC DB Holdings may be required to satisfy a margin call by paying cash or providing additional collateral. Failure to meet any margin call could result in an event of default which would enable Deutsche Bank AG to exercise various rights and remedies including acceleration of the maturity date of the debt outstanding under the DBAG facility or the sale of the assets financed thereunder.

As of June 30, 2005, NRFC DB Holdings had no borrowings under this facility.

Wachovia Temporary Repurchase Agreement

On June 21, 2005, we entered into a temporary repurchase agreement with Wachovia Bank, National Association, to temporarily finance the acquisition of loan participation interests until the Wachovia Master Repurchase agreement was closed. We borrowed approximately $21.9 million under the temporary repurchase agreement. The advance bears interest at LIBOR plus 2.25%. The temporary repurchase agreement matured at the closing of the Wachovia credit facility, described below, on July 13, 2005 and the principal balance outstanding was rolled into that facility.

Liability to subsidiary trusts issuing preferred securities

On April 12, 2005 and May 25, 2005, NorthStar Realty Finance Trust and NorthStar Realty Finance Trust II, (the "Trusts") sold, in two private placements, trust preferred securities for an aggregate amount of $40 million and $25 million, respectively. We own all of the common stock of the Trusts. The Trusts used the proceeds to purchase the Company's junior subordinated notes due March 30, 2035 and June 30, 2035, respectively, which represent all of the Trusts' assets. The terms of the junior subordinated notes are substantially the same as the terms of the trust preferred securities. The trust preferred securities have a fixed interest rate of 8.15% and 7.74% per annum, respectively, during the first ten years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum.

We may redeem the notes, in whole or in part, for cash, at par, after March 30, 2010 and June 30, 2010, respectively. To the extent we redeem the notes, the Trusts are required to redeem a corresponding amount of trust preferred securities.

The ability of the Trusts to pay dividends depends on the receipt of interest payments on the notes. We have the right, pursuant to certain qualifications and covenants, to defer payments of interest on the notes for up to six consecutive quarters. If payment of interest on the notes is deferred, the Trust will defer the quarterly distributions on the trust preferred securities for a corresponding period. Additional interest accrues on deferred payments at the annual rate payable on the notes, compounded quarterly.

The indenture for NorthStar Realty Finance Trust II, has certain covenants that are substantially similar to those under the DBAG Facility, and certain restrictions on issuing additional trust preferred securities. At June 30, 2005, we were in compliance with all covenants under Trust II.

Capital Expenditures

During 2005, we expect to incur approximately $150,000 in connection with new tenant leasing costs and capital expenditures with respect to the net lease portfolio owned by ALGM. We anticipate the sources of funds for these expenditures to be from our working capital and lender reserves.

Other Investment Activity

Warehouse Agreement CDO V

On May 4, 2005, we entered into a warehouse arrangement with a major commercial bank whereby the bank has agreed to purchase up to $400 million of CMBS and other real estate debt securities under our direction, with the expectation of selling such securities to our fourth investment grade CDO issuer ("CDO V"). We were required to pledge up to $10 million as security for the purpose of covering a portion of any losses or costs associated with the accumulation of these securities under the warehouse agreement. As of June 30, 2005, we have deposited $12.5 million and will be required to deposit additional equity based on accumulations of securities that will be made under the warehouse agreement. The bank has accumulated approximately $238.0 million of real estate securities under the terms of the warehouse agreement as of June 30, 2005. From June 30, 2005 through August 9, 2005, we have acquired approximately $104.0 million in additional real estate securities. The CDO V warehouse agreement also provides for our notional participation in the income that the assets generate after deducting a notional debt cost. The agreement is being treated as a non-hedge derivative for accounting purposes and is marked-to-market through income. We recorded an unrealized gain of $0.2 million for the three and six months ended June 30, 2005 related to the change in fair value of the warehouse agreement. The collateral being accumulated under this agreement is expected to be included in a securitization transaction in which we would acquire all of the equity interests.

Cash Flows

The net cash flow provided by operating activities of $610.1 million, increased for the six months ended June 30, 2005 from $1.0 million of cash provided by operations for the six months ended June 30, 2004 which was primarily due to sales of short term highly liquid investments included in operating activities, where the corresponding repayment of short term repurchase financing is included in financing activities. Adjusting for the effect of these sales, cash provided from operating activities would have decreased by $4.8 million to cash used in operating activities from 2004 to 2005.

The net cash flow used in investing activities increased by $425.2 million for the six months ended June 30, 2005 from $1.2 million for the six months ended June 30, 2004. Net cash used in investing activities in 2005 consisted primarily of the purchase of operating real estate, funds used to purchase our interest in the unrated income notes and the "BB" rated notes of CDO III, as well as purchases of subordinate real estate debt investments.

The net cash flow used in financing activities increased by $194.6 million for the six months ended June 30, 2005 to $194.5 million from $0.1 million of cash flow provided by financing activities for the six months ended June 30, 2004. The primary use of cash flow in financing activities in 2005 was for the repayment of our repurchase agreements which financed our short term, highly liquid investments, the repayment of the DBAG facility in connection with the closing of CDO IV, the repayment of $25.1 million of the existing mortgage on the ALGM portfolio in connection with the sale of 729 and payment of dividends and distributions to our unit holders of $4.0 million. This was offset by proceeds from the issuance of CDO IV bonds, issuance of Trust I and Trust II preferred securities and our mortgage borrowings.

Recent Developments

New Facility – Wachovia

On July 13, 2005, NRFC WA Holdings, LLC or NRFC WA, our subsidiary, entered into a master repurchase agreement with Wachovia Bank, National Association or Wachovia Bank. NRFC WA may borrow up to $150 million (the "WA Facility") (which maximum borrowing amount may be increased to $300 million in Wachovia Bank's sole discretion) under this credit facility in order to finance the acquisition of first priority mortgage loans, senior or junior participation interests or B notes in first

priority mortgage loans, mezzanine loans secured by commercial and multi-family properties and commercial properties in which the property is 100% leased under a credit tenant lease to, or guaranteed in full by, a credit tenant and B- or higher rated CMBS.

Advance rates under the WA Facility range from 55% to 95% of the value of the assets for which the advance is made. Amounts borrowed under the facility bear interest at one-month LIBOR plus a spread which ranges from 0.20% to 3.00%, depending on the type of asset for which the amount is borrowed. The facility has an initial term of three years and an initial maturity date of July 12, 2008. In addition, NRFC WA must pay an unused facility fee equal to 0.25% of the unused portion of the facility, commencing 120 days after July 13, 2005, payable quarterly in arrears. We have agreed to guaranty amounts borrowed by NRFC WA under the facility up to a maximum of $20 million.

NRFC WA paid Wachovia Bank a $750,000 structuring fee in connection with the execution of this facility.

As of July 15, 2005, NRFC WA has not borrowed any amounts under this facility.

Subordinate Real Estate Debt Investments

The following investments were acquired subsequent to June 30, 2005:

Date of
Acquisition

Loan
Name/Collateral

Loan Type

Principal
Amount
(in thousands)

Initial
Maturity

Interest Rate
Index and
Spread

7/01/05

Office Building

Junior
Participation

4,250

1/2007

LIBOR +
2.50%

7/01/05

Office Building

Mezzanine
Loan

5,000

1/2007

LIBOR +
5.00%

7/15/05

Office Building

Junior
Participation

10,000

7/2007

LIBOR +
7.00%

8/1/05

Multifamily

Junior
Participation

35,000

8/2007

LIBOR +
5.25%

Total

54,250

These investments were acquired as part of the ramp-up of CDO IV.

Salt Lake City Property

On August 2, 2005, we closed a $22.0 million acquisition of a 117,553 square foot office building in Salt Lake City, Utah, which is 100% leased to the General Services Administration under a lease that expires in April 2012. The property is financed with a 5.16% fixed rate, seven year non-recourse first mortgage loan of $17 million.

Dividends

On July 28, 2005, we declared a cash dividend of $0.15 per share of common stock. The dividend is expected to be paid on August 15, 2005 to the shareholders of record as of the close of business on August 8, 2005.

Related Party Transactions

Advisory Fee — NorthStar Funding LLC

In 2001, our predecessor entered into an advisory agreement with the NSF Venture, pursuant to which it receives as compensation for its management of investments of the NSF Venture an advisory fee equal to 1% per annum of the capital invested by the NSF Venture. Additionally, NorthStar Funding Managing Member LLC is entitled to an incentive profit participation equal to 10% of the profit after a minimum required return on the NSF Venture's capital and a return of and on capital based upon the operating performance of the NSF Venture's investments. Prior to the contribution of the initial investments to our operating partnership and the related IPO transactions, NorthStar Funding Managing Member LLC received 75% of this incentive profit participation equal to 10% of the profit after a minimum required return on NSF Venture's capital and a return of and on capital based on the operating performance of the NSF Venture's investments. We earned and recognized advisory fees from the NSF Venture of approximately $109,000 and $300,000 for the three and six months ended June 30, 2005. Our predecessor earned and recognized advisory fees from the NSF Venture of approximately $240,000 and $493,000 for the three and six months ended June 30, 2004. We have received combined profit participation distributions of $925,000 during the six months ended June 30, 2005. Because such distributions may have to be refunded, no profit participation distributions were recognized as income pursuant to Method 1 of Emerging Issues Task Force Topic D-96.

Advisory and Management Fee Income

In August 2003, July 2004, March 2005 and June 2005, CDO I, CDO II, and CDO III, respectively, entered into agreements with NS Advisors, to perform certain advisory services. We earned total fees of approximately $1,019,000 and $1,770,000 for the three and six months ended June 30, 2005. Our predecessor earned total fees of approximately $344,000 and $689,000 for the three and six months ended June 30, 2004. The unpaid advisory fees of $570,000 and $82,000 are included in due from affiliates in our condensed consolidated balance sheets as of June 30, 2005 and December 31, 2004. We also earned a structuring fee of $500,000 in connection with the closing of CDO III for the six months ended June 30, 2005, which was used to reduce our investment in debt securities available for sale.

ALGM

On December 28, 2004, we terminated the asset management agreement with Emmes Asset Management Co. LLC, an affiliate of NorthStar Capital, for a contractual termination payment of approximately $380,000, which is equal to two quarters of payments of the annual fee of $760,000. On that date, ALGM and Emmes entered into a new asset management agreement which is cancelable on 30 days notice by ALGM. The annual asset management fee under the new agreement is equal to 3.5% of gross collections from tenants of the properties not to exceed $350,000 or be less than $300,000 per year, subject to certain provisions. Total fees incurred under the asset management agreement were $61,000 and $118,000 for the three and six months ended June 30, 2005.

Shared Facilities and Services Agreement

Upon consummation of our IPO, we entered into a one-year agreement with NorthStar Capital pursuant to which NorthStar Capital agreed to provide us, directly or through its subsidiaries, with the following facilities and services: 1) fully-furnished office space for our employees at NorthStar Capital's corporate headquarters; 2) use of common facilities and office equipment, supplies and storage space at NorthStar Capital's corporate headquarters; 3) accounting support and treasury functions; 4) tax planning and REIT compliance advisory services; and 5) other administrative services. For the initial one year term of the agreement, NorthStar Capital agreed to provide these facilities and services to us for an annual fee of approximately $1.57 million, payable in monthly installments, plus additional charges for out-of-pocket expenses and taxes. This fee is subject to reduction by the amount that we pay certain full-time employees of NorthStar Capital who became our co-employees upon consummation of our IPO, including Mr. McCready, our general counsel and secretary.

After the initial one-year term of the agreement, we may elect to discontinue receiving any of the facilities or services set forth above upon 90 days written notice by us to NorthStar Capital. NorthStar Capital may discontinue providing a particular service to us upon 90 days written notice to us stating that NorthStar Capital intends to discontinue permanently the provision of that service to its own internal organizations. NorthStar Capital may also discontinue providing office facilities to us upon 180 days written notice to us. In any of these cases, a reduction corresponding to the portion of the fee discussed above that relates to the discontinued facility or service will be made.

The agreement is renewable for additional one-year periods upon the mutual agreement of NorthStar Capital and us, together with a vote of the majority of our independent directors.

Total fees and expenses incurred by us under the shared facilities and services agreement amounted to $0.3 million and $0.6 million for the three and six months ended June 30, 2005.

Contractual Commitments

As of June 30, 2005, we had the following contractual commitments and commercial obligations (in thousands):


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Mortgage loan – ALGM	$	14,673	$	14,673	$	—	$	—	$	—
Mortgage loan – Chatsworth		43,904		127		558		619		42,600
Mezzanine loan payable – Chatsworth		13,000		—		2,309		2,859		7,832
Repurchase agreements		218,912		218,912		—		—		—
Securities sold, not yet purchased		13,081		13,081		—		—		—
CDO bonds payable		300,000		—		—		—		300,000
Liability to subsidiary trusts issuing preferred securities		67,020		—		—		—		67,020
WA Temporary Repurchase Agreement		21,884		21,884		—		—		—
Capital leases ⁽¹⁾		17,954		176		712		934		16,132
Operating leases		13,845		414		1,104		944		11,383
Total contractual obligations	$	724,273	$	269,267	$	4,683	$	5,356	$	444,967


⁽¹⁾	Includes interest on the capital leases

Off Balance Sheet Arrangements

As of June 30, 2005, we had the material off balance sheet arrangements described below.

We have provided an indemnity to NorthStar Partnership for any liability it may have under its limited guaranties to the lender under ALGM's mortgage loan. At June 30, 2005, NorthStar Partnership had a maximum exposure of $14.7 million under its guaranty to Greenwich Capital for such triggering events as fraud, misapplication of funds and failure to pay taxes. NorthStar Partnership also provided Greenwich Capital with a limited repayment guaranty that may be triggered by the termination of a lease related to one of the properties in the New York property portfolio. The maximum exposure for such lease termination was equal to $2.5 million at June 30, 2005.

Our potential losses in CDO I, CDO II and CDO III are limited to our aggregate carrying value which was approximately $74.4 million at June 30, 2005.

The terms of the portfolio of real estate securities held by CDO I, CDO II and CDO III are matched with the terms of the non-recourse CDO liabilities. These CDO liabilities are repaid with the proceeds of the principal payments on the real estate securities collateralizing the CDO liabilities

when these payments are actually received. There is no refinancing risk associated with the CDO liabilities, as principal is only due to the extent that it has been collected on the underlying real securities and the stated maturities are noted above. CDOs produce a relatively predictable income stream based on the spread between the interest earned on the underlying securities and the interest paid on the CDO liabilities. This spread may be reduced by credit losses on the underlying securities or by hedging mismatches. CDO I, CDO II and CDO III have not incurred any losses on any of their securities investments from the date of purchase through June 30, 2005. We receive quarterly cash distributions from CDO I and monthly cash distributions from CDO II and CDO III, each representing our proportionate share of the residual cash flow from the CDOs, as well as collateral advisory fees and interest income on the unrated income notes of CDO II and CDO III. Our residual interests in the cash flows of CDO I, CDO II and CDO III are accounted for as debt securities pursuant to Emerging Issues Task Force Topic 99-20.

The following table describes certain terms of the collateral for and the notes issued by CDO I, CDO II and CDO III as of June 30, 2005:


	CDO Collateral							CDO Notes
	Par Value of CDO Collateral (in thousands)		Weighted Average Interest Rate			Weighted Average Expected Life (years)		Outstanding CDO Notes (in thousands) ⁽¹⁾		Weighted Average Interest Rate			Stated Maturity
CDO I	$	356,010		6.57	%		6.70	$	336,800		6.03	%		8/1/2038
CDO II	$	397,825		6.11	%		7.47	$	360,930		5.37	%		6/1/2039
CDO III	$	400,856		6.12	%		7.00	$	361,000		3.37	%		6/1/2040


⁽¹⁾	Includes only notes held by third parties.

CDO I, CDO II and CDO III are variable interest entities. However, management has determined that we are not, and our predecessor was not, the primary beneficiary of CDO I, CDO II or CDO III and as such, in accordance with FIN 46R, we did not consolidate CDO I, CDO II or CDO III. The FASB has continued to discuss potential refinements to FIN 46R associated with, among other things, the types of interests which create variability and which type of interests absorb income and loss variability, and how such income and loss variability should be measured. In the event that the FASB modifies its interpretation of FIN 46R as it applies to the consolidation of variable interest entities, we would reevaluate our determination of the primary beneficiary. Depending on the modifications which are made, it is possible that the Company may be required to consolidate our interests in our CDOs in the future.

At this time, we do not anticipate a substantial risk of incurring a loss with respect to any of the arrangements described above.

Inflation

Our leases for tenants of ALGM are either:


•	net leases where the tenants are responsible for all real estate taxes, insurance and operating expenses and the leases provide for increases in rent either based on changes in the Consumer Price Index (CPI) or pre-negotiated increases; or


•	operating leases which provide for separate escalations of real estate taxes and operating expenses over a base amount, and/or increases in the base rent based on changes in the CPI.

We believe that inflationary increases in expenses will generally be offset by the expense reimbursements and contractual rent increases described above to the extent of occupancy.

We believe that the risk associated with an increase in market interest rates on the floating rate debt used to finance our investments in CDO I, CDO II, CDO III, ALGM, and our direct investments in subordinate real estate debt, is largely offset by our strategy of matching the terms of our assets with the terms of our liabilities and through our use of hedging instruments.

Funds from Operations and Adjusted Funds from Operations

Management believes that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. We calculate AFFO by subtracting from (or adding) to FFO:


•	normalized recurring expenditures that are capitalized by us and then amortized, but which are necessary to maintain our properties and revenue stream, e.g., leasing commissions and tenant improvement allowances;


•	an adjustment to reverse the effects of straight-lining of rents; and


•	the amortization or accrual of various deferred costs including intangible assets and equity based compensation.

Our calculation of AFFO differs from the methodology for calculating AFFO utilized by certain other REITs and, accordingly, may not be comparable to such other REITs.

We believe that FFO and AFFO are additional appropriate measures of our operating performance because they facilitate an understanding of our operating performance after adjustment for certain non-cash expenses, such as real estate depreciation, which assumes that the value of real estate assets diminishes predictably over time. Since FFO is generally recognized as industry standards for measuring the operating performance of an equity REIT, we also believe that FFO provides investors with an additional useful measure to compare our financial performance to other REITs.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Set forth below is a reconciliation of our calculations of FFO and AFFO to net income before minority interests for the three and six months ended June 30, 2005:


	Three Months			Six Months
	Ended June 30, 2005
Funds from Operations:
Income before minority interests	$	1,453,000		$	2,895,000
Adjustments:
Depreciation and amortization		1,046,000			1,984,000
Real estate depreciation and amortization — unconsolidated ventures		—			—
Funds from Operations	$	2,499,000		$	4,879,000
Adjusted Funds from Operations:
Funds from Operations	$	2,499,000		$	4,879,000
Straightline rental income, net		(113,000	)		(212,000	)
Amortization of deferred compensation		959,000			1,759,000
Adjusted Funds from Operations	$	3,345,000		$	6,426,000

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates and equity prices. We are subject to credit risk and interest rate risk with respect to our investments in subordinate real estate debt and real estate securities. The primary market risk that we are exposed to is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Our interest rate risk sensitive assets, liabilities and related derivative positions are generally held for non-trading purposes. A hypothetical 100 basis point increase in interest rates applied to our variable rate assets would increase our annual interest income by approximately $4,325,000, offset by an increase in our interest expense of approximately $3,481,000 on our variable rate liabilities.

Subordinate Real Estate Debt

We invest in subordinate real estate debt instruments secured by commercial and multifamily properties, including first lien mortgage loans, junior participations in first lien mortgage loans, second lien mortgage loans, mezzanine loans, and preferred equity interests in borrowers who own such properties. We generally hold these instruments for investment rather than trading purposes. These investments are either floating or fixed rate. The interest rates on our floating rate investments typically float at a fixed spread over an index such as LIBOR. These instruments typically reprice every 30 days based upon LIBOR in effect at that time. Given the frequent and periodic repricing of our floating rate investments, changes in interest rates are unlikely to affect the value of our floating rate portfolio. Changes in short term rates will, however, affect earnings from our investments. Increases in LIBOR will increase the interest income received by us on our investments and therefore will increase our earnings. Decreases in LIBOR have the opposite effect.

We also invest in fixed rate investments. The value of these investments may be affected by changes in long term interest rates. To the extent that long term interest rates increase, the value of long term fixed rate assets is diminished. Any fixed rate subordinate debt investments which we hold would be similarly impacted. We do not generally seek to hedge this type of risk unless the asset is leveraged as the costs of such a hedging transaction over the term of such an investment would generally outweigh the benefits. If fixed rate subordinate debt is funded with floating rate liabilities, the funding cost will be fixed through the use of interest rate swaps, caps or other hedges. Because the interest rates on our fixed rate investments are generally fixed through maturity of the investment, changes in interest rates do not affect the income we earn from our fixed rate investments.

In our subordinate real estate debt business we are also exposed to credit risk, which is the risk that a borrower under our loan agreements cannot repay its obligations to us in a timely manner. While we have never experienced a payment default or even a late payment to date, our subordinate position in the capital structure may expose us to losses as a result of such default in the future. In the event that the borrower cannot repay our loan, we may exercise our remedies under the loan documents which may include a foreclosure against the collateral if we have a foreclosure right as a subordinate real estate debtholder under the loan agreement. The subordinate real estate debt that we intend to invest in will generally allow us to demand foreclosure as a subordinate real estate debtholder if our loan is in default. To the extent the value of our collateral exceeds the amount of our loan (including all debt senior to us) and the expenses we incur in collecting on our loan, we would collect 100% of our loan amount. To the extent that the amount of our loan plus all debt senior to our position exceeds the realizable value of our collateral, then we would incur a loss. We also incur credit risk in our periodically scheduled interest payments which may be interrupted as a result of the operating performance of the underlying collateral.

We seek to manage credit risk through a thorough financial analysis of a transaction before we make such an investment. Our analysis is based upon a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to evaluating the credit risk inherent in a transaction.

We expect our investments to be denominated in U.S. dollars or, if they are denominated in another currency, to be converted back to U.S. dollars through the use of currency swaps. It may not

be possible to eliminate all of the currency risk as the payment characteristics of the currency swap may not exactly match the payment characteristics of the investments.

Real Estate Securities

In our real estate securities business, we mitigate credit risk through credit analysis, subordination and diversification. The commercial mortgage-backed securities we invest in are generally junior in right of payment of interest and principal to one or more senior classes, but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction. The senior unsecured REIT debt securities we invest in reflect comparable credit risk. Credit risk refers to each individual borrower's ability to make required interest and principal payments on the scheduled due dates. We believe that these securities offer attractive risk-adjusted returns with reasonable long term principal protection under a variety of default and loss scenarios. While the expected yield on these securities is sensitive to the performance of the underlying assets, the more subordinated securities and certain other features of a securitization, in the case of mortgage backed securities, and the issuer's underlying equity and subordinated debt, in the case of REIT securities, are designed to bear the first risk of default and loss. The real estate securities portfolios of our CDOs are diversified by asset type, industry, location and issuer. We further minimize credit risk by actively monitoring CDO I's, CDO II's and CDO III's real estate securities portfolios and the underlying credit quality of their holdings and, where appropriate, liquidating our investments to mitigate the risk of loss.

On June 30, 2005, the real estate securities that serve as collateral for CDO I, CDO II and CDO III each had an overall weighted average credit rating of approximately BBB – and approximately 73.13%, 74.44% and 71.3%, respectively, of these securities are investment grade.

The real estate securities underlying CDO I, CDO II and CDO III are also subject to spread risk. The majority of these securities are fixed rate securities, which are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasuries of like maturity. In other words, their value is dependent on the yield demanded on such securities by the market, as based on their credit relative to U.S. Treasuries. An excessive supply of these securities combined with reduced demand will generally cause the market to require a higher yield on these securities, resulting in the use of a higher or "wider" spread over the benchmark rate (usually the applicable U.S. Treasury security yield) to value these securities. Under these conditions, the value of our real estate securities portfolio would tend to decrease. Conversely, if the spread used to value these securities were to decrease or "tighten," the value of our real estate securities would tend to increase. Such changes in the market value of our real estate securities portfolio may affect our net equity or cash flow either directly through their impact on unrealized gains or losses on available-for-sale securities by diminishing our ability to realize gains on such securities, or indirectly through their impact on our ability to borrow and access capital.

Returns on our real estate securities are sensitive to interest rate volatility. If interest rates increase, the funding cost on liabilities that finance the securities portfolio will increase if these liabilities are at a floating rate or have maturities shorter than the assets.

Our general financing strategy focuses on the use of "match-funded" structures. This means that we seek to align the maturities of our debt obligations with the maturities of our investments in order to minimize the risk of being forced to refinance our liabilities prior to the maturities of our assets, as well as to reduce the impact of fluctuating interest rates on earnings. In addition, we generally match interest rates on our assets with like-kind debt, so that fixed rate assets are financed with fixed rate debt and floating rate assets are financed with floating rate debt, directly or through the use of interest rate swaps, caps or other financial instruments or through a combination of these strategies. CDO I, CDO II and CDO III utilize interest rate swaps to minimize the mismatch between its fixed rate assets and floating rate liabilities. We expect to hedge the interest rate risk in future CDOs in a similar manner.

Our financing strategy is dependent on our ability to place the match-funded debt we use to finance our real estate securities at spreads that provide a positive arbitrage. If spreads on the bonds

issued by CDOs widen or if demand for these liabilities ceases to exist, then our ability to execute future CDO financings will be severely restricted.

Interest rate changes may also impact our net book value as our investments in debt securities are marked-to-market each quarter with changes in fair value reflected in other comprehensive income (a separate component of owners' equity). Generally, as interest rates increase, the value of fixed rate securities within the CDO, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. These swings in value have a corresponding impact on the value of our investment in the CDO. Within the CDO, we seek to hedge against changes in cash flows attributable to changes in interest rates by entering into interest rate swaps/caps and other derivative instruments as allowed by our predecessor's risk management policy. Such derivatives are designated as cash flow hedge relationships according to SFAS No. 133.

During the warehouse period for CDOs, the market value of the securities in the warehouse is hedged, typically by short selling U.S. agency-sponsored (Federal National Mortgage Association or Federal Home Loan Mortgage Corp.) debentures or U.S. Treasury securities in the warehouse. Movements in interest rates are expected to result in a price movement for the hedge position that is opposite to and offsets the price movement of the fixed rate securities in the warehouse.

Debt Securities Held for Trading

Subsequent to the closing of our IPO, we temporarily invested a portion of the net proceeds of our IPO in primarily AAA-rated, short term, floating rate commercial and residential mortgage-backed securities which are subject to fluctuations in market value. These securities are financed with leverage of up to 97% which may magnify this price volatility. If the market value of these securities were to decline, we would need to post additional collateral or liquidate a portion of these securities, possibly at a loss. The short term securities that we have temporarily invested in have been selected to mitigate this risk to the extent possible. Their floating rate coupon, short duration, and high credit ratings all serve to maximize liquidity and to minimize the price volatility of these securities. Nevertheless, even a small decline in the price of these securities may be magnified by the leverage and result in a loss to us when the assets are liquidated. Unrealized losses may also occur even if the assets are not liquidated because these securities are held for trading purposes.

Net Lease Properties

Our ability to manage the interest rate risk and credit risk associated with the assets we acquire is integral to the success of our net lease properties investment strategy. Although we may, in special situations, finance our purchase of net lease assets with floating rate debt, our general policy will be to mitigate our exposure to rising interest rates by financing our purchases with fixed rate mortgages. We will seek to match the term of fixed rate mortgages to our expected holding period for the underlying asset. Factors we will consider to assess the expected holding period will include, among others, the primary term of the lease as well as any extension options that may exist.

We expect the credit profiles of our tenants will primarily be unrated and below investment grade. In order to ensure that we have as complete an understanding as possible of a tenant's ability to satisfy its obligations under its lease, we expect to undertake a rigorous credit evaluation of each tenant prior to executing sale/leaseback or net lease asset acquisitions. This analysis will include an extensive due diligence investigation of the tenant's business as well as an assessment of the strategic importance of the underlying real estate to the tenant's core business operations. Where appropriate, we may seek to augment the tenant's commitment to the facility by structuring various protection mechanisms into the underlying leases. These mechanisms could include security deposit requirements or affiliate guarantees from entities we deem to be creditworthy.

Derivatives and Hedging Activities

To limit the exposure to the variable LIBOR rate on the DBAG facility, we entered into various swap agreements to fix the LIBOR rate on a portion of our variable rate debt. The fixed LIBOR rates ranges from 4.18% to 5.03%. The following table summarizes the notional amounts and fair (carrying) values of our derivative financial instruments as of June 30, 2005 (in thousands):

Notional Amount

Fair Value

Range of Maturity

Interest rate swaps, treated as hedges

$26,349

($663)

December 2010 - August 2018

ITEM 4. CONTROLS AND PROCEDURES

NorthStar Realty Finance Corp. (the "Company") became subject to the periodic and other reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") on October 25, 2004, the effective date of the Company's registration statement relating to its IPO. On October 29, 2004, the Company received an initial portfolio of real estate-related investments (the Initial Investments") pursuant to certain contribution agreements with subsidiaries of NorthStar Capital Investment Corp. ("NCIC") and commenced operations. The financial statements included in this Quarterly Report on Form 10-Q are for the Company as of June 30, 2005 and for the three and six months ended June 30, 2005 and for NorthStar Realty Finance Corp. Predecessor (the "Predecessor"), a combination of NCIC's controlling and non-controlling interests in entities representing the Initial Investments, as of December 31, 2004 and for the three and six months ended June 30, 2004.

The Company formed a Disclosure Committee in November 2004 in order to assure that its disclosure controls and procedures were effective to ensure that information required to be disclosed in the Company's periodic reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Disclosure Committee is currently comprised of each of the Company's five executive officers and the Company's in-house corporate counsel. Meetings frequently include other employees with knowledge of information that may be considered material in the SEC reporting process. The Disclosure Committee has been given the responsibility of developing and assessing the financial and non-financial information to be included in the Company's SEC reports and assisting the Company's chief executive officer and chief financial officer in connection with their certifications contained in the Company's SEC reports. The Disclosure Committee meets and reports to the Audit Committee on at least a quarterly basis.

As disclosed in the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2004 (the "Third Quarter 10-Q") filed on December 30, 2004, management identified certain deficiencies in the Predecessor's internal controls over financial reporting during the course of management's review in December 2004 of the financial statements of the Predecessor that were to be included in the Third Quarter Form 10-Q. Based upon further investigation, the Company discovered certain errors in the accounting for transactions entered into during June and the third quarter of 2004 in connection with the Predecessor's CDO II and in the reporting of allocated general and administrative expenses. These errors required the Company to adjust the Predecessor's financial statements for the six months ended June 30, 2004, as described in Note 2 to the financial statements included in the Third Quarter Form 10-Q, and to make certain adjustments to the Predecessor's financial statements for the three and nine months ended September 30, 2004. As further disclosed in the Third Quarter Form 10-Q, the deficiencies identified by management in December 2004 included (1) the communication between business unit personnel and financial reporting personnel with respect to the accounting for certain transactions associated with the Predecessor's CDO investments and other Company activity, (2) the level of training of accounting and financial reporting personnel, and (3) the level of detailed, quality control review of the Predecessor's financial statements. Taken together, these deficiencies rose to the level of a material weakness in the Predecessor's internal controls over financial reporting for the three months ended September 30, 2004. As a result of the material weakness identified in the Predecessor's internal controls over financial reporting and the issues that arose during the course of the review in December 2004 of the Predecessor's financial statements for the third quarter of 2004, the Company's chief executive officer and chief financial officer concluded that the Predecessor's disclosure controls and procedures at September 30, 2004 were not effective to ensure that financial information related to such items was recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms.

Commencing in December 2004 and continuing into the third quarter of 2005, the Company has undertaken a number of initiatives to remedy the deficiencies identified by management in the Predecessor's internal controls over financial reporting so that the Company's disclosure controls and procedures will be effective for subsequent periods. In this regard, the Company (1) hired a chief accounting officer with significant GAAP and SEC financial reporting experience on January 20, 2005, (2) hired three additional accounting staff members (3) hired a manager of operations for its securities

trading and CDO related activities, (4) hired an in-house corporate counsel (5) implemented policies to enhance communication between business unit and financial reporting personnel in order to ensure comprehensive review by management level business unit personnel of the recording of Company transactions, (6) retained an outside accounting firm to review processes and procedures that the Company has adopted in connection with its financial reporting and to assist in the preparation and review of its financial reports, (7) adopted processes for documenting and verifying the accounting for CDO related transactions, and (8) implemented procedures requiring more detailed, timely and comprehensive reporting from third party service providers, including its CDO warehouse provider. In addition, the Company has improved its training of accounting and financial reporting personnel by formalizing in writing and distributing to personnel the accounting policies and treatment of transactions entered into by each business segment of the Company.

The Company believes that the initiatives described above, some of which have already been taken and others of which are in the process of being implemented, will, when fully implemented, substantially remedy the deficiencies noted above. However, as a result of the material weakness identified in the Predecessor's internal controls over financial reporting for the three months ended September 30, 2004, the issues that arose during the course of the review in December 2004 of the financial statements to be included in the Third Quarter Form 10-Q, and the timing of the implementation of the corrective actions described above, the Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures at June 30, 2005 were not effective to ensure that financial information related to such items was recorded, processed, summarized and reported accurately within the time periods specified in the SEC's rules and forms. However, based upon their knowledge, which includes a review of the financial statements included in this report, the Company's chief executive officer and chief financial officer believe that the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company and the Predecessor as of and for the periods presented in this report.

The Company has and will continue to evaluate the effectiveness of its disclosure controls and procedures and internal controls over financial reporting on an ongoing basis and will take corrective action and implement improvements as appropriate.

Except for the initiatives described above, there were no changes in the Company's internal control over financial reporting during the fiscal quarter ended June 30, 2005 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

729 7th Avenue Realty Corp. v. 729 Demi-Tasse LLC

In connection with the sale of 729 Seventh Avenue, 729 7th Realty Corp., an affiliate of the Riese Organization's National Restaurant Management Inc., agreed to discontinue the legal action that it had brought in New York State Supreme Court, New York County, against 729 Demi-Tasse LLC, the fee owner of 729 Seventh Avenue, settling our only material pending legal action.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) As disclosed in our quarterly report on Form 10-Q for the quarter ending September 30, 2004, we consummated an initial public offering of our common stock in October 2004 pursuant to a registration statement that was declared effective on October 25, 2004 (File No. 333-114675) and we estimated initial public offering expenses of approximately $7.3 million, resulting in estimated net offering proceeds to us, after deducting the underwriting discount and expenses, of $170.1 million. We have incurred initial public offering expenses of approximately $7.6 million, resulting in net offering proceeds of the initial public offering to us, after deducting the underwriting discount and expenses, of approximately $169.8 million. As of June 30, 2005, we have deployed all of the net offering proceeds of the initial public offering.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

The Company's Annual Meeting of shareholders was held on June 23, 2005 (the "Meeting"). At the close of business on the record date for the Meeting (which was May 16, 2005), there were 21,249,736 shares of common stock outstanding and entitled to vote at the Meeting. Holders of 20,686,725 shares of common stock (representing a like number of votes) were present at the Meeting, either in person or by proxy.

At the Meeting, the following individuals were elected to the Company's Board of Directors to hold office for a one-year term and until his or her successor is duly elected and qualified, by the following vote:


Nominee	In Favor		Withheld
William V. Adamski		20,679,725		7,000
Preston Butcher		20,675,225		11,500
David T. Hamamoto		20,679,725		7,000
Judith A. Hannaway		20,623,725		63,000
Wesley D. Minami		20,679,725		7,000
W. Edward Scheetz		19,893,525		793,200
Frank V. Sica		20,599,025		87,700

At the Meeting, the Company's shareholders also ratified the appointment of Grant Thornton LLP as the Company's independent auditors for fiscal year 2005, by the following vote:


In Favor	Against	Abstained
20,084,925	601,800	0

ITEM 5. OTHER INFORMATION

(a) None.

(b) None.

ITEM 6. EXHIBITS


(a)	Exhibits


Exhibit No.	Description


2.1	Contribution Agreement, dated as of October 29, 2004, by and among NS Advisors Holdings LLC, Presidio Capital Investment Company, LLC and NorthStar Realty Finance Limited Partnership*


2.2	Contribution Agreement, dated as of October 29, 2004, by and among NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NorthStar Realty Finance Limited Partnership*


2.3	Purchase and Sale Agreement, dated as of October 29, 2004, between NorthStar Realty Finance Limited Partnership and ALGM I Equity, LLC*


3.1	Articles of Amendment and Restatement of NorthStar Realty Finance Corp., as filed with the State Department of Assessments and Taxation of Maryland on October 20, 2004 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675))


3.2	Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-11 (File No. 333-114675))


3.3	Amendment No. 1 to the Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K, filed on April 27, 2005)


4.1	Registration Rights Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NS Advisors Holdings LLC*


10.1	Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of October 19, 2004, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time*


10.2	Non-Competition Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, NorthStar Capital Investment Corp. and NorthStar Partnership, L.P.*


10.3	Shared Facilities and Services Agreement, dated as of October 29, 2004, by and between NorthStar Realty Finance Corp. and NorthStar Capital Investment Corp.*

10.4

Amended, Restated and Consolidated Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of December 4, 2002, by and among 729 Demi-Tasse LLC, 1552 Lonsdale LLC, ALGM Leasehold II LLC, ALGM Leasehold III LLC, ALGM Leasehold VI LLC, ALGM Leasehold VIII LLC, ALGM Leasehold IX LLC, ALGM Leasehold X LLC, ALGM Leasehold XII LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675))


10.5	Executive Employment Agreement, dated as of October 22, 2004, between David T. Hamamoto and NorthStar Realty Finance Corp.*


10.6	Executive Employment Agreement, dated as of October 22, 2004, between Mark E. Chertok and NorthStar Realty Finance Corp.*


10.7	Executive Employment Agreement, dated as of October 22, 2004, between Jean-Michel Wasterlain and NorthStar Realty Finance Corp.*


10.8	Executive Employment Agreement, dated as of October 22, 2004, between Daniel R. Gilbert and NorthStar Realty Finance Corp.*


10.9	NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan*


10.10	LTIP Unit Vesting Agreement under the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRF Employee, LLC*


10.11	Form of Vesting Agreement for Units of NRF Employee, LLC, each dated as of October 29, 2004, between NRF Employee, LLC and certain employees and co-employees of NorthStar Realty Finance Corp.*


10.12	Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.7(a) to the Company's Registration Statement on Form S-11 (File No. 333-114675))


10.13	NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan*


10.14	Form of Notification under NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan*


10.15	Form of Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-11 (File No. 333-114675))


10.16	Amended and Restated Master Repurchase Agreement, dated as of March 21, 2005, between NRFC DB Holdings, LLC and Deutsche Bank AG, Cayman Islands Branch**


10.17	Indenture, dated as of April 12, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee***


10.18	Amended and Restated Trust Agreement, dated as of April 12, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees***


10.19	Indenture, dated as of May 25, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee


10.20	Amended and Restated Trust Agreement, dated as of May 25, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees


10.21	Master Repurchase Agreement, dated as of July 13, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association


31.1	Certification of David T. Hamamoto, Chief Executive Officer pursuant to Rule 13a - 14(a) of the Exchange Act


31.2	Certification of Mark E. Chertok, Chief Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act


32.1	Certification of David T. Hamamoto, Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code


32.2	Certification of Mark E. Chertok, Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code


*	Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Quarterly Report on Form 10-Q for the quarter ending September 30, 2004.


**	Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Annual Report on Form 10-K for the year ending December 31, 2004.


***	Incorporated by reference to the like-numbered exhibit to NorthStar Realty Finance Corp.'s Amendment No. 1 to the Annual Report on Form 10-K for the year ending December 31, 2004.

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.

NORTHSTAR REALTY FINANCE CORP.


Date: August 12, 2005 By:	/S/ David T. Hamamoto Name: David T. Hamamoto Title: Chief Executive Officer


	By:	/S/ Mark E. Chertok Name: Mark E. Chertok Title: Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Description
	2.1	Contribution Agreement, dated as of October 29, 2004, by and among NS Advisors Holdings LLC, Presidio Capital Investment Company, LLC and NorthStar Realty Finance Limited Partnership*
	2.2	Contribution Agreement, dated as of October 29, 2004, by and among NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NorthStar Realty Finance Limited Partnership*
	2.3	Purchase and Sale Agreement, dated as of October 29, 2004, between NorthStar Realty Finance Limited Partnership and ALGM I Equity, LLC*
	3.1	Articles of Amendment and Restatement of NorthStar Realty Finance Corp., as filed with the State Department of Assessments and Taxation of Maryland on October 20, 2004 (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675))
	3.2	Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-11 (File No. 333-114675))
	3.3	Amendment No. 1 to the Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K, filed on April 27, 2005)
	4.1	Registration Rights Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Partnership, L.P., NorthStar Funding Managing Member Holdings LLC and NS Advisors Holdings LLC*
	10.1	Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of October 19, 2004, by and among NorthStar Realty Finance Corp., as sole general partner and initial limited partner and the other limited partners a party thereto from time to time*
	10.2	Non-Competition Agreement, dated as of October 29, 2004, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, NorthStar Capital Investment Corp. and NorthStar Partnership, L.P.*
	10.3	Shared Facilities and Services Agreement, dated as of October 29, 2004, by and between NorthStar Realty Finance Corp. and NorthStar Capital Investment Corp.*
	10.4	Amended, Restated and Consolidated Fee and Leasehold Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of December 4, 2002, by and among 729 Demi-Tasse LLC, 1552 Lonsdale LLC, ALGM Leasehold II LLC, ALGM Leasehold III LLC, ALGM Leasehold VI LLC, ALGM Leasehold VIII LLC, ALGM Leasehold IX LLC, ALGM Leasehold X LLC, ALGM Leasehold XII LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (File No. 333-114675))
	10.5	Executive Employment Agreement, dated as of October 22, 2004, between David T. Hamamoto and NorthStar Realty Finance Corp.*
	10.6	Executive Employment Agreement, dated as of October 22, 2004, between Mark E. Chertok and NorthStar Realty Finance Corp.*
	10.7	Executive Employment Agreement, dated as of October 22, 2004, between Jean-Michel Wasterlain and NorthStar Realty Finance Corp.*


Exhibit No.		Description
	10.8	Executive Employment Agreement, dated as of October 22, 2004, between Daniel R. Gilbert and NorthStar Realty Finance Corp.*
	10.9	NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan*
	10.10	LTIP Unit Vesting Agreement under the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRF Employee, LLC*
	10.11	Form of Vesting Agreement for Units of NRF Employee, LLC, each dated as of October 29, 2004, between NRF Employee, LLC and certain employees and co-employees of NorthStar Realty Finance Corp.*
	10.12	Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.7(a) to the Company's Registration Statement on Form S-11 (File No. 333-114675))
	10.13	NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan*
	10.14	Form of Notification under NorthStar Realty Finance Corp. 2004 Long Term Incentive Bonus Plan*
	10.15	Form of Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-11 (File No. 333-114675))
	10.16	Amended and Restated Master Repurchase Agreement, dated as of March 21, 2005, between NRFC DB Holdings, LLC and Deutsche Bank AG, Cayman Islands Branch**
	10.17	Indenture, dated as of April 12, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee***
	10.18	Amended and Restated Trust Agreement, dated as of April 12, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees***
	10.19	Indenture, dated as of May 25, 2005, between NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National Association, as trustee
	10.20	Amended and Restated Trust Agreement, dated as of May 25, 2005, among NorthStar Realty Finance Limited Partnership, as depositor, JPMorgan Chase, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and Mark Chertok, David Hamamoto and Richard McCready, each as administrative trustees
	10.21	Master Repurchase Agreement, dated as of July 13, 2005, between NRFC WA Holdings, LLC and Wachovia Bank, National Association
	31.1	Certification of David T. Hamamoto, Chief Executive Officer pursuant to Rule 13a - 14(a) of the Exchange Act
	31.2	Certification of Mark E. Chertok, Chief Financial Officer pursuant to Rule 13a - 14(a) of the Exchange Act
	32.1	Certification of David T. Hamamoto, Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
	32.2	Certification of Mark E. Chertok, Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code




                                                                  EXECUTION COPY

================================================================================

                          JUNIOR SUBORDINATED INDENTURE

                                     between

                  NORTHSTAR REALTY FINANCE LIMITED PARTNERSHIP

                                       and

                   JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
                                   as Trustee

                                   ----------

                            Dated as of May 25, 2005

                                   ----------

================================================================================



                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
ARTICLE I      DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...     1

   Section 1.1.     Definitions..........................................     1

   Section 1.2.     Compliance Certificate and Opinions..................     9

   Section 1.3.     Forms of Documents Delivered to Trustee..............    10

   Section 1.4.     Acts of Holders......................................    10

   Section 1.5.     Notices, Etc. to Trustee and Company.................    12

   Section 1.6.     Notice to Holders; Waiver............................    12

   Section 1.7.     Effect of Headings and Table of Contents.............    13

   Section 1.8.     Successors and Assigns...............................    13

   Section 1.9.     Separability Clause..................................    13

   Section 1.10.    Benefits of Indenture................................    13

   Section 1.11.    Governing Law........................................    13

   Section 1.12.    Submission to Jurisdiction...........................    14

   Section 1.13.    Non-Business Days....................................    14

ARTICLE II     SECURITY FORMS............................................    14

   Section 2.1.     Form of Security.....................................    14

   Section 2.2.     Restricted Legend....................................    20

   Section 2.3.     Form of Trustee's Certificate of Authentication......    22

   Section 2.4.     Temporary Securities.................................    22

   Section 2.5.     Definitive Securities................................    22

ARTICLE III    THE SECURITIES............................................    23

   Section 3.1.     Payment of Principal and Interest....................    23

   Section 3.2.     Denominations........................................    25

   Section 3.3.     Execution, Authentication, Delivery and Dating.......    25

   Section 3.4.     Global Securities....................................    26

   Section 3.5.     Registration, Transfer and Exchange Generally........    28

   Section 3.6.     Mutilated, Destroyed, Lost and Stolen Securities.....    29

   Section 3.7.     Persons Deemed Owners................................    29

   Section 3.8.     Cancellation.........................................    30

   Section 3.9.     Deferrals of Interest Payment Dates..................    30


                                      -i-





                               TABLE OF CONTENTS
                                  (continued)

                                                                            PAGE
                                                                            ----
   Section 3.10.    Agreed Tax Treatment.................................    31

   Section 3.11.    CUSIP Numbers........................................    31

ARTICLE IV     SATISFACTION AND DISCHARGE................................    32

   Section 4.1.     Satisfaction and Discharge of Indenture..............    32

   Section 4.2.     Application of Trust Money...........................    33

ARTICLE V      REMEDIES..................................................    33

   Section 5.1.     Events of Default....................................    33

   Section 5.2.     Acceleration of Maturity; Rescission and Annulment...    34

   Section 5.3.     Collection of Indebtedness and Suits for Enforcement
                       by Trustee........................................    35

   Section 5.4.     Trustee May File Proofs of Claim.....................    36

   Section 5.5.     Trustee May Enforce Claim Without Possession of
                       Securities........................................    36

   Section 5.6.     Application of Money Collected.......................    36

   Section 5.7.     Limitation on Suits..................................    37

   Section 5.8.     Unconditional Right of Holders to Receive Principal,
                       Premium, if any, and Interest; Direct  Action by
                       Holders of Preferred Securities...................    37

   Section 5.9.     Restoration of Rights and Remedies...................    38

   Section 5.10.    Rights and Remedies Cumulative.......................    38

   Section 5.11.    Delay or Omission Not Waiver.........................    38

   Section 5.12.    Control by Holders...................................    38

   Section 5.13.    Waiver of Past Defaults..............................    39

   Section 5.14.    Undertaking for Costs................................    39

   Section 5.15.    Waiver of Usury, Stay or Extension Laws..............    40




ARTICLE VI     THE TRUSTEE...............................................    40

   Section 6.1.     Corporate Trustee Required...........................    40

   Section 6.2.     Certain Duties and Responsibilities..................    40

   Section 6.3.     Notice of Defaults...................................    42

   Section 6.4.     Certain Rights of Trustee............................    42

   Section 6.5.     May Hold Securities..................................    44

   Section 6.6.     Compensation; Reimbursement; Indemnity...............    44

   Section 6.7.     Resignation and Removal; Appointment of Successor....    45



                                      -ii-



                               TABLE OF CONTENTS
                                  (continued)

                                                                            PAGE
                                                                            ----
   Section 6.8.     Acceptance of Appointment by Successor...............    46

   Section 6.9.     Merger, Conversion, Consolidation or Succession to
                       Business..........................................    46

   Section 6.10.    Not Responsible for Recitals or Issuance of
                       Securities........................................    47

   Section 6.11.    Appointment of Authenticating Agent..................    47



ARTICLE VII    HOLDER'S LISTS AND REPORTS BY COMPANY.....................    48

   Section 7.1.     Company to Furnish Trustee Names and Addresses of
                       Holders...........................................    48

   Section 7.2.     Preservation of Information, Communications to
                       Holders...........................................    49

   Section 7.3.     Reports by Company...................................    49

ARTICLE VIII   CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE......    50

   Section 8.1.     Company May Consolidate, Etc., Only on Certain
                       Terms.............................................    50

   Section 8.2.     Successor Company Substituted........................    51

ARTICLE IX     SUPPLEMENTAL INDENTURES...................................    51

   Section 9.1.     Supplemental Indentures without Consent of Holders...    51

   Section 9.2.     Supplemental Indentures with Consent of Holders......    52

   Section 9.3.     Execution of Supplemental Indentures.................    53

   Section 9.4.     Effect of Supplemental Indentures....................    53

   Section 9.5.     Reference in Securities to Supplemental Indentures...    53

ARTICLE X      COVENANTS.................................................    53

   Section 10.1.    Payment of Principal, Premium, if any, and Interest..    53

   Section 10.2.    Money for Security Payments to be Held in Trust......    54

   Section 10.3.    Statement as to Compliance...........................    55

   Section 10.4.    Calculation Agent....................................    55

   Section 10.5.    Additional Tax Sums..................................    56

   Section 10.6.    Additional Covenants.................................    56

   Section 10.7.    Waiver of Covenants..................................    57

   Section 10.8.    Treatment of Securities..............................    57




ARTICLE XI     REDEMPTION OF SECURITIES..................................    58

   Section 11.1.    Optional Redemption..................................    58

   Section 11.2.    Special Event Redemption.............................    58

   Section 11.3.    Election to Redeem; Notice to Trustee................    58



                                     -iii-



                               TABLE OF CONTENTS
                                  (continued)

                                                                            PAGE
                                                                            ----
   Section 11.4.    Selection of Securities to be Redeemed...............    58

   Section 11.5.    Notice of Redemption.................................    59

   Section 11.6.    Deposit of Redemption Price..........................    60

   Section 11.7.    Payment of Securities Called for Redemption..........    60



ARTICLE XII    SUBORDINATION OF SECURITIES...............................    60

   Section 12.1.    Securities Subordinate to Senior Debt................    60

   Section 12.2.    No Payment When Senior Debt in Default; Payment Over
                       of Proceeds Upon Dissolution, Etc. ...............    61

   Section 12.3.    Payment Permitted If No Default......................    62

   Section 12.4.    Subrogation to Rights of Holders of Senior Debt......    62

   Section 12.5.    Provisions Solely to Define Relative Rights..........    63

   Section 12.6.    Trustee to Effectuate Subordination..................    63

   Section 12.7.    No Waiver of Subordination Provisions................    63

   Section 12.8.    Notice to Trustee....................................    64

   Section 12.9.    Reliance on Judicial Order or Certificate of
                       Liquidating Agent.................................    64

   Section 12.10.   Trustee Not Fiduciary for Holders of Senior Debt.....    65

   Section 12.11.   Rights of Trustee as Holder of Senior Debt;
                       Preservation of Trustee's Rights..................    65

   Section 12.12.   Article Applicable to Paying Agents..................    65


SCHEDULES

Schedule A  -   Determination of LIBOR

Exhibit A   -   Form of Officer's Financial Certificate


                                      -iv-



     JUNIOR SUBORDINATED INDENTURE, dated as of May 25, 2005, between NORTHSTAR
REALTY FINANCE LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Company"), and JPMORGAN CHASE BANK, National Association, a national banking
association, as Trustee (in such capacity, the "Trustee").

                             RECITALS OF THE COMPANY

     WHEREAS, the Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its unsecured junior subordinated
deferrable interest notes (the "Securities") issued to evidence loans made to
the Company of the proceeds from the issuance by NorthStar Realty Finance Trust
II, a Delaware statutory trust (the "Trust"), of undivided preferred beneficial
interests in the assets of the Trust (the "Preferred Securities") and undivided
common beneficial interests in the assets of the Trust (the "Common Securities"
and, collectively with the Preferred Securities, the "Trust Securities"), and to
provide the terms and conditions upon which the Securities are to be
authenticated, issued and delivered; and

     WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.

     NOW, THEREFORE, this Indenture Witnesseth:

     For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:

                                   ARTICLE I

             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

     SECTION 1.1. Definitions.

     For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:

          (a) the terms defined in this Article I have the meanings assigned to
     them in this Article I;

          (b) the words "include", "includes" and "including" shall be deemed to
     be followed by the phrase "without limitation";

          (c) all accounting terms not otherwise defined herein have the
     meanings assigned to them in accordance with GAAP;

          (d) unless the context otherwise requires, any reference to an
     "Article" or a "Section" refers to an Article or a Section, as the case may
     be, of this Indenture;

          (e) the words "hereby", "herein", "hereof" and "hereunder" and other
     words of similar import refer to this Indenture as a whole and not to any
     particular Article, Section or other subdivision;


                                        1



          (f) a reference to the singular includes the plural and vice versa;
     and

          (g) the masculine, feminine or neuter genders used herein shall
     include the masculine, feminine and neuter genders.

     "Act" when used with respect to any Holder, has the meaning specified in
Section 1.4.

     "Administrative Trustee" means, with respect to the Trust, each Person
identified as an "Administrative Trustee" in the Trust Agreement, solely in its
capacity as Administrative Trustee of the Trust under the Trust Agreement and
not in its individual capacity, or its successor in interest in such capacity,
or any successor Administrative Trustee appointed as therein provided.

     "Additional Interest" means the interest, if any, that shall accrue on any
amounts payable on the Securities, the payment of which has not been made on the
applicable Interest Payment Date and which shall accrue at the rate per annum
specified or determined as specified in such Security, in each case to the
extent legally enforceable.

     "Additional Tax Sums" has the meaning specified in Section 10.5.

     "Additional Taxes" means taxes, duties or other governmental charges
imposed on the Trust as a result of a Tax Event (which, for the sake of clarity,
does not include amounts required to be deducted or withheld by the Trust from
payments made by the Trust to or for the benefit of the Holder of, or any Person
that acquires a beneficial interest in, the Securities).

     "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

     "Applicable Depositary Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, in each case to the
extent applicable to such transaction and as in effect from time to time.

     "Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.11 to act on behalf of the Trustee to authenticate the Securities.

     "Bankruptcy Code" means Title 11 of the United States Code or any successor
statute(s) thereto, or any similar federal or state law for the relief of
debtors, in each case as amended from time to time.

     "Board of Directors" means the board of directors of the Company or any
duly authorized committee of that board.

     "Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.


                                       2



     "Business Day" means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
Corporate Trust Office of the Trustee is closed for business.

     "Calculation Agent" has the meaning specified in Section 10.4.

     "Common Securities" has the meaning specified in the first recital of this
Indenture.

     "Common Stock" means the common stock, par value $0.01 per share, of the
Company.

     "Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.

     "Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by its Chairman of the Board
of Directors, its Vice Chairman of the Board of Directors, its Chief Executive
Officer, President or a Vice President, and by its Chief Financial Officer, its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.

     "Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at the date of this Indenture is located at 600 Travis, 50th Floor,
Houston, Texas 77019 Attn: Institutional Trust Services-- NorthStar Realty
Finance Trust II.

     "Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person, whether currently existing or hereafter
incurred and whether or not contingent and without duplication, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or other accrued liabilities arising in the ordinary
course of business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person, whether incurred on or prior to the date of this
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; (vii) every obligation of the type
referred to in clauses (i) through (vi) of another Person and all dividends of
another Person the payment of which, in either case, such Person has guaranteed
or is responsible or liable for, directly or indirectly, as obligor or
otherwise; and (viii) any renewals, extensions, refundings, amendments or
modifications of any obligation of the type referred to in clauses (i) through
(vii).

     "Defaulted Interest" has the meaning specified in Section 3.1.

     "Delaware Trustee" means, with respect to the Trust, the Person identified
as the "Delaware Trustee" in the Trust Agreement, solely in its capacity as
Delaware Trustee of the


                                       3



Trust under the Trust Agreement and not in its individual capacity, or its
successor in interest in such capacity, or any successor Delaware Trustee
appointed as therein provided.

     "Depositary" means an organization registered as a clearing agency under
the Exchange Act that is designated as Depositary by the Company or any
successor thereto. DTC will be the initial Depositary.

     "Depositary Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Depositary effects
book-entry transfers and pledges of securities deposited with the Depositary.

     "Distributions" means amounts payable in respect of the Trust Securities as
provided in the Trust Agreement and referred to therein as "Distributions."

     "Dollar" or "$" means the currency of the United States of America that, as
at the time of payment, is legal tender for the payment of public and private
debts.

     "DTC" means The Depository Trust Company, a New York corporation, or any
successor thereto.

     "Event of Default" has the meaning specified in Section 5.1.

     "Exchange Act" means the Securities Exchange Act of 1934 or any statute
successor thereto, in each case as amended from time to time.

     "Expiration Date" has the meaning specified in Section 1.4.

     "Extension Period" has the meaning specified in Section 3.9.

     "Extension Right" has the meaning specified in Section 3.9.

     "Fixed Rate Period" shall have the meaning in the form of Security set
forth in Section 2.1.

     "GAAP" means United States generally accepted accounting principles,
consistently applied, from time to time in effect.

     "Global Security" means a Security that evidences all or part of the
Securities, the ownership and transfers of which shall be made through book
entries by a Depositary.

     "Government Obligation" means (a) any security that is (i) a direct
obligation of the United States of America of which the full faith and credit of
the United States of America is pledged or (ii) an obligation of a Person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or the payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States of America, which, in
either case (i) or (ii), is not callable or redeemable at the option of the
issuer thereof, and (b) any depositary receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any
Government Obligation that is specified in clause (a) above and held by such
bank for the account of the holder of such depositary receipt, or with respect
to any


                                       4



specific payment of principal of or interest on any Government Obligation that
is so specified and held, provided, that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depositary receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of principal or
interest evidenced by such depositary receipt.

     "Holder" means a Person in whose name a Security is registered in the
Securities Register.

     "Indenture" means this instrument as originally executed or as it may from
time to time be amended or supplemented by one or more amendments or indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

     "Interest Payment Date" means March 30, June 30, September 30 and December
30 of each year, commencing on September 30, 2005, during the term of this
Indenture.

     "Investment Company Act" means the Investment Company Act of 1940 or any
successor statute thereto, in each case as amended from time to time.

     "Investment Company Event" means the receipt by the Company of an Opinion
of Counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation (including any announced prospective
change) or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Trust is or, within
ninety (90) days of the date of such opinion will be, considered an "investment
company" that is required to be registered under the Investment Company Act,
which change or prospective change becomes effective or would become effective,
as the case may be, on or after the date of the issuance of the Securities.

     "LIBOR" has the meaning specified in Schedule A.

     "LIBOR Business Day" has the meaning specified in Schedule A.

     "LIBOR Determination Date" has the meaning specified in Schedule A.

     "Liquidation Amount" has the meaning specified in the Trust Agreement.

     "Maturity," when used with respect to any Security, means the date on which
the principal of such Security or any installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.

     "Notice of Default" means a written notice of the kind specified in Section
5.1(c).

     "Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President, and by the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and
delivered to the Trustee.


                                       5



     "Operative Documents" means the Trust Agreement, the Indenture, the
Purchase Agreement and the Securities.

     "Opinion of Counsel" means a written opinion of counsel, who may be counsel
for or an employee of the Company or any Affiliate of the Company.

     "Optional Redemption Price" has the meaning set forth in Section 11.1.

     "Original Issue Date" means the date of original issuance of each Security.

     "Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:

          (i) Securities theretofore canceled by the Trustee or delivered to the
     Trustee for cancellation;

          (ii) Securities for whose payment or redemption money in the necessary
     amount has been theretofore deposited with the Trustee or any Paying Agent
     (other than the Company) in trust or set aside and segregated in trust by
     the Company (if the Company and/or its Affiliates shall act as its own
     Paying Agent) for the Holders of such Securities; provided, that, if such
     Securities are to be redeemed, notice of such redemption has been duly
     given pursuant to this Indenture or provision therefor satisfactory to the
     Trustee has been made; and

          (iii) Securities that have been paid or in substitution for or in lieu
     of which other Securities have been authenticated and delivered pursuant to
     the provisions of this Indenture, unless proof satisfactory to the Trustee
     is presented that any such Securities are held by Holders in whose hands
     such Securities are valid, binding and legal obligations of the Company;

provided, that in determining whether the Holders of the requisite principal
amount of Outstanding Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company or such
other obligor shall be disregarded and deemed not to be Outstanding unless the
Company shall hold all Outstanding Securities, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities that a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded. Securities so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor. Notwithstanding anything herein
to the contrary, Securities initially issued to the Trust that are owned by the
Trust shall be deemed to be Outstanding notwithstanding the ownership by the
Company or an Affiliate of any beneficial interest in the Trust.

     "Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of or any premium or interest on, or other amounts in respect
of, any Securities on behalf of the Company.


                                       6



     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated association, or government, or
any agency or political subdivision thereof, or any other entity of whatever
nature.

     "Place of Payment" means, with respect to the Securities, the Corporate
Trust Office of the Trustee.

     "Preferred Securities" has the meaning specified in the first recital of
this Indenture.

     "Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security. For the purposes of this definition, any security
authenticated and delivered under Section 3.6 in lieu of a mutilated, destroyed,
lost or stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.

     "Proceeding" has the meaning specified in Section 12.2.

     "Property Trustee" means the Person identified as the "Property Trustee" in
the Trust Agreement, solely in its capacity as Property Trustee of the Trust
under the Trust Agreement and not in its individual capacity, or its successor
in interest in such capacity, or any successor Property Trustee appointed as
therein provided.

     "Purchase Agreement" means the agreement, dated as of the date hereof,
between the Company, the NorthStar REIT and the Trust, on the one hand, and
Merrill Lynch International, on the other hand.

     "Redemption Date" means, when used with respect to any Security to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.

     "Redemption Price" means, when used with respect to any Security to be
redeemed, in whole or in part, the Special Redemption Price or the Optional
Redemption Price, as applicable, at which such Security or portion thereof is to
be redeemed as fixed by or pursuant to this Indenture.

     "Reference Banks" has the meaning specified in Schedule A.

     "Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities means the date that is fifteen (15) days
preceding such Interest Payment Date (whether or not a Business Day).

     "Responsible Officer" means, when used with respect to the Trustee, the
officer in the Institutional Trust Services department of the Trustee having
direct responsibility for the administration of this Indenture.

     "Rights Plan" means a plan of the Company providing for the issuance by the
Company to all holders of its Common Stock of rights entitling the holders
thereof to subscribe for or purchase shares of any class or series of capital
stock of the Company which rights (i) are deemed to be transferred with such
shares of such Common Stock and (ii) are also issued in


                                       7



respect of future issuances of such Common Stock, in each case until the
occurrence of a specified event or events.

     "Securities" or "Security" has the meaning set forth in the first recital
to this Indenture and more particularly means the Securities authenticated and
delivered under this Indenture.

     "Securities Act" means the Securities Act of 1933 or any successor statute
thereto, in each case as amended from time to time.

     "Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.5.

     "Senior Debt" means the principal of and any premium and interest on
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not such
claim for post-petition interest is allowed in such proceeding) all Debt of the
Company, whether incurred on or prior to the date of this Indenture or
thereafter incurred, unless it is provided in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, that such
obligations are not superior in right of payment to the Securities issued under
this Indenture.

     "Special Event" means the occurrence of an Investment Company Event or a
Tax Event.

     "Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.1.

     "Special Redemption Price" has the meaning set forth in Section 11.2.

     "Stated Maturity" means June 30, 2035.

     "Subsidiary" means a Person more than fifty percent (50%) of the
outstanding voting stock or other voting interests of which is owned, directly
or indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For purposes of this definition,
"voting stock" means stock that ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.

     "Tax Event" means the receipt by the Company of an Opinion of Counsel
experienced in such matters to the effect that, as a result of (a) any amendment
to or change (including any announced prospective change) in the laws or any
regulations thereunder of the United States or any political subdivision or
taxing authority thereof or therein or (b) any judicial decision or any official
administrative pronouncement (including any private letter ruling, technical
advice memorandum or field service advice) or regulatory procedure, including
any notice or announcement of intent to adopt any such pronouncement or
procedure (an "Administrative Action"), regardless of whether such judicial
decision or Administrative Action is issued to or in connection with a
proceeding involving the Company or the Trust and whether or not subject to
review or appeal, which amendment, change, judicial decision or Administrative
Action is enacted, promulgated or announced, in each case, on or after the date
of issuance of the Securities, there is more than an insubstantial risk that (i)
the Trust is, or will be within ninety (90) days of the date of such opinion,
subject to United States federal income tax with respect to


                                       8



income received or accrued on the Securities, (ii) interest payable by the
Company on the Securities is not, or within ninety (90) days of the date of such
opinion, will not be, deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is, or will be within
ninety (90) days of the date of such opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.

     "Trust" has the meaning specified in the first recital of this Indenture.

     "Trust Agreement" means the Amended and Restated Trust Agreement executed
and delivered by the Company, the Property Trustee, Chase Bank USA, National
Association, as Delaware Trustee and the Administrative Trustees named therein,
contemporaneously with the execution and delivery of this Indenture, for the
benefit of the holders of the Trust Securities, as amended or supplemented from
time to time.

     "Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument, solely in its capacity as such and not in its individual
capacity, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and, thereafter, "Trustee" shall mean
or include each Person who is then a Trustee hereunder.

     "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended and
as in effect on the date as of this Indenture.

     "Trust Securities" has the meaning specified in the first recital of this
Indenture.

     SECTION 1.2. Compliance Certificate and Opinions.

     (a) Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall, if
requested by the Trustee, furnish to the Trustee an Officers' Certificate
stating that all conditions precedent (including covenants compliance with which
constitutes a condition precedent), if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent (including covenants compliance with which constitutes a condition
precedent), if any, have been complied with.

     (b) Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the certificate
provided pursuant to Section 10.3) shall include:

          (i) a statement by each individual signing such certificate or opinion
     that such individual has read such covenant or condition and the
     definitions herein relating thereto;

          (ii) a brief statement as to the nature and scope of the examination
     or investigation upon which the statements or opinions of such individual
     contained in such certificate or opinion are based;

          (iii) a statement that, in the opinion of such individual, he or she
     has made such examination or investigation as is necessary to enable him or
     her to express an informed opinion as to whether or not such covenant or
     condition has been complied with; and


                                       9



          (iv) a statement as to whether, in the opinion of such individual,
     such condition or covenant has been complied with.

     SECTION 1.3. Forms of Documents Delivered to Trustee.

     (a) In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

     (b) Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or after reasonable
inquiry should know, that the certificate or opinion or representations with
respect to matters upon which his or her certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or after reasonable inquiry should know,
that the certificate or opinion or representations with respect to such matters
are erroneous.

     (c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

     (d) Whenever, subsequent to the receipt by the Trustee of any Board
Resolution, Officers' Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally received in the corrected form and, irrespective of the date or dates
of the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Without limiting the generality of the foregoing, any Securities
issued under the authority of such defective document or instrument shall
nevertheless be the valid obligations of the Company entitled to the benefits of
this Indenture equally and ratably with all other Outstanding Securities.

     SECTION 1.4. Acts of Holders.

     (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent thereof duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments (including any
appointment of an agent) is or are delivered to the Trustee, and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders


                                       10



signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section 1.4.

     (b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him or her the execution thereof. Where such
execution is by a Person acting in other than his or her individual capacity,
such certificate or affidavit shall also constitute sufficient proof of his or
her authority. The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner that the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.

     (c) The ownership of Securities shall be proved by the Securities Register.

     (d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Security.

     (e) Without limiting the foregoing, a Holder entitled to take any action
hereunder with regard to any particular Security may do so with regard to all or
any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.

     (f) Except as set forth in paragraph (g) of this Section 1.4, the Company
may set any day as a record date for the purpose of determining the Holders of
Outstanding Securities entitled to give, make or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders of Securities.
If any record date is set pursuant to this paragraph, the Holders of Outstanding
Securities on such record date, and no other Holders, shall be entitled to take
the relevant action, whether or not such Holders remain Holders after such
record date; provided, that no such action shall be effective hereunder unless
taken on or prior to the applicable Expiration Date (as defined in Section
1.4(h)) by Holders of the requisite principal amount of Outstanding Securities
on such record date. Nothing in this paragraph shall be construed to prevent the
Company from setting a new record date for any action for which a record date
has previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be canceled
and of no effect). Promptly after any record date is set pursuant to this
paragraph, the Company, at its own expense, shall cause notice of such record
date, the proposed action by Holders and the applicable Expiration Date to be
given to the Trustee in writing and to each Holder of Securities in the manner
set forth in Section 1.6.

     (g) The Trustee may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to join in the giving
or making of (i) any Notice of Default, (ii) any declaration of acceleration or
rescission or annulment thereof referred to in


                                       11



Section 5.2, (iii) any request to institute proceedings referred to in Section
5.7(b) or (iv) any direction referred to in Section 5.12. If any record date is
set pursuant to this paragraph, the Holders of Outstanding Securities on such
record date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date; provided, that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect).
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable Expiration Date to be given to the Company
in writing and to each Holder of Securities in the manner set forth in Section
1.6.

     (h) With respect to any record date set pursuant to paragraph (f) or (g) of
this Section 1.4, the party hereto that sets such record date may designate any
day as the "Expiration Date" and from time to time may change the Expiration
Date to any earlier or later day; provided, that no such change shall be
effective unless notice of the proposed new Expiration Date is given to the
other party hereto in writing, and to each Holder of Securities in the manner
set forth in Section 1.6, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section 1.4, the party hereto that set such record date shall be deemed
to have initially designated the ninetieth (90th) day after such record date as
the Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no
Expiration Date shall be later than the one hundred eightieth (180th) day after
the applicable record date.

     SECTION 1.5. Notices, Etc. to Trustee and Company.

     Any request, demand, authorization, direction, notice, consent, waiver, Act
of Holders, or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with:

     (a) the Trustee by any Holder, any holder of Preferred Securities or the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with and received by the Trustee at its
Corporate Trust Office, or

     (b) the Company by the Trustee, any Holder or any holder of Preferred
Securities shall be sufficient for every purpose hereunder if in writing and
mailed, first class, postage prepaid, to the Company addressed to it at 527
Madison Avenue, New York, NY 10022, or at any other address previously furnished
in writing to the Trustee by the Company.

     SECTION 1.6. Notice to Holders; Waiver.

     Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class, postage prepaid, to each Holder affected
by such event to the address of such Holder as it appears in the Securities
Register, not later than the latest date (if any), and not earlier than the


                                       12



earliest date (if any), prescribed for the giving of such notice. If, by reason
of the suspension of or irregularities in regular mail service or for any other
reason, it shall be impossible or impracticable to mail notice of any event to
Holders when said notice is required to be given pursuant to any provision of
this Indenture, then any manner of giving such notice as shall be satisfactory
to the Trustee shall be deemed to be a sufficient giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.

     SECTION 1.7. Effect of Headings and Table of Contents.

     The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction of this Indenture.

     SECTION 1.8. Successors and Assigns.

     This Indenture shall be binding upon and shall inure to the benefit of any
successor to the Company and the Trustee, including any successor by operation
of law. Except in connection with a transaction involving the Company that is
permitted under Article VIII and pursuant to which the assignee agrees in
writing to perform the Company's obligations hereunder, the Company shall not
assign its obligations hereunder.

     SECTION 1.9. Separability Clause.

     If any provision in this Indenture or in the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby, and
there shall be deemed substituted for the provision at issue a valid, legal and
enforceable provision as similar as possible to the provision at issue.

     SECTION 1.10. Benefits of Indenture.

     Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Debt, the Holders of the Securities and, to the
extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.2 and 10.7,
the holders of Preferred Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.

     SECTION 1.11. Governing Law.

     THIS INDENTURE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS, THE
COMPANY AND THE TRUSTEE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CONFLICT
OF LAWS PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).


                                       13



     SECTION 1.12. Submission to Jurisdiction.

     ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH
RESPECT TO OR ARISING OUT OF THIS INDENTURE MAY BE BROUGHT IN OR REMOVED TO THE
COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE
SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS
INDENTURE, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND
COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN
CONNECTION WITH THIS INDENTURE.

     SECTION 1.13. Non-Business Days.

     If any Interest Payment Date, Redemption Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or the Securities) payment of interest, premium, if any, or
principal or other amounts in respect of such Security shall not be made on such
date, but shall be made on the next succeeding Business Day (and no interest
shall accrue in respect of the amounts whose payment is so delayed for the
period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be, until such next succeeding Business Day) except
that, if such Business Day falls in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the Interest Payment Date or
Redemption Date or at the Stated Maturity.

                                   ARTICLE II

                                 SECURITY FORMS

     SECTION 2.1. Form of Security.

     Any Security issued hereunder shall be in substantially the following form:

                  NORTHSTAR REALTY FINANCE LIMITED PARTNERSHIP

                 FLOATING RATE JUNIOR SUBORDINATED NOTE DUE 2035

No. _____________                                                    $25,780,000

     NorthStar Realty Finance Limited Partnership, a limited partnership
organized and existing under the laws of Delaware (hereinafter called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
[_______________], or registered assigns, the principal sum of Twenty Five
Million Seven Hundred Eighty Thousand Dollars ($25,780,000) [IF THE SECURITY IS
A GLOBAL SECURITY, THEN INSERT-- OR SUCH OTHER PRINCIPAL AMOUNT REPRESENTED
HEREBY AS MAY BE SET FORTH IN THE RECORDS OF THE SECURITIES REGISTRAR
HEREINAFTER REFERRED TO IN ACCORDANCE WITH THE INDENTURE] on June 30, 2035. The
Company further promises to pay interest on said principal sum from May 25,
2005, or from the most recent Interest Payment Date to which


                                       14



interest has been paid or duly provided for, quarterly (subject to deferral as
set forth herein) in arrears on March 30, June 30, September 30 and December 30
of each year, commencing September 30, 2005, or if any such day is not a
Business Day, on the next succeeding Business Day (and no interest shall accrue
in respect of the amounts whose payment is so delayed for the period from and
after such Interest Payment Date until such next succeeding Business Day),
except that, if such Business Day falls in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case, with the same force and effect as if made on the Interest Payment Date, at
a fixed rate equal to 7.74% per annum through the interest payment date in June
2015 ("Fixed Rate Period") and thereafter at a variable rate equal to LIBOR plus
3.25% per annum, together with Additional Tax Sums, if any, as provided in
Section 10.5 of the Indenture, until the principal hereof is paid or duly
provided for or made available for payment; provided, further, that any overdue
principal, premium, if any, or Additional Tax Sums and any overdue installment
of interest shall bear Additional Interest at a fixed rate equal to 7.74%
through the interest payment date in June 2015 and thereafter at a variable rate
equal to LIBOR plus 3.25% per annum (to the extent that the payment of such
interest shall be legally enforceable), compounded quarterly, from the dates
such amounts are due until they are paid or made available for payment, and such
interest shall be payable on demand.

     During the Fixed Rate Period, the amount of interest payable shall be
computed on the basis of a 360-day year of twelve 30-day months and the amount
payable for any partial period shall be computed on the basis of the number of
days elapsed in a 360-day year of twelve 30-day months. Upon expiration of the
Fixed Rate Period, the amount of interest payable for any Interest Payment
Period will be computed on the basis of a 360-day year and the actual number of
days elapsed in the relevant interest period. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date shall, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest installment. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than ten (10) days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture.

     So long as no Event of Default has occurred and is continuing, after
October 12, 2006, the Company shall have the right, at any time and from time to
time during the term of this Security, to defer the payment of interest on this
Security for a period of up to six (6) consecutive quarterly interest payment
periods (such right to defer, the "Extension Right" and each such period,
including any extensions thereof prior to the expiration of such period, an
"Extension Period"), during which Extension Period(s), no interest shall be due
and payable (except any Additional Tax Sums that may be due and payable);
provided, that the Company shall not be entitled to exercise its Extension Right
so that it would be able to defer the payment of interest on this Security for
more than six (6) quarterly interest payment periods during the term of this
Security; provided, further, that, after the expiration of any Extension Period,
the Company may not exercise its Extension Right to begin any subsequent
Extension Period until it pays all


                                       15



interest then accrued and unpaid on this Security, together with such Additional
Interest, prior to beginning such subsequent Extension Period. No Extension
Period shall end on a date other than an Interest Payment Date, and no Extension
Period shall extend beyond the Stated Maturity of the principal of this
Security. No interest shall be due and payable during an Extension Period
(except any Additional Tax Sums that may be due and payable), except at the end
thereof, but each installment of interest that would otherwise have been due and
payable during such Extension Period shall bear Additional Interest (to the
extent payment of such interest would be legally enforceable) at a fixed rate
equal to 7.74% per annum through the interest payment date in June 2015 and
thereafter at a variable rate equal to LIBOR plus 3.25% per annum, compounded
quarterly, from the dates on which amounts would have otherwise been due and
payable until paid or made available for payment. At the end of any such
Extension Period (which shall include any extensions thereof prior to the
expiration of such Extension Period), the Company shall pay all interest then
accrued and unpaid on this Security, together with such Additional Interest.
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest; provided, that (i) all such previous and further
extensions comprising such Extension Period do not exceed six (6) quarterly
interest payment periods, (ii) no Extension Period shall end on a date other
than an Interest Payment Date and (iii) no Extension Period shall extend beyond
the Stated Maturity of the principal of this Security. Upon (i) the termination
of any such Extension Period (which shall include any extensions thereof prior
to the expiration of such Extension Period) and (ii) the payment of all accrued
and unpaid interest and any Additional Interest then due on any Interest Payment
Date, the Company may exercise its Extension Right to begin a new Extension
Period with respect to future payments of interest on this Security; provided,
that (i) such Extension Period does not exceed six (6) quarterly interest
payment periods, (ii) no Extension Period shall end on a date other than an
Interest Payment Date and (iii) no Extension Period shall extend beyond the
Stated Maturity of the principal of this Security. The Company shall give the
Holder of this Security and the Trustee written notice of its election to begin
any such Extension Period at least one Business Day prior to the next succeeding
Interest Payment Date on which interest on this Security would be payable but
for such deferral or, so long as this Security is held by NorthStar Realty
Finance Trust II, at least one Business Day prior to the earlier of (i) the next
succeeding date on which Distributions on the Preferred Securities of NorthStar
Realty Finance Trust II would be payable but for such deferral and (ii) the date
on which the Property Trustee of such Trust is required to give notice to any
securities exchange or other applicable self-regulatory organization or to
holders of such Preferred Securities of the record date for the payment of such
Distributions.

     During any such Extension Period, the Company shall not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or any interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company that rank pari
passu in all respects with or junior in interest to this Security (other than
(a) repurchases, redemptions or other acquisitions of shares of capital stock of
the Company in connection with (1) any employment contract, benefit plan or
other similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, (2) a dividend reinvestment or stockholder
stock purchase plan and (3) the issuance of capital stock of the Company (or
securities convertible into or exercisable for such capital stock) as
consideration in an acquisition transaction entered into prior to the applicable
Extension Period, (b) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a Subsidiary of
the Company) for any class or series of the Company's capital stock or


                                       16



of any class or series of the Company's indebtedness for any class or series of
the Company's capital stock, (c) the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any Rights Plan, the issuance of
rights, stock or other property under any Rights Plan, or the redemption or
repurchase of rights pursuant thereto or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock).

     Payment of principal of, premium, if any, and interest on this Security
shall be made in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
Payments of principal, premium, if any, and interest due at the Maturity of this
Security shall be made at the Place of Payment upon surrender of such Securities
to the Paying Agent, and payments of interest shall be made, subject to such
surrender where applicable, by wire transfer at such place and to such account
at a banking institution in the United States as may be designated in writing to
the Paying Agent at least ten (10) Business Days prior to the date for payment
by the Person entitled thereto unless proper written transfer instructions have
not been received by the relevant record date, in which case such payments shall
be made by check mailed to the address of such Person as such address shall
appear in the Security Register. Notwithstanding the foregoing, so long as the
Holder of this Security is the Property Trustee, the payment of the principal of
(and premium, if any) and interest (including any overdue installment of
interest and Additional Tax Sums, if any) on this Security will be made at such
place and to such account as may be designated by the Property Trustee.

     The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his or her behalf to take such actions as
may be necessary or appropriate to effectuate the subordination so provided and
(c) appoints the Trustee his or her attorney-in-fact for any and all such
purposes. Each Holder hereof, by his or her acceptance hereof, waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Debt, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.

     Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Security shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.

                          [FORM OF REVERSE OF SECURITY]

     This Security is one of a duly authorized issue of securities of the
Company (the "Securities") issued under the Junior Subordinated Indenture, dated
as of May 25, 2005 (the "Indenture"), between the Company and JPMorgan Chase
Bank, National Association, as Trustee (in such capacity, the "Trustee," which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties and immunities thereunder
of the Company, the Trustee, the holders of Senior Debt, the Holders of the
Securities and the


                                       17



holders of the Preferred Securities, and of the terms upon which the Securities
are, and are to be, authenticated and delivered.

     All terms used in this Security that are defined in the Indenture or in the
Amended and Restated Trust Agreement, dated as of May 25, 2005 (as modified,
amended or supplemented from time to time, the "Trust Agreement"), relating to
the NorthStar Realty Finance Trust II (the "Trust") among the Company, as
Depositor, the Trustees named therein and the Holders from time to time of the
Trust Securities issued pursuant thereto, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.

     The Company may, on any Interest Payment Date, at its option, upon not less
than thirty (30) days' nor more than sixty (60) days' written notice to the
Holders of the Securities (unless a shorter notice period shall be satisfactory
to the Trustee) on or after June 30, 2010 and subject to the terms and
conditions of Article XI of the Indenture, redeem this Security in whole at any
time or in part from time to time at a Redemption Price equal to one hundred
percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, through
but excluding the date fixed as the Redemption Date.

     In addition, upon the occurrence and during the continuation of a Special
Event, the Company may, at its option, upon not less than thirty (30) days' nor
more than sixty (60) days' written notice to the Holders of the Securities
(unless a shorter notice period shall be satisfactory to the Trustee), redeem
this Security, in whole but not in part, subject to the terms and conditions of
Article XI of the Indenture at a Redemption Price equal to one hundred seven and
one half percent (107.5%) of the principal amount hereof, together, in the case
of any such redemption, with accrued interest, including any Additional
Interest, through but excluding the date fixed as the Redemption Date.

     In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof. If less than all the Securities are
to be redeemed, the particular Securities to be redeemed shall be selected not
more than sixty (60) days prior to the Redemption Date by the Trustee from the
Outstanding Securities not previously called for redemption, by such method as
the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of a portion of the principal amount of any Security.

     The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the
Holders of all Securities, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Security
shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.


                                       18



     No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium, if any, and
interest, including any Additional Interest (to the extent legally enforceable),
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is restricted to transfers to "Qualified
Purchasers" (as such term is defined in the Investment Company Act of 1940, as
amended,) and is registrable in the Securities Register, upon surrender of this
Security for registration of transfer at the office or agency of the Company
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Securities
Registrar and duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Securities, of like tenor,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

     The Securities are issuable only in registered form without coupons in
minimum denominations of $100,000 and any integral multiple of $1,000 in excess
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities are exchangeable for a like aggregate principal amount of
Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.

     No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

     The Company and, by its acceptance of this Security or a beneficial
interest herein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that, for United States federal, state and
local tax purposes, it is intended that this Security constitute indebtedness.

     THIS SECURITY SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT
OF LAWS PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).


                                       19



     IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on this ____ day of __________, 20__.

                                        NORTHSTAR REALTY FINANCE LIMITED
                                        PARTNERSHIP

                                        BY: NORTHSTAR REALTY FINANCE CORP., AS
                                        GENERAL PARTNER


                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

     SECTION 2.2. Restricted Legend.

     (a) Any Security issued hereunder shall bear a legend in substantially the
following form:

     "[IF THIS SECURITY IS A GLOBAL SECURITY INSERT: THIS SECURITY IS A GLOBAL
     SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS
     REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE
     OF DTC. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME
     OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
     DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
     TRANSFER OF THIS SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A
     NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT
     IN LIMITED CIRCUMSTANCES.

     UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO
     THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
     AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
     OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
     PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
     REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
     OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
     INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
     HEREIN.]

     THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A
     TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
     AMENDED (THE "SECURITIES ACT"), AND SUCH SECURITIES, AND ANY INTEREST
     THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
     OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH


                                       20



     PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE
     SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
     OF THE SECURITIES ACT PROVIDED BY RULE 144A UNDER THE SECURITIES ACT.

     THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE
     BENEFIT OF THE COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR
     OTHERWISE TRANSFERRED ONLY (I) TO THE COMPANY OR (II) TO A PERSON WHOM THE
     SELLER REASONABLY BELIEVES IS A "QUALIFIED PURCHASER" (AS DEFINED IN
     SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED), AND
     (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE
     RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.

     THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING
     AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST
     EXTENT PERMITTED BY LAW, ANY ATTEMPTED TRANSFER OF SECURITIES, OR ANY
     INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS
     THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE DEEMED TO
     BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED
     BY LAW, ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER
     OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE
     RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH SECURITIES, OR ANY INTEREST
     THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
     WHATSOEVER IN SUCH SECURITIES.

     THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE
     HEREOF OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN
     EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR
     ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY
     ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE
     CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE
     UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT
     IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY
     ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN. ANY PURCHASER OR
     HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE
     REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT IS NOT AN EMPLOYEE
     BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO
     WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON
     ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON
     OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE
     SUCH PURCHASE."


                                       21



     (b) The above legends shall not be removed from any Security unless there
is delivered to the Company satisfactory evidence, which may include an Opinion
of Counsel, as may be reasonably required to ensure that any future transfers
thereof may be made without restriction under or violation of the provisions of
the Securities Act and other applicable law. Upon provision of such satisfactory
evidence, the Company shall execute and deliver to the Trustee, and the Trustee
shall deliver, upon receipt of a Company Order directing it to do so, a Security
that does not bear the legend.

     SECTION 2.3. Form of Trustee's Certificate of Authentication.

     The Trustee's certificate of authentication shall be in substantially the
following form:

     This is one of the Securities referred to in the within-mentioned
Indenture.

Dated:

                                        JPMORGAN CHASE BANK, National
                                        Association, not in its individual
                                        capacity, but solely as Trustee


                                        By:
                                            ------------------------------------
                                                    Authorized signatory

     SECTION 2.4. Temporary Securities.

     (a) Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities that are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.

     (b) If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for that purpose without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Securities,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor one or more definitive Securities of any authorized
denominations having the same Original Issue Date and Stated Maturity and having
the same terms as such temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.

     SECTION 2.5. Definitive Securities.

     The Securities issued on the Original Issue Date shall be in definitive
form. The definitive Securities shall be printed, lithographed or engraved, or
produced by any combination


                                       22



of these methods, if required by any securities exchange on which the Securities
may be listed, on a steel engraved border or steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.

                                   ARTICLE III

                                 THE SECURITIES

     SECTION 3.1. Payment of Principal and Interest.

     (a) The unpaid principal amount of the Securities shall bear interest at a
fixed rate equal to 7.74% per annum through the interest payment date in June
2015 and thereafter at a variable rate of LIBOR plus 3.25% per annum until paid
or duly provided for, such interest to accrue from the Original Issue Date or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, and any overdue principal, premium, if any, or Additional Tax
Sums and any overdue installment of interest shall bear Additional Interest at
the rate equal to a fixed rate equal to 7.74% per annum through the interest
payment date in June 2015 and thereafter at a variable rate of LIBOR plus 3.25%
per annum, compounded quarterly from the dates such amounts are due until they
are paid or funds for the payment thereof are made available for payment.

     (b) Interest and Additional Interest on any Security that is payable, and
is punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, except that interest and any Additional Interest payable on
the Stated Maturity (or any date of principal repayment upon early maturity) of
the principal of a Security or on a Redemption Date shall be paid to the Person
to whom principal is paid. The initial payment of interest on any Security that
is issued between a Regular Record Date and the related Interest Payment Date
shall be payable as provided in such Security.

     (c) Any interest on any Security that is due and payable, but is not timely
paid or duly provided for, on any Interest Payment Date for Securities (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in paragraph (i) or (ii) below:

          (i) The Company may elect to make payment of any Defaulted Interest to
     the Persons in whose names the Securities (or their respective Predecessor
     Securities) are registered at the close of business on a Special Record
     Date for the payment of such Defaulted Interest (a "Special Record Date"),
     which shall be fixed in the following manner. At least thirty (30) days
     prior to the date of the proposed payment, the Company shall notify the
     Trustee in writing of the amount of Defaulted Interest proposed to be paid
     on each Security and the date of the proposed payment, and at the same time
     the Company shall deposit with the Trustee an amount of money equal to the
     aggregate amount proposed to be paid in respect of such Defaulted Interest
     or shall make arrangements satisfactory to the Trustee for such deposit
     prior to the date of the proposed


                                       23



     payment, such money when deposited to be held in trust for the benefit of
     the Persons entitled to such Defaulted Interest. Thereupon the Trustee
     shall fix a Special Record Date for the payment of such Defaulted Interest,
     which shall be not more than fifteen (15) days and not less than ten (10)
     days prior to the date of the proposed payment and not less than ten (10)
     days after the receipt by the Trustee of the notice of the proposed
     payment. The Trustee shall promptly notify the Company of such Special
     Record Date and, in the name and at the expense of the Company, shall cause
     notice of the proposed payment of such Defaulted Interest and the Special
     Record Date therefor to be mailed, first class, postage prepaid, to each
     Holder of a Security at the address of such Holder as it appears in the
     Securities Register not less than ten (10) days prior to such Special
     Record Date. Notice of the proposed payment of such Defaulted Interest and
     the Special Record Date therefor having been so mailed, such Defaulted
     Interest shall be paid to the Persons in whose names the Securities (or
     their respective Predecessor Securities) are registered on such Special
     Record Date; or

          (ii) The Company may make payment of any Defaulted Interest in any
     other lawful manner not inconsistent with the requirements of any
     securities exchange or automated quotation system on which the Securities
     may be listed, traded or quoted and, upon such notice as may be required by
     such exchange or automated quotation system (or by the Trustee if the
     Securities are not listed), if, after notice given by the Company to the
     Trustee of the proposed payment pursuant to this clause, such payment shall
     be deemed practicable by the Trustee.

     (d) Payments of interest on the Securities shall include interest accrued
to but excluding the respective Interest Payment Dates. During the period when
the interest rate is a fixed interest rate, interest payments for the Securities
shall be computed and paid on the basis of a 360-day year of twelve (12) thirty
(30)-day months and, thereafter, interest payments for the Securities shall be
computed and paid on the basis of shall be computed on the basis of a 360-day
year and the actual number of days elapsed in the relevant period.

     (e) Payment of principal of, premium, if any, and interest on the
Securities shall be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. Payments of principal, premium, if any, and interest due at the
Maturity of such Securities shall be made at the Place of Payment upon surrender
of such Securities to the Paying Agent and payments of interest shall be made
subject to such surrender where applicable, by wire transfer at such place and
to such account at a banking institution in the United States as may be
designated in writing to the Paying Agent at least ten (10) Business Days prior
to the date for payment by the Person entitled thereto unless proper written
transfer instructions have not been received by the relevant record date, in
which case such payments shall be made by check mailed to the address of such
Person as such address shall appear in the Security Register. Notwithstanding
the foregoing, so long as the holder of this Security is the Property Trustee,
the payment of the principal of (and premium, if any) and interest (including
any overdue installment of interest and Additional Tax Sums, if any) on this
Security will be made at such place and to such account as may be designated by
the Property Trustee.

     (f) Subject to the foregoing provisions of this Section 3.1, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall


                                       24



carry the rights to interest accrued and unpaid, and to accrue, that were
carried by such other Security.

     SECTION 3.2. Denominations.

     The Securities shall be in registered form without coupons and shall be
issuable in minimum denominations of $100,000 and any integral multiple of
$1,000 in excess thereof.

     SECTION 3.3. Execution, Authentication, Delivery and Dating.

     (a) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities in an aggregate principal
amount (including all then Outstanding Securities) not in excess of Twenty Five
Million Seven Hundred Eighty Thousand Dollars ($25,780,000) executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. In
authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and shall be fully protected in relying upon:

          (i) a copy of any Board Resolution relating thereto; and

          (ii) an Opinion of Counsel stating that: (1) such Securities, when
     authenticated and delivered by the Trustee and issued by the Company in the
     manner and subject to any conditions specified in such Opinion of Counsel,
     will constitute, and the Indenture constitutes, valid and legally binding
     obligations of the Company, each enforceable in accordance with its terms,
     subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
     moratorium and similar laws of general applicability relating to or
     affecting creditors' rights and to general equity principles; (2) the
     Securities have been duly authorized and executed by the Company and have
     been delivered to the Trustee for authentication in accordance with this
     Indenture; (3) the Securities are not required to be registered under the
     Securities Act; and (4) the Indenture is not required to be qualified under
     the Trust Indenture Act.

     (b) The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its Chief Executive
Officer, its President or one of its Vice Presidents. The signature of any of
these officers on the Securities may be manual or facsimile. Securities bearing
the manual or facsimile signatures of individuals who were at any time the
proper officers of the Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of such Securities.

     (c) No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver


                                       25



such Security to the Trustee for cancellation as provided in Section 3.8, for
all purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.

     (d) Each Security shall be dated the date of its authentication.

     SECTION 3.4. Global Securities.

     (a) Upon the election of the Holder after the Original Issue Date, which
election need not be in writing, the Securities owned by such Holder shall be
issued in the form of one or more Global Securities registered in the name of
the Depositary or its nominee. Each Global Security issued under this Indenture
shall be registered in the name of the Depositary designated by the Company for
such Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.

     (b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for registered Securities, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary advises the Trustee and the Company in
writing that such Depositary is no longer willing or able to properly discharge
its responsibilities as Depositary with respect to such Global Security, and no
qualified successor is appointed by the Company within ninety (90) days of
receipt by the Company of such notice, (ii) such Depositary ceases to be a
clearing agency registered under the Exchange Act and no successor is appointed
by the Company within ninety (90) days after obtaining knowledge of such event,
(iii) the Company executes and delivers to the Trustee a Company Order stating
that the Company elects to terminate the book-entry system through the
Depositary or (iv) an Event of Default shall have occurred and be continuing.
Upon the occurrence of any event specified in clause (i), (ii), (iii) or (iv)
above, the Trustee shall notify the Depositary and instruct the Depositary to
notify all owners of beneficial interests in such Global Security of the
occurrence of such event and of the availability of Securities to such owners of
beneficial interests requesting the same. The Trustee may conclusively rely, and
be protected in relying, upon the written identification of the owners of
beneficial interests furnished by the Depositary, and shall not be liable for
any delay resulting from a delay by the Depositary. Upon the issuance of such
Securities and the registration in the Securities Register of such Securities in
the names of the Holders of the beneficial interests therein, the Trustees shall
recognize such holders of beneficial interests as Holders.

     (c) If any Global Security is to be exchanged for other Securities or
canceled in part, or if another Security is to be exchanged in whole or in part
for a beneficial interest in any Global Security, then either (i) such Global
Security shall be so surrendered for exchange or cancellation as provided in
this Article III or (ii) the principal amount thereof shall be reduced or
increased by an amount equal to (x) the portion thereof to be so exchanged or
canceled, or (y) the principal amount of such other Security to be so exchanged
for a beneficial interest therein, as the case may be, by means of an
appropriate adjustment made on the records of the Securities Registrar,
whereupon the Trustee, in accordance with the Applicable Depositary Procedures,
shall instruct the Depositary or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depositary,


                                       26



accompanied by registration instructions, the Company shall execute and the
Trustee shall authenticate and deliver any Securities issuable in exchange for
such Global Security (or any portion thereof) in accordance with the
instructions of the Depositary. The Trustee shall not be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be fully
protected in relying on, such instructions.

     (d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof shall be authenticated and delivered in the form of, and shall be, a
Global Security, unless such Security is registered in the name of a Person
other than the Depositary for such Global Security or a nominee thereof.

     (e) Securities distributed to holders of Book-Entry Preferred Securities
(as defined in the applicable Trust Agreement) upon the dissolution of the Trust
shall be distributed in the form of one or more Global Securities registered in
the name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for credit
by the Depositary to the respective accounts of the beneficial owners of the
Securities represented thereby (or such other accounts as they may direct).
Securities distributed to holders of Preferred Securities other than Book-Entry
Preferred Securities upon the dissolution of the Trust shall not be issued in
the form of a Global Security or any other form intended to facilitate
book-entry trading in beneficial interests in such Securities.

     (f) The Depositary or its nominee, as the registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Depositary
Procedures. Accordingly, any such owner's beneficial interest in a Global
Security shall be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its nominee or
its Depositary Participants. The Securities Registrar and the Trustee shall be
entitled to deal with the Depositary for all purposes of this Indenture relating
to a Global Security (including the payment of principal and interest thereon
and the giving of instructions or directions by owners of beneficial interests
therein and the giving of notices) as the sole Holder of the Security and shall
have no obligations to the owners of beneficial interests therein. Neither the
Trustee nor the Securities Registrar shall have any liability in respect of any
transfers effected by the Depositary.

     (g) The rights of owners of beneficial interests in a Global Security shall
be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Depositary Participants.

     (h) No holder of any beneficial interest in any Global Security held on its
behalf by a Depositary shall have any rights under this Indenture with respect
to such Global Security, and such Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such Global
Security for all purposes whatsoever. None of the Company, the Trustee nor any
agent of the Company or the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a Global Security or maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by a Depositary or


                                       27



impair, as between a Depositary and such holders of beneficial interests, the
operation of customary practices governing the exercise of the rights of the
Depositary (or its nominee) as Holder of any Security.

     SECTION 3.5. Registration, Transfer and Exchange Generally.

     (a) The Trustee shall cause to be kept at the Corporate Trust Office a
register (the "Securities Register") in which the registrar and transfer agent
with respect to the Securities (the "Securities Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Securities and of transfers and exchanges of Securities. The Trustee shall at
all times also be the Securities Registrar. The provisions of Article VI shall
apply to the Trustee in its role as Securities Registrar.

     (b) Subject to compliance with Section 2.2(b), upon surrender for
registration of transfer of any Security at the offices or agencies of the
Company designated for that purpose the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denominations of like
tenor and aggregate principal amount.

     (c) At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations, of like tenor and aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities that the Holder making the exchange is entitled to receive.

     (d) All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.

     (e) Every Security presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or
such Holder's attorney duly authorized in writing.

     (f) No service charge shall be made to a Holder for any transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Securities.

     (g) Neither the Company nor the Trustee shall be required pursuant to the
provisions of this Section 3.5 (g): (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business
fifteen (15) days before the day of selection for redemption of Securities
pursuant to Article XI and ending at the close of business on the day of mailing
of the notice of redemption or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except, in the case of
any such Security to be redeemed in part, any portion thereof not to be
redeemed.

     (h) The Company shall designate an office or offices or agency or agencies
where Securities may be surrendered for registration or transfer or exchange.
The Company initially


                                       28



designates the Corporate Trust Office as its office and agency for such
purposes. The Company shall give prompt written notice to the Trustee and to the
Holders of any change in the location of any such office or agency.

     (i) The Securities may only be transferred to a "Qualified Purchaser" as
such term is defined in Section 2(a)(51) of the Investment Company Act.

     SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.

     (a) If any mutilated Security is surrendered to the Trustee together with
such security or indemnity as may be required by the Trustee to save the Company
and the Trustee harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of like tenor and
aggregate principal amount and bearing a number not contemporaneously
outstanding.

     (b) If there shall be delivered to the Trustee (i) evidence to its
satisfaction of the destruction, loss or theft of any Security and (ii) such
security or indemnity as may be required by it to save each of the Company and
the Trustee harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon its written request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and aggregate principal amount as such
destroyed, lost or stolen Security, and bearing a number not contemporaneously
outstanding.

     (c) If any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.

     (d) Upon the issuance of any new Security under this Section 3.6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

     (e) Every new Security issued pursuant to this Section 3.6 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.

     (f) The provisions of this Section 3.6 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.

     SECTION 3.7. Persons Deemed Owners.

     The Company, the Trustee and any agent of the Company or the Trustee shall
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and any interest
on such Security and for all other purposes


                                       29



whatsoever, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.

     SECTION 3.8. Cancellation.

     All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section 3.8, except as expressly
permitted by this Indenture. All canceled Securities shall be retained or
disposed of by the Trustee in accordance with its customary practices and the
Trustee shall deliver to the Company a certificate of such disposition.

     SECTION 3.9. Deferrals of Interest Payment Dates.

     (a) So long as no Event of Default has occurred and is continuing, after
October 12, 2006, the Company shall have the right, at any time and from time to
time during the term of this Security, to defer the payment of interest on this
Security for a period of up to six (6) consecutive quarterly interest payment
periods (such right to defer, the "Extension Right" and each such period,
including any extensions thereof prior to the expiration of such period, an
"Extension Period"), during which Extension Period(s), no interest shall be due
and payable (except any Additional Tax Sums that may be due and payable);
provided, that the Company shall not be entitled to exercise its Extension Right
so that it would be able to defer the payment of interest on this Security for
more than six (6) quarterly interest payment periods during the term of this
Security; provided, further, that, after the expiration of any Extension Period,
the Company may not exercise its Extension Right to begin any subsequent
Extension Period until it pays all interest then accrued and unpaid on this
Security, together with such Additional Interest, prior to beginning such
subsequent Extension Period. No Extension Period shall end on a date other than
an Interest Payment Date and no Extension Period shall extend beyond the Stated
Maturity of the principal of the Securities. No interest shall be due and
payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest (to the extent payment of
such interest would be legally enforceable) at the rate equal to a fixed rate
equal to 7.74% per annum through the interest payment date in June 2015 and
thereafter at a variable rate equal to LIBOR plus 3.25% per annum compounded
quarterly, from the dates on which amounts would have otherwise been due and
payable until paid or until funds for the payment thereof have been made
available for payment. At the end of any such Extension Period (which shall
include any extensions thereof prior to the expiration of such Extension
Period), the Company shall pay all interest then accrued and unpaid on the
Securities together with such Additional Interest. Prior to the termination of
any such Extension Period, the Company may extend such Extension Period and
further defer the payment of interest; provided, that (i) all such previous and
further extensions comprising such Extension Period do not exceed six (6)
quarterly interest payment periods, (ii) no Extension Period shall end on a date
other than an Interest Payment Date and (iii) no Extension Period shall extend
beyond the Stated Maturity


                                       30



of the principal of the Securities. Upon (i) the termination of any such
Extension Period (which shall include any extensions thereof prior to the
expiration of such Extension Period) and (ii) the payment of all accrued and
unpaid interest and any Additional Interest then due on any Interest Payment
Date, the Company may exercise its Extension Right to begin a new Extension
Period with respect to future payments of interest on this Security; provided,
that (i) such Extension Period does not exceed six (6) quarterly interest
payment periods, (ii) no Extension Period shall end on a date other than an
Interest Payment Date and (iii) no Extension Period shall extend beyond the
Stated Maturity of the principal of the Securities. The Company shall give the
Holders of the Securities and the Trustee written notice of its election to
begin any such Extension Period at least one Business Day prior to the next
succeeding Interest Payment Date on which interest on the Securities would be
payable but for such deferral or, so long as any Securities are held by the
Trust, at least one Business Day prior to the earlier of (i) the next succeeding
date on which Distributions on the Preferred Securities of such Trust would be
payable but for such deferral and (ii) the date on which the Property Trustee of
such Trust is required to give notice to any securities exchange or other
applicable self-regulatory organization or to holders of such Preferred
Securities of the record date for the payment of such Distributions.

     (b) In connection with any such Extension Period, the Company shall be
subject to the restrictions set forth in Section 10.6(a).

     SECTION 3.10. Agreed Tax Treatment.

     Each Security issued hereunder shall provide that the Company and, by its
acceptance or acquisition of a Security or a beneficial interest therein, the
Holder of, and any Person that acquires a direct or indirect beneficial interest
in, such Security, intend and agree to treat such Security as indebtedness of
the Company for United States Federal, state and local tax purposes and to treat
the Preferred Securities (including but not limited to all payments and proceeds
with respect to the Preferred Securities) as an undivided beneficial ownership
interest in the Securities (and any other Trust property) (and payments and
proceeds therefrom, respectively) for United States Federal, state and local tax
purposes. The provisions of this Indenture shall be interpreted to further this
intention and agreement of the parties.

     SECTION 3.11. CUSIP Numbers.

     The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption and other similar or related materials as a convenience to
Holders; provided, that any such notice or other materials may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of redemption or other materials
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers.


                                       31



                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE

     SECTION 4.1. Satisfaction and Discharge of Indenture.

     This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when

     (a) either

          (i) all Securities theretofore authenticated and delivered (other than
     (A) Securities that have been mutilated, destroyed, lost or stolen and that
     have been replaced or paid as provided in Section 3.6 and (B) Securities
     for whose payment money has theretofore been deposited in trust or
     segregated and held in trust by the Company and thereafter repaid to the
     Company or discharged from such trust as provided in Section 10.2) have
     been delivered to the Trustee for cancellation; or

          (ii) all such Securities not theretofore delivered to the Trustee for
     cancellation

               (A) have become due and payable, or

               (B) will become due and payable at their Stated Maturity within
          one year of the date of deposit, or

               (C) are to be called for redemption within one year under
          arrangements satisfactory to the Trustee for the giving of notice of
          redemption by the Trustee in the name, and at the expense, of the
          Company,

     and the Company, in the case of subclause (ii)(A), (B) or (C) above, has
     deposited or caused to be deposited with the Trustee as trust funds in
     trust for such purpose (x) an amount in the currency or currencies in which
     the Securities are payable, (y) Government Obligations which through the
     scheduled payment of principal and interest in respect thereof in
     accordance with their terms will provide, not later than the due date of
     any payment, money in an amount or (z) a combination thereof, in each case
     sufficient, in the opinion of a nationally recognized firm of independent
     public accountants expressed in a written certification thereof delivered
     to the Trustee, to pay and discharge the entire indebtedness on such
     Securities not theretofore delivered to the Trustee for cancellation, for
     principal and any premium and interest (including any Additional Interest)
     to the date of such deposit (in the case of Securities that have become due
     and payable) or to the Stated Maturity (or any date of principal repayment
     upon early maturity) or Redemption Date, as the case may be;

     (b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and


                                       32



     (c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6, the obligations of
the Company to any Authenticating Agent under Section 6.11 and, if money shall
have been deposited with the Trustee pursuant to subclause (a)(ii) of this
Section 4.1, the obligations of the Trustee under Section 4.2 and Section
10.2(e) shall survive.

     SECTION 4.2. Application of Trust Money.

     Subject to the provisions of Section 10.2(e), all money deposited with the
Trustee pursuant to Section 4.1 shall be held in trust and applied by the
Trustee, in accordance with the provisions of the Securities and this Indenture,
to the payment in accordance with Section 3.1, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal and any
premium and interest (including any Additional Interest) for the payment of
which such money or obligations have been deposited with or received by the
Trustee. Moneys held by the Trustee under this Section 4.2 shall not be subject
to the claims of holders of Senior Debt under Article XII.

                                   ARTICLE V

                                    REMEDIES

     SECTION 5.1. Events of Default.

     "Event of Default" means, wherever used herein with respect to the
Securities, any one of the following events (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

     (a) default in the payment of any interest upon any Security, including any
Additional Interest in respect thereof, when it becomes due and payable, and
continuance of such default for a period of thirty (30) days (subject to the
deferral of any due date in the case of an Extension Period); or

     (b) default in the payment of the principal of or any premium on any
Security at its Maturity; or

     (c) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture and continuance of such default or breach for a
period of thirty (30) days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least twenty five percent (25%) in aggregate principal
amount of the Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder;


                                       33



     (d) the entry by a court having jurisdiction in the premises of a decree or
order adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of sixty (60) consecutive days;

     (e) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by the Company to the institution of
bankruptcy or insolvency proceedings against it, or the filing by the Company of
a petition or answer or consent seeking reorganization or relief under any
applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability to
pay its debts generally as they become due and its willingness to be adjudicated
a bankrupt or insolvent, or the taking of corporate action by the Company in
furtherance of any such action; or

     (f) the Trust shall have voluntarily or involuntarily liquidated,
dissolved, wound-up its business or otherwise terminated its existence, except
in connection with (1) the distribution of the Securities to holders of the
Preferred Securities in liquidation of their interests in the Trust, (2) the
redemption of all of the outstanding Preferred Securities or (3) certain
mergers, consolidations or amalgamations, each as and to the extent permitted by
the Trust Agreement.

     SECTION 5.2. Acceleration of Maturity; Rescission and Annulment.

     (a) If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than twenty five percent (25%) in
aggregate principal amount of the Outstanding Securities may declare the
principal amount of all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders),
provided, that if, upon an Event of Default, the Trustee or the Holders of not
less than twenty five percent (25%) in principal amount of the Outstanding
Securities fail to declare the principal of all the Outstanding Securities to be
immediately due and payable, the holders of at least twenty five percent (25%)
in aggregate Liquidation Amount of the Preferred Securities then outstanding
shall have the right to make such declaration by a notice in writing to the
Property Trustee, the Company and the Trustee; and upon any such declaration the
principal amount of and the accrued interest (including any Additional Interest)
on all the Securities shall become immediately due and payable.

     (b) At any time after such a declaration of acceleration with respect to
Securities has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter provided in this
Article V, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Indenture Trustee, or the
holders of a majority in aggregate Liquidation Amount of the Preferred
Securities, by written


                                       34



notice to the Property Trustee, the Company and the Trustee, may rescind and
annul such declaration and its consequences if:

          (i) the Company has paid or deposited with the Trustee a sum
     sufficient to pay:

               (A) all overdue installments of interest on all Securities,

               (B) any accrued Additional Interest on all Securities,

               (C) the principal of and any premium on any Securities that have
          become due otherwise than by such declaration of acceleration and
          interest (including any Additional Interest) thereon at the rate borne
          by the Securities, and

               (D) all sums paid or advanced by the Trustee hereunder and the
          reasonable compensation, expenses, disbursements and advances of the
          Trustee, the Property Trustee and their agents and counsel; and

          (ii) all Events of Default with respect to Securities, other than the
     non-payment of the principal of Securities that has become due solely by
     such acceleration, have been cured or waived as provided in Section 5.13;

provided, that if the Holders of such Securities fail to annul such declaration
and waive such default, the holders of not less than a majority in aggregate
Liquidation Amount of the Preferred Securities then outstanding shall also have
the right to rescind and annul such declaration and its consequences by written
notice to the Property Trustee, the Company and the Trustee, subject to the
satisfaction of the conditions set forth in paragraph (b) of this Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.

     SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.

     (a) The Company covenants that if:

          (i) default is made in the payment of any installment of interest
     (including any Additional Interest) on any Security when such interest
     becomes due and payable and such default continues for a period of thirty
     (30) days, or

          (ii) default is made in the payment of the principal of and any
     premium on any Security at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal and any premium and interest (including any
Additional Interest) and, in addition thereto, all amounts owing the Trustee
under Section 6.6.

     (b) If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by


                                       35



law out of the property of the Company or any other obligor upon the Securities,
wherever situated.

     (c) If an Event of Default with respect to Securities occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Securities by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any covenant or agreement
in this Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.

     SECTION 5.4. Trustee May File Proofs of Claim.

     In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or similar judicial
proceeding relative to the Company (or any other obligor upon the Securities),
its property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized hereunder in order to have claims of the Holders and the Trustee
allowed in any such proceeding. In particular, the Trustee shall be authorized
to collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to first pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts owing the
Trustee, any predecessor Trustee and other Persons under Section 6.6.

     SECTION 5.5. Trustee May Enforce Claim Without Possession of Securities.

     All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, subject to
Article XII and after provision for the payment of all the amounts owing the
Trustee, any predecessor Trustee and other Persons under Section 6.6, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.

     SECTION 5.6. Application of Money Collected.

     Any money or property collected or to be applied by the Trustee with
respect to the Securities pursuant to this Article V shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money or property on account of principal or any premium or
interest (including any Additional Interest), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:

     FIRST: To the payment of all amounts due the Trustee, any predecessor
Trustee and other Persons under Section 6.6;


                                       36



     SECOND: To the payment of all Senior Debt of the Company if and to the
extent required by Article XII;

     THIRD: Subject to Article XII, to the payment of the amounts then due and
unpaid upon the Securities for principal and any premium and interest (including
any Additional Interest) in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and any
premium and interest (including any Additional Interest), respectively; and

     FOURTH: The balance, if any, to the Person or Persons entitled thereto.

     SECTION 5.7. Limitation on Suits.

     Subject to Section 5.8, no Holder of any Securities shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
or for the appointment of a custodian, receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:

     (a) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities;

     (b) the Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;

     (c) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;

     (d) the Trustee after its receipt of such notice, request and offer of
indemnity has failed to institute any such proceeding for sixty (60) days; and

     (e) no direction inconsistent with such written request has been given to
the Trustee during such sixty (60)-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.

     SECTION 5.8. Unconditional Right of Holders to Receive Principal, Premium,
if any, and Interest; Direct Action by Holders of Preferred Securities.

     Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and any premium on such Security at its Maturity and
payment of interest (including any Additional Interest) on such Security when
due and payable and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Holder. Any


                                       37



registered holder of the Preferred Securities shall have the right, upon the
occurrence of an Event of Default described in Section 5.1(a) or Section 5.1(b),
to institute a suit directly against the Company for enforcement of payment to
such holder of principal of and any premium and interest (including any
Additional Interest) on the Securities having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities held by such holder.

     SECTION 5.9. Restoration of Rights and Remedies.

     If the Trustee, any Holder or any holder of Preferred Securities has
instituted any proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Holder or such holder of
Preferred Securities, then and in every such case the Company, the Trustee, such
Holders and such holder of Preferred Securities shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee, such Holder and such holder of Preferred Securities shall continue as
though no such proceeding had been instituted.

     SECTION 5.10. Rights and Remedies Cumulative.

     Except as otherwise provided in Section 3.6(f), no right or remedy herein
conferred upon or reserved to the Trustee or the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

     SECTION 5.11. Delay or Omission Not Waiver.

     No delay or omission of the Trustee, any Holder of any Securities or any
holder of any Preferred Security to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article V or by law to the Trustee or to the Holders and
the right and remedy given to the holders of Preferred Securities by Section 5.8
may be exercised from time to time, and as often as may be deemed expedient, by
the Trustee, the Holders or the holders of Preferred Securities, as the case may
be.

     SECTION 5.12. Control by Holders.

     The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities (or, as the case may be, the holders of a majority in
aggregate Liquidation Amount of Preferred Securities) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee; provided, that:

     (a) such direction shall not be in conflict with any rule of law or with
this Indenture,

     (b) the Trustee may take any other action deemed proper by the Trustee that
is not inconsistent with such direction, and


                                       38



     (c) subject to the provisions of Section 6.2, the Trustee shall have the
right to decline to follow such direction if a Responsible Officer or Officers
of the Trustee shall, in good faith, reasonably determine that the proceeding so
directed would be unjustly prejudicial to the Holders not joining in any such
direction or would involve the Trustee in personal liability.

     SECTION 5.13. Waiver of Past Defaults.

     (a) The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities or the holders of not less than a majority in
aggregate Liquidation Amount of the Preferred Securities may waive any past
Event of Default hereunder and its consequences except an Event of Default:

          (i) in the payment of the principal of or any premium or interest
     (including any Additional Interest) on any Outstanding Security (unless
     such Event of Default has been cured and the Company has paid to or
     deposited with the Trustee a sum sufficient to pay all installments of
     interest (including any Additional Interest) due and past due and all
     principal of and any premium on all Securities due otherwise than by
     acceleration), or

          (ii) in respect of a covenant or provision hereof that under Article
     IX cannot be modified or amended without the consent of each Holder of any
     Outstanding Security.

     (b) Any such waiver shall be deemed to be on behalf of the Holders of all
the Outstanding Securities or, in the case of a waiver by holders of Preferred
Securities issued by such Trust, by all holders of Preferred Securities.

     (c) Upon any such waiver, such Event of Default shall cease to exist and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereon.

     SECTION 5.14. Undertaking for Costs.

     All parties to this Indenture agree, and each Holder of any Security by his
or her acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 5.14 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Holder, or group of Holders, holding
in the aggregate more than ten percent (10%) in aggregate principal amount of
the Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of or any premium on the Security
after the Stated Maturity or any interest (including any Additional Interest) on
any Security after it is due and payable.


                                       39



     SECTION 5.15. Waiver of Usury, Stay or Extension Laws.

     The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                                   ARTICLE VI

                                   THE TRUSTEE

     SECTION 6.1. Corporate Trustee Required.

     There shall at all times be a Trustee hereunder with respect to the
Securities. The Trustee shall be a corporation organized and doing business
under the laws of the United States or of any state thereof, authorized to
exercise corporate trust powers, having a combined capital and surplus of at
least $50,000,000, subject to supervision or examination by Federal or state
authority and having an office within the United States. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of such supervising or examining authority, then, for the purposes
of this Section 6.1, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.1, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article VI.

     SECTION 6.2. Certain Duties and Responsibilities.

     Except during the continuance of an Event of Default:

          (i) the Trustee undertakes to perform such duties and only such duties
     as are specifically set forth in this Indenture, and no implied covenants
     or obligations shall be read into this Indenture against the Trustee; and

          (ii) in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Indenture; provided,
     that in the case of any such certificates or opinions that by any provision
     hereof are specifically required to be furnished to the Trustee, the
     Trustee shall be under a duty to examine the same to determine whether or
     not they substantially conform on their face to the requirements of this
     Indenture.

     (b) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall, prior to the receipt of directions, if any, from
the Holders of at least a majority in aggregate principal amount of the
Outstanding Securities (or, if applicable, from the holders of at least a
majority in aggregate Liquidation Amount of Preferred Securities), exercise such
of the


                                       40



rights and powers vested in it by this Indenture, and use the same degree
of care and skill in its exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.

     (c) Notwithstanding the foregoing, no provision of this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 6.2. To the extent that, at law or in
equity, the Trustee has duties and liabilities relating to the Holders, the
Trustee shall not be liable to any Holder or any holder of Preferred Securities
for the Trustee's good faith reliance on the provisions of this Indenture. The
provisions of this Indenture, to the extent that they restrict the duties and
liabilities of the Trustee otherwise existing at law or in equity, are agreed by
the Company and the Holders and the holders of Preferred Securities to replace
such other duties and liabilities of the Trustee.

     (d) No provisions of this Indenture shall be construed to relieve the
Trustee from liability with respect to matters that are within the authority of
the Trustee under this Indenture for its own negligent action, negligent failure
to act or willful misconduct, except that:

          (i) the Trustee shall not be liable for any error or judgment made in
     good faith by an authorized officer of the Trustee, unless it shall be
     proved that the Trustee was negligent in ascertaining the pertinent facts;

          (ii) the Trustee shall not be liable with respect to any action taken
     or omitted to be taken by it in good faith in accordance with the direction
     of the Holders of at least a majority in aggregate principal amount of the
     Outstanding Securities (or, as the case may be, the holders of a majority
     in aggregate Liquidation Amount of Preferred Securities) relating to the
     time, method and place of conducting any proceeding for any remedy
     available to the Trustee under this Indenture; and

          (iii) the Trustee shall be under no liability for interest on any
     money received by it hereunder except as otherwise agreed in writing with
     the Company and money held by the Trustee in trust hereunder need not be
     segregated from other funds except to the extent required by law.

     (e) If at any time the Trustee hereunder is not the same Person as the
Property Trustee under the Trust Agreement:

          (i) whenever a reference is made herein to the dissolution,
     termination or liquidation of the Trust, the Trustee shall be entitled to
     assume that no such dissolution, termination, or liquidation has occurred
     so long as the Securities are or continue to be registered in the name of
     such Property Trustee, and the Trustee shall be charged with notice or
     knowledge of such dissolution, termination or liquidation only upon written
     notice thereof given to the Trustee by the Depositor under the Trust
     Agreement; and


                                       41



          (ii) the Trustee shall not be charged with notice or knowledge that
     any Person is a holder of Preferred Securities or Common Securities issued
     by the Trust or whether any group of holders of Preferred Securities
     constitutes any specified percentage of all outstanding Preferred
     Securities for any purpose under this Indenture, unless and until the
     Trustee is furnished with a list of holders by such Property Trustee and
     the aggregate Liquidation Amount of the Preferred Securities then
     outstanding. The Trustee may conclusively rely and shall be protected in
     relying on such list.

     (f) Notwithstanding Section 1.10, the Trustee shall not, and shall not be
deemed to, owe any fiduciary duty to the holders of any of the Trust Securities
issued by the Trust and shall not be liable to any such holder (other than for
the willful misconduct or negligence of the Trustee) if the Trustee in good
faith (i) pays over or distributes to a registered Holder of the Securities or
to the Company or to any other Person, cash, property or securities to which
such holders of such Trust Securities shall be entitled or (ii) takes any action
or omits to take any action at the request of the Holder of such Securities.
Nothing in this paragraph shall affect the obligation of any other such Person
to hold such payment for the benefit of, and to pay such amount over to, such
holders of Preferred Securities or Common Securities or their representatives.

     SECTION 6.3. Notice of Defaults.

     Within ninety (90) days after the occurrence of any default actually known
to the Trustee, the Trustee shall give the Holders notice of such default unless
such default shall have been cured or waived; provided, that except in the case
of a default in the payment of the principal of or any premium or interest on
any Securities, the Trustee shall be fully protected in withholding the notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that withholding the notice is in the interest of holders of
Securities; and provided, further, that in the case of any default of the
character specified in Section 5.1(c), no such notice to Holders shall be given
until at least thirty (30) days after the occurrence thereof. For the purpose of
this Section 6.3, the term "default" means any event which is, or after notice
or lapse of time or both would become, an Event of Default.

     SECTION 6.4. Certain Rights of Trustee.

     Subject to the provisions of Section 6.2:

     (a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting in good faith and in accordance with the terms
hereof upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties;

     (b) if (i) in performing its duties under this Indenture the Trustee is
required to decide between alternative courses of action, (ii) in construing any
of the provisions of this Indenture the Trustee finds ambiguous or inconsistent
with any other provisions contained herein or (iii) the Trustee is unsure of the
application of any provision of this Indenture, then, except as to any matter as
to which the Holders are entitled to decide under the terms of this Indenture,
the


                                       42



Trustee shall deliver a notice to the Company requesting the Company's written
instruction as to the course of action to be taken and the Trustee shall take
such action, or refrain from taking such action, as the Trustee shall be
instructed in writing to take, or to refrain from taking, by the Company;
provided, that if the Trustee does not receive such instructions from the
Company within ten Business Days after it has delivered such notice or such
reasonably shorter period of time set forth in such notice the Trustee may, but
shall be under no duty to, take such action, or refrain from taking such action,
as the Trustee shall deem advisable and in the best interests of the Holders, in
which event the Trustee shall have no liability except for its own negligence,
bad faith or willful misconduct;

     (c) any request or direction of the Company shall be sufficiently evidenced
by a Company Request or Company Order and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;

     (d) the Trustee may consult with counsel (which counsel may be counsel to
the Trustee, the Company or any of its Affiliates, and may include any of its
employees) and the advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;

     (e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders or any holder of Preferred Securities pursuant to this Indenture,
unless such Holders (or such holders of Preferred Securities) shall have offered
to the Trustee security or indemnity reasonably satisfactory to it against the
costs, expenses (including reasonable attorneys' fees and expenses) and
liabilities that might be incurred by it in compliance with such request or
direction, including reasonable advances as may be requested by the Trustee;

     (f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
note or other paper or document, but the Trustee in its discretion may make such
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;

     (g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney, custodian or
nominee appointed with due care by it hereunder;

     (h) whenever in the administration of this Indenture the Trustee shall deem
it desirable to receive instructions with respect to enforcing any remedy or
right or taking any other action with respect to enforcing any remedy or right
hereunder, the Trustees (i) may request instructions from the Holders (which
instructions may only be given by the Holders of the same aggregate principal
amount of Outstanding Securities as would be entitled to direct the Trustee
under this Indenture in respect of such remedy, right or action), (ii) may
refrain from enforcing such remedy or right or taking such action until such
instructions are received and (iii) shall be protected in acting in accordance
with such instructions;


                                       43



     (i) except as otherwise expressly provided by this Indenture, the Trustee
shall not be under any obligation to take any action that is discretionary under
the provisions of this Indenture;

     (j) without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services in
connection with any bankruptcy, insolvency or other proceeding referred to in
clauses (d) or (e) of the definition of Event of Default, such expenses
(including legal fees and expenses of its agents and counsel) and the
compensation for such services are intended to constitute expenses of
administration under any bankruptcy laws or law relating to creditors rights
generally;

     (k) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate addressing such matter, which,
upon receipt of such request, shall be promptly delivered by the Company;

     (l) the Trustee shall not be charged with knowledge of any Event of Default
unless either (i) a Responsible Officer of the Trustee shall have actual
knowledge or (ii) the Trustee shall have received written notice thereof from
the Company or a Holder; and

     (m) in the event that the Trustee is also acting as Paying Agent,
Authenticating Agent or Securities Registrar hereunder, the rights and
protections afforded to the Trustee pursuant to this Article VI shall also be
afforded such Paying Agent, Authenticating Agent, or Securities Registrar.

     SECTION 6.5. May Hold Securities.

     The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Securities Registrar or such other agent.

     SECTION 6.6. Compensation; Reimbursement; Indemnity.

     (a) The Company agrees:

          (i) to pay to the Trustee from time to time reasonable compensation
     for all services rendered by it hereunder in such amounts as the Company
     and the Trustee shall agree from time to time (which compensation shall not
     be limited by any provision of law in regard to the compensation of a
     trustee of an express trust);

          (ii) to reimburse the Trustee upon its request for all reasonable
     expenses, disbursements and advances incurred or made by the Trustee in
     accordance with any provision of this Indenture (including the reasonable
     compensation and the expenses and disbursements of its agents and counsel),
     except any such expense, disbursement or advance as may be attributable to
     its negligence, bad faith or willful misconduct; and


                                       44



          (iii) to the fullest extent permitted by applicable law, to indemnify
     the Trustee and its Affiliates, and their officers, directors,
     shareholders, agents, representatives and employees for, and to hold them
     harmless against, any loss, damage, liability, tax (other than income,
     franchise or other taxes imposed on amounts paid pursuant to (i) or (ii)
     hereof), penalty, expense or claim of any kind or nature whatsoever
     incurred without negligence, bad faith or willful misconduct on its part
     arising out of or in connection with the acceptance or administration of
     this trust or the performance of the Trustee's duties hereunder, including
     the costs and expenses of defending itself against any claim or liability
     in connection with the exercise or performance of any of its powers or
     duties hereunder.

     (b) To secure the Company's payment obligations in this Section 6.6, the
Company hereby grants and pledges to the Trustee and the Trustee shall have a
lien prior to the Securities on all money or property held or collected by the
Trustee, other than money or property held in trust to pay principal and
interest on particular Securities. Such lien shall survive the satisfaction and
discharge of this Indenture or the resignation or removal of the Trustee.

     (c) The obligations of the Company under this Section 6.6 shall survive the
satisfaction and discharge of this Indenture and the earlier resignation or
removal of the Trustee.

     (d) In no event shall the Trustee be liable for any indirect, special,
punitive or consequential loss or damage of any kind whatsoever, including, but
not limited to, lost profits, even if the Trustee has been advised of the
likelihood of such loss or damage and regardless of the form of action.

     (e) In no event shall the Trustee be liable for any failure or delay in the
performance of its obligations hereunder because of circumstances beyond its
control, including, but not limited to, acts of God, flood, war (whether
declared or undeclared), terrorism, fire, riot, embargo, government action,
including any laws, ordinances, regulations, governmental action or the like
which delay, restrict or prohibit the providing of the services contemplated by
this Indenture.

     SECTION 6.7. Resignation and Removal; Appointment of Successor.

     (a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article VI shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.8.

     (b) The Trustee may resign at any time by giving written notice thereof to
the Company.

     (c) Unless an Event of Default shall have occurred and be continuing, the
Trustee may be removed at any time by the Company by a Board Resolution. If an
Event of Default shall have occurred and be continuing, the Trustee may be
removed by Act of the Holders of a majority in aggregate principal amount of the
Outstanding Securities, delivered to the Trustee and to the Company.

     (d) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any reason, at a time
when no Event of Default


                                       45



shall have occurred and be continuing, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee, and such successor Trustee and the
retiring Trustee shall comply with the applicable requirements of Section 6.8.
If the Trustee shall resign, be removed or become incapable of acting, or if a
vacancy shall occur in the office of Trustee for any reason, at a time when an
Event of Default shall have occurred and be continuing, the Holders, by Act of
the Holders of a majority in aggregate principal amount of the Outstanding
Securities, shall promptly appoint a successor Trustee, and such successor
Trustee and the retiring Trustee shall comply with the applicable requirements
of Section 6.8. If no successor Trustee shall have been so appointed by the
Company or the Holders and accepted appointment within sixty (60) days after the
giving of a notice of resignation by the Trustee or the removal of the Trustee
in the manner required by Section 6.8, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of such Holder and
all others similarly situated, and any resigning Trustee may, at the expense of
the Company, petition any court of competent jurisdiction for the appointment of
a successor Trustee.

     (e) The Company shall give notice to all Holders in the manner provided in
Section 1.6 of each resignation and each removal of the Trustee and each
appointment of a successor Trustee. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.

     SECTION 6.8. Acceptance of Appointment by Successor.

     (a) In case of the appointment hereunder of a successor Trustee, each
successor Trustee so appointed shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on the request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.

     (b) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in paragraph
(a) of this Section 6.8.

     (c) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article VI.

     SECTION 6.9. Merger, Conversion, Consolidation or Succession to Business.

     Any Person into which the Trustee may be merged or converted or with which
it may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
all or substantially all of the corporate trust business of the Trustee, shall
be the successor of the Trustee hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, provided,
that such Person shall be otherwise qualified and eligible under this Article
VI. In case any Securities shall


                                       46



have been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation or as otherwise provided above
in this Section 6.9 to such authenticating Trustee may adopt such authentication
and deliver the Securities so authenticated, and in case any Securities shall
not have been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor Trustee or in the name of such
successor Trustee, and in all cases the certificate of authentication shall have
the full force which it is provided anywhere in the Securities or in this
Indenture that the certificate of the Trustee shall have.

     SECTION 6.10. Not Responsible for Recitals or Issuance of Securities.

     The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.

     SECTION 6.11. Appointment of Authenticating Agent.

     (a) The Trustee may appoint an Authenticating Agent or Agents with respect
to the Securities, which shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon original issue and upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
3.6, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, or of any State or Territory thereof or the District of
Columbia, authorized under such laws to act as Authenticating Agent, having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by Federal or state authority. If such Authenticating
Agent publishes reports of condition at least annually pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section 6.11 the combined capital and surplus of such Authenticating
Agent shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time an Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
Section 6.11, such Authenticating Agent shall resign immediately in the manner
and with the effect specified in this Section 6.11.

     (b) Any Person into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any Person succeeding to all or substantially all of the corporate
trust business of an Authenticating Agent shall be the successor Authenticating
Agent hereunder, provided such Person shall be otherwise eligible under this
Section 6.11, without the execution or filing of any paper or any further act on
the part of the Trustee or the Authenticating Agent.


                                       47



     (c) An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.11, the Trustee may appoint a successor
Authenticating Agent eligible under the provisions of this Section 6.11, which
shall be acceptable to the Company, and shall give notice of such appointment to
all Holders. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent.

     (d) The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 6.11 in such
amounts as the Company and the Authenticating Agent shall agree from time to
time.

     (e) If an appointment of an Authenticating Agent is made pursuant to this
Section 6.11, the Securities may have endorsed thereon, in addition to the
Trustee's certificate of authentication, an alternative certificate of
authentication in the following form:

This is one of the Securities referred to in the within mentioned Indenture.

Dated:

                                        JPMORGAN CHASE BANK, NATIONAL
                                        ASSOCIATION, not in its individual
                                        capacity, but solely as Trustee


                                        By:
                                            ------------------------------------
                                            Authenticating Agent


                                        By:
                                            ------------------------------------
                                            Authorized Signatory

                                  ARTICLE VII

                      HOLDER'S LISTS AND REPORTS BY COMPANY

     SECTION 7.1. Company to Furnish Trustee Names and Addresses of Holders.

     The Company will furnish or cause to be furnished to the Trustee:

     (a) semiannually, on or before June 30 and December 31 of each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of a date not more than fifteen (15) days prior to
the delivery thereof, and


                                       48



     (b) at such other times as the Trustee may request in writing, within
thirty (30) days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than fifteen (15) days prior to
the time such list is furnished,

in each case to the extent such information is in the possession or control of
the Company and has not otherwise been received by the Trustee in its capacity
as Securities Registrar.

     SECTION 7.2. Preservation of Information, Communications to Holders.

     (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.

     (b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.

     (c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.

     SECTION 7.3. Reports by Company.

     (a) The Company shall furnish to the Holders and to prospective purchasers
of Securities, upon their request, the information required to be furnished
pursuant to Rule 144A(d)(4) under the Securities Act. The delivery requirement
set forth in the preceding sentence may be satisfied by compliance with Section
7.3(b) hereof.

     (b) The Company shall cause NorthStar Realty Finance Corp., the general
partner of the Company, to furnish to each of (i) the Trustee, (ii) the Holders
and to subsequent holders of Securities, (iii) Cohen Bros. & Company, 450 Park,
23rd Floor, New York, NY 10022, Attn: Mitchell Kahn or such other address as
designated by Cohen Bros. & Company) and (iv) any beneficial owner of the
Securities reasonably identified to the Company (which identification may be
made either by such beneficial owner or by Cohen Bros. & Company), a duly
completed and executed certificate substantially and substantively in the form
attached hereto as Exhibit A, including the financial statements referenced in
such Exhibit, which certificate and financial statements shall be so furnished
by the Company not later than fifty (50) days after the end of each of the first
three fiscal quarters of each fiscal year of the Company and not later than
ninety-five (95) days after the end of each fiscal year of the Company. The
delivery requirements under this Section 7.3(b) may be satisfied by compliance
with Section 8.16(b) of the Trust Agreement.

     (c) If the Company intends to file its annual and quarterly information
with the Securities and Exchange Commission (the "Commission") in electronic
form pursuant to Regulation S-T of the Commission using the Commission's
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system, the Company
shall notify the Trustee in the manner prescribed herein of each such annual and
quarterly filing. The Trustee is hereby authorized and directed to


                                       49



access the EDGAR system for purposes of retrieving the financial information so
filed. Compliance with the foregoing shall constitute delivery by the Company of
its financial statements to the Trustee in compliance with the provisions of
Section 314(a) of the Trust Indenture Act, if applicable. The Trustee shall have
no duty to search for or obtain any electronic or other filings that the Company
makes with the Commission, regardless of whether such filings are periodic,
supplemental or otherwise. Delivery of reports, information and documents to the
Trustee pursuant to this Section 7.3(c) shall be solely for purposes of
compliance with this Section 7.3 and, if applicable, with Section 314(a) of the
Trust Indenture Act. The Trustee's receipt of such reports, information and
documents shall not constitute notice to it of the content thereof or any matter
determinable from the content thereof, including the Company's compliance with
any of its covenants hereunder, as to which the Trustee is entitled to rely upon
Officers' Certificates.

                                  ARTICLE VIII

              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

     SECTION 8.1. Company May Consolidate, Etc., Only on Certain Terms.

     The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and no Person shall consolidate with or merge into the Company or
convey, transfer or lease its properties and assets substantially as an entirety
to the Company, unless:

     (a) if the Company shall consolidate with or merge into another Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, the entity formed by such consolidation or into which the Company
is merged or the Person that acquires by conveyance or transfer, or that leases,
the properties and assets of the Company substantially as an entirety shall be
an entity organized and existing under the laws of the United States of America
or any State or Territory thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form reasonably satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest (including any
Additional Interest) on all the Securities and the performance of every covenant
of this Indenture on the part of the Company to be performed or observed;

     (b) immediately after giving effect to such transaction, no Event of
Default, and no event that, after notice or lapse of time, or both, would
constitute an Event of Default, shall have happened and be continuing; and

     (c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and, if a supplemental indenture is required in connection
with such transaction, any such supplemental indenture comply with this Article
VIII and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee may rely upon such
Officers' Certificate and Opinion of Counsel as conclusive evidence that such
transaction complies with this Section 8.1.


                                       50



     SECTION 8.2. Successor Company Substituted.

     (a) Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1 and the execution and delivery to the Trustee of the supplemental indenture
described in Section 8.1(a), the successor entity formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein; and in the event of
any such conveyance or transfer, following the execution and delivery of such
supplemental indenture, the Company shall be discharged from all obligations and
covenants under the Indenture and the Securities.

     (b) Such successor Person may cause to be executed, and may issue either in
its own name or in the name of the Company, any or all of the Securities
issuable hereunder that theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor Person
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities that previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication, and any Securities
that such successor Person thereafter shall cause to be executed and delivered
to the Trustee on its behalf. All the Securities so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture.

     (c) In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form may be made in the Securities thereafter to
be issued as may be appropriate to reflect such occurrence.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

     SECTION 9.1. Supplemental Indentures without Consent of Holders.

     Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form reasonably satisfactory to
the Trustee, for any of the following purposes:

     (a) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities; or

     (b) to evidence and provide for the acceptance of appointment hereunder by
a successor trustee; or

     (c) to cure any ambiguity, to correct or supplement any provision herein
that may be defective or inconsistent with any other provision herein, or to
make or amend any other provisions with respect to matters or questions arising
under this Indenture, which shall not be inconsistent with the other provisions
of this Indenture, provided, that such action pursuant to


                                       51



this clause (b) shall not adversely affect in any material respect the interests
of any Holders or the holders of the Preferred Securities; or

     (d) to comply with the rules and regulations of any securities exchange or
automated quotation system on which any of the Securities may be listed, traded
or quoted; or

     (e) to add to the covenants, restrictions or obligations of the Company or
to add to the Events of Default, provided, that such action pursuant to this
clause (c) shall not adversely affect in any material respect the interests of
any Holders or the holders of the Preferred Securities; or

     (f) to modify, eliminate or add to any provisions of the Indenture or the
Securities to such extent as shall be necessary to ensure that the Securities
are treated as indebtedness of the Company for United States Federal income tax
purposes, provided, that such action pursuant to this clause (d) shall not
adversely affect in any material respect the interests of any Holders or the
holders of the Preferred Securities.

     SECTION 9.2. Supplemental Indentures with Consent of Holders.

     (a) Subject to Section 9.1, with the consent of the Holders of not less
than a majority in aggregate principal amount of the Outstanding Securities, by
Act of said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Securities under this
Indenture; provided, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security,

          (i) change the Stated Maturity of the principal or any premium of any
     Security or change the date of payment of any installment of interest
     (including any Additional Interest) on any Security, or reduce the
     principal amount thereof or the rate of interest thereon or any premium
     payable upon the redemption thereof or change the place of payment where,
     or the coin or currency in which, any Security or interest thereon is
     payable, or restrict or impair the right to institute suit for the
     enforcement of any such payment on or after such date, or

          (ii) reduce the percentage in aggregate principal amount of the
     Outstanding Securities, the consent of whose Holders is required for any
     such supplemental indenture, or the consent of whose Holders is required
     for any waiver of compliance with any provision of this Indenture or of
     defaults hereunder and their consequences provided for in this Indenture,
     or

          (iii) modify any of the provisions of this Section 9.2, Section 5.13
     or Section 10.7, except to increase any percentage in aggregate principal
     amount of the Outstanding Securities, the consent of whose Holders is
     required for any reason, or to provide that certain other provisions of
     this Indenture cannot be modified or waived without the consent of the
     Holder of each Security;

provided, further, that, so long as any Preferred Securities remain outstanding,
no amendment under this Section 9.2 shall be effective until the holders of a
majority in Liquidation Amount of


                                       52



the Preferred Securities shall have consented to such amendment; provided,
further, that if the consent of the Holder of each Outstanding Security is
required for any amendment under this Indenture, such amendment shall not be
effective until the holder of each Outstanding Preferred Security shall have
consented to such amendment.

     (b) It shall not be necessary for any Act of Holders under this Section 9.2
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.

     SECTION 9.3. Execution of Supplemental Indentures.

     In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article IX or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
shall be fully protected in conclusively relying upon, an Officers' Certificate
and an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture, and that all conditions
precedent herein provided for relating to such action have been complied with.
The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture that affects the Trustee's own rights, duties, indemnities or
immunities under this Indenture or otherwise. Copies of the final form of each
supplemental indenture shall be delivered by the Trustee at the expense of the
Company to each Holder, and, if the Trustee is the Property Trustee, to each
holder of Preferred Securities, promptly after the execution thereof.

     SECTION 9.4. Effect of Supplemental Indentures.

     Upon the execution of any supplemental indenture under this Article IX,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities and every holder of Preferred Securities theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

     SECTION 9.5. Reference in Securities to Supplemental Indentures.

     Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.

                                    ARTICLE X

                                    COVENANTS

     SECTION 10.1. Payment of Principal, Premium, if any, and Interest.

     The Company covenants and agrees for the benefit of the Holders of the
Securities that it will duly and punctually pay the principal of and any premium
and interest (including any Additional Interest) on the Securities in accordance
with the terms of the Securities and this


                                       53



Indenture. As of the date hereof, the Company represents that it has no present
intention to exercise its right under Section 3.9 to defer payments of interest
on the Securities.

     SECTION 10.2. Money for Security Payments to be Held in Trust.

     (a) If the Company shall at any time act as its own Paying Agent with
respect to the Securities, it will, on or before each due date of the principal
of and any premium or interest (including any Additional Interest) on the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and any premium or interest
(including Additional Interest) so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided, and will promptly
notify the Trustee in writing of its failure so to act.

     (b) Whenever the Company shall have one or more Paying Agents, it will,
prior to 10:00 a.m., New York City time, on each due date of the principal of or
any premium or interest (including any Additional Interest) on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided in the Trust Indenture Act and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its failure so to act.

     (c) The Company will cause each Paying Agent for the Securities other than
the Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section 10.2, that such Paying Agent will (i) comply with the provisions of this
Indenture and the Trust Indenture Act applicable to it as a Paying Agent and
(ii) during the continuance of any default by the Company (or any other obligor
upon the Securities) in the making of any payment in respect of the Securities,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
held in trust by such Paying Agent for payment in respect of the Securities.

     (d) The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.

     (e) Any money deposited with the Trustee or any Paying Agent, or then held
by the Company in trust for the payment of the principal of and any premium or
interest (including any Additional Interest) on any Security and remaining
unclaimed for two years after such principal and any premium or interest has
become due and payable shall (unless otherwise required by mandatory provision
of applicable escheat or abandoned or unclaimed property law) be paid on Company
Request to the Company, or (if then held by the Company) shall (unless otherwise
required by mandatory provision of applicable escheat or abandoned or unclaimed
property law) be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, that the Trustee or such Paying Agent,
before being


                                       54



required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than thirty (30)
days from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.

     SECTION 10.3. Statement as to Compliance.

     The Company shall deliver to the Trustee, within one hundred and twenty
(120) days after the end of each fiscal year of the Company ending after the
date hereof, an Officers' Certificate covering the preceding calendar year,
stating whether or not to the knowledge of the signers thereof the Company is in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (without regard to any period of grace or
requirement of notice provided hereunder), and if the Company shall be in
default, specifying all such defaults and the nature and status thereof of which
they may have knowledge. The delivery requirements of this Section 10.3 may be
satisfied by compliance with Section 8.16(a) of the Trust Agreement.

     SECTION 10.4. Calculation Agent.

     (a) The Company hereby agrees that for so long as any of the Securities
remain Outstanding, there will at all times be an agent appointed to calculate
LIBOR in respect of each Interest Payment Date in accordance with the terms of
Schedule A (the "Calculation Agent"). The Company has initially appointed the
Property Trustee as Calculation Agent for purposes of determining LIBOR for each
Interest Payment Date. The Calculation Agent may be removed by the Company at
any time. So long as the Property Trustee holds any of the Securities, the
Calculation Agent shall be the Property Trustee, except as described in the
immediately preceding sentence. If the Calculation Agent is unable or unwilling
to act as such or is removed by the Company, the Company will promptly appoint
as a replacement Calculation Agent the London office of a leading bank which is
engaged in transactions in Eurodollar deposits in the international Eurodollar
market and which does not control or is not controlled by or under common
control with the Company or its Affiliates. The Calculation Agent may not resign
its duties without a successor having been duly appointed.

     (b) The Calculation Agent shall be required to agree that, as soon as
possible after 11:00 a.m. (London time) on each LIBOR Determination Date (as
defined in Schedule A), but in no event later than 11:00 a.m. (London time) on
the Business Day immediately following each LIBOR Determination Date, the
Calculation Agent will calculate the interest rate (the Interest Payment shall
be rounded to the nearest cent, with half a cent being rounded upwards) for the
related Interest Payment Date, and will communicate such rate and amount to the
Company, the Trustee, each Paying Agent and the Depositary. The Calculation
Agent will also specify to the Company the quotations upon which the foregoing
rates and amounts are based and, in any event, the Calculation Agent shall
notify the Company before 5:00 p.m. (London time) on each LIBOR Determination
Date that either: (i) it has determined or is in the process of determining the
foregoing rates and amounts or (ii) it has not determined and is not in the
process of determining the foregoing rates and amounts, together with its
reasons therefor. The Calculation Agent's determination of the foregoing rates
and amounts for any Interest Payment Date will (in


                                       55



the absence of manifest error) be final and binding upon all parties. For the
sole purpose of calculating the interest rate for the Securities, "Business Day"
shall be defined as any day on which dealings in deposits in Dollars are
transacted in the London interbank market.

     SECTION 10.5. Additional Tax Sums.

     So long as no Event of Default has occurred and is continuing, if (a) the
Trust is the Holder of all of the Outstanding Securities and (b) a Tax Event
described in clause (i) or (iii) in the definition of Tax Event in Section 1.1
hereof has occurred and is continuing, the Company shall pay to the Trust (and
its permitted successors or assigns under the related Trust Agreement) for so
long as the Trust (or its permitted successor or assignee) is the registered
holder of the Outstanding Securities, such amounts as may be necessary in order
that the amount of Distributions (including any Additional Interest Amount (as
defined in the Trust Agreement)) then due and payable by the Trust on the
Preferred Securities and Common Securities that at any time remain outstanding
in accordance with the terms thereof shall not be reduced as a result of any
Additional Taxes arising from such Tax Event (additional such amounts payable by
the Company to the Trust, the "Additional Tax Sums"). Whenever in this Indenture
or the Securities there is a reference in any context to the payment of
principal of or interest on the Securities, such mention shall be deemed to
include mention of the payments of the Additional Tax Sums provided for in this
Section 10.5 to the extent that, in such context, Additional Tax Sums are, were
or would be payable in respect thereof pursuant to the provisions of this
Section 10.5 and express mention of the payment of Additional Tax Sums (if
applicable) in any provisions hereof shall not be construed as excluding
Additional Tax Sums in those provisions hereof where such express mention is not
made; provided, that the deferral of the payment of interest pursuant to Section
3.9 on the Securities shall not defer the payment of any Additional Tax Sums
that may be due and payable.

     SECTION 10.6. Additional Covenants.

     (a) The Company covenants and agrees with each Holder of Securities that if
an Event of Default shall have occurred and be continuing or the Company shall
have given notice of its election to begin an Extension Period with respect to
the Securities or such Extension Period, or any extension thereof, shall be
continuing, it shall not (i) declare or pay any dividends or distributions on,
or redeem, purchase, acquire or make a liquidation payment with respect to, any
shares of the Company's capital stock (for the avoidance of doubt, the term
"capital stock" includes both common stock and preferred stock of the Company),
(ii) vote in favor of or permit or otherwise allow any of its subsidiaries to
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to or otherwise retire, any shares of
such subsidiaries preferred stock (for the avoidance of doubt, whether such
preferred stock is perpetual or otherwise), or (iii) make any payment of
principal of or any interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu in all respects
with or junior in interest to the Securities (other than (A) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the Event of Default or applicable


                                       56



Extension Period, (B) as a result of an exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a Subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (C) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (D) any
declaration of a dividend in connection with any Rights Plan, the issuance of
rights, stock or other property under any Rights Plan or the redemption or
repurchase of rights pursuant thereto or (E) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock).

     (b) The Company also covenants with each Holder of Securities (i) to hold,
directly or indirectly, one hundred percent (100%) of the Common Securities of
the Trust, provided, that any permitted successor of the Company hereunder may
succeed to the Company's ownership of such Common Securities, (ii) as holder of
such Common Securities, not to voluntarily dissolve, wind-up or liquidate the
Trust other than (A) in connection with a distribution of the Securities to the
holders of the Preferred Securities in liquidation of the Trust or (B) in
connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement and (iii) to use its reasonable commercial efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Trust to continue to be taxable as a grantor trust and not as a corporation for
United States Federal income tax purposes.

     (c) The Company also agrees to use its reasonable best efforts to meet the
requirements to qualify, effective for the fiscal year ending December 31, 2004
and all future fiscal years, as a real estate investment trust under the
Internal Revenue Code of 1986, as amended.

     SECTION 10.7. Waiver of Covenants.

     The Company may omit in any particular instance to comply with any covenant
or condition contained in Section 10.6 if, before or after the time for such
compliance, the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities shall, by Act of such Holders, and at least a
majority of the aggregate Liquidation Amount of the Preferred Securities then
outstanding, by consent of such holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company in respect of any such covenant or condition shall
remain in full force and effect.

     SECTION 10.8. Treatment of Securities.

     The Company will treat the Securities as indebtedness, and the amounts,
other than payments of principal, payable in respect of the principal amount of
such Securities as interest, for all U.S. federal income tax purposes. All
payments in respect of the Securities will be made free and clear of U.S.
withholding tax to any beneficial owner thereof that has provided an Internal
Revenue Service Form W-9 or W-8BEN (or any substitute or successor form)


                                       57



establishing its U.S. or non-U.S. status for U.S. federal income tax purposes,
or any other applicable form establishing a complete exemption from U.S.
withholding tax.

                                   ARTICLE XI

                            REDEMPTION OF SECURITIES

     SECTION 11.1. Optional Redemption.

     The Company may, at its option, on any Interest Payment Date, on or after
June 30, 2010, redeem the Securities in whole at any time or in part from time
to time, at a Redemption Price equal to one hundred percent (100%) of the
principal amount thereof (or of the redeemed portion thereof, as applicable),
together, in the case of any such redemption, with accrued and unpaid interest,
including any Additional Interest, through but excluding the date fixed as the
Redemption Date (the "Optional Redemption Price").

     SECTION 11.2. Special Event Redemption.

     Prior to June 30, 2010, upon the occurrence and during the continuation of
a Special Event, the Company may, at its option, redeem the Securities, in whole
but not in part, at a Redemption Price equal to one hundred seven and one half
percent (107.5%) of the principal amount thereof, together, in the case of any
such redemption, with accrued interest, including any Additional Interest,
through but excluding the date fixed as the Redemption Date (the "Special
Redemption Price").

     SECTION 11.3. Election to Redeem; Notice to Trustee.

     The election of the Company to redeem any Securities, in whole or in part,
shall be evidenced by or pursuant to a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, not less than
forty-five (45) days and not more than seventy-five (75) days prior to the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee and the Property Trustee under the Trust Agreement in writing
of such date and of the principal amount of the Securities to be redeemed and
provide the additional information required to be included in the notice or
notices contemplated by Section 11.5. In the case of any redemption of
Securities, in whole or in part, (a) prior to the expiration of any restriction
on such redemption provided in this Indenture or the Securities or (b) pursuant
to an election of the Company which is subject to a condition specified in this
Indenture or the Securities, the Company shall furnish the Trustee with an
Officers' Certificate and an Opinion of Counsel evidencing compliance with such
restriction or condition.

     SECTION 11.4. Selection of Securities to be Redeemed.

     (a) If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected and redeemed on a pro rata basis not
more than sixty (60) days prior to the Redemption Date by the Trustee from the
Outstanding Securities not previously called for redemption, provided, that the
unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security.


                                       58



     (b) The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security that has been or is to be redeemed.

     (c) The provisions of paragraphs (a) and (b) of this Section 11.4 shall not
apply with respect to any redemption affecting only a single Security, whether
such Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.

     SECTION 11.5. Notice of Redemption.

     (a) Notice of redemption shall be given not later than the thirtieth (30th)
day, and not earlier than the sixtieth (60th) day, prior to the Redemption Date
to each Holder of Securities to be redeemed, in whole or in part (unless a
shorter notice shall be satisfactory to the Property Trustee under the related
Trust Agreement).

     (b) With respect to Securities to be redeemed, in whole or in part, each
notice of redemption shall state:

          (i) the Redemption Date;

          (ii) the Redemption Price or, if the Redemption Price cannot be
     calculated prior to the time the notice is required to be sent, the
     estimate of the Redemption Price, as calculated by the Company, together
     with a statement that it is an estimate and that the actual Redemption
     Price will be calculated on the fifth Business Day prior to the Redemption
     Date (and if an estimate is provided, a further notice shall be sent of the
     actual Redemption Price on the date that such Redemption Price is
     calculated);

          (iii) if less than all Outstanding Securities are to be redeemed, the
     identification (and, in the case of partial redemption, the respective
     principal amounts) of the amount of and particular Securities to be
     redeemed;

          (iv) that on the Redemption Date, the Redemption Price will become due
     and payable upon each such Security or portion thereof, and that any
     interest (including any Additional Interest) on such Security or such
     portion, as the case may be, shall cease to accrue on and after said date;

          (v) the place or places where such Securities are to be surrendered
     for payment of the Redemption Price; and

          (vi) such other provisions as the Company deems relevant.

     (c) Notice of redemption of Securities to be redeemed, in whole or in part,
at the election of the Company shall be given by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Company
and shall be irrevocable. The notice if


                                       59



mailed in the manner provided above shall be conclusively presumed to have been
duly given, whether or not the Holder receives such notice. In any case, a
failure to give such notice by mail or any defect in the notice to the Holder of
any Security designated for redemption as a whole or in part shall not affect
the validity of the proceedings for the redemption of any other Security.

     SECTION 11.6. Deposit of Redemption Price.

     Prior to 10:00 a.m., New York City time, on the Redemption Date specified
in the notice of redemption given as provided in Section 11.5, the Company will
deposit with the Trustee or with one or more Paying Agents (or if the Company is
acting as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.2) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including any Additional Interest) on, all
the Securities (or portions thereof) that are to be redeemed on that date.

     SECTION 11.7. Payment of Securities Called for Redemption.

     (a) If any notice of redemption has been given as provided in Section 11.5,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment specified in
such notice, the Securities or the specified portions thereof shall be paid and
redeemed by the Company at the applicable Redemption Price, together with
accrued interest (including any Additional Interest) to the Redemption Date.

     (b) Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to the Holder
thereof, at the expense of the Company, a new Security or Securities, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms.

     (c) If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal of and any premium on such
Security shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.

                                  ARTICLE XII

                           SUBORDINATION OF SECURITIES

     SECTION 12.1. Securities Subordinate to Senior Debt.

     The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article XII, the payment of the
principal of and any premium and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Debt, except as
otherwise provided in Section 4.2.


                                       60



     SECTION 12.2. No Payment When Senior Debt in Default; Payment Over of
Proceeds Upon Dissolution, Etc.

     (a) In the event and during the continuation of any default by the Company
in the payment of any principal of or any premium or interest on any Senior Debt
(following any grace period, if applicable) when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
of acceleration or otherwise, then, upon written notice of such default to the
Company by the holders of such Senior Debt or any trustee therefor, unless and
until such default shall have been cured or waived or shall have ceased to
exist, no direct or indirect payment (in cash, property, securities, by set-off
or otherwise) shall be made or agreed to be made on account of the principal of
or any premium or interest (including any Additional Interest) on any of the
Securities, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Securities.

     (b) In the event of a bankruptcy, insolvency or other proceeding described
in clause (d) or (e) of the definition of Event of Default (each such event, if
any, herein sometimes referred to as a "Proceeding"), all Senior Debt (including
any interest thereon accruing after the commencement of any such proceedings)
shall first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made to any Holder of any of the
Securities on account thereof. Any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
entity provided for by a plan of reorganization or readjustment the payment of
which is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Debt at the time outstanding and to any securities issued
in respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for these subordination provisions) be payable or
deliverable in respect of the Securities shall be paid or delivered directly to
the holders of Senior Debt in accordance with the priorities then existing among
such holders until all Senior Debt (including any interest thereon accruing
after the commencement of any Proceeding) shall have been paid in full.

     (c) In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior Debt, the Holders of the Securities, together with the
holders of any obligations of the Company ranking on a parity with the
Securities, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid principal of
and any premium and interest (including any Additional Interest) on the
Securities and such other obligations before any payment or other distribution,
whether in cash, property or otherwise, shall be made on account of any capital
stock or any obligations of the Company ranking junior to the Securities and
such other obligations. If, notwithstanding the foregoing, any payment or
distribution of any character or any security, whether in cash, securities or
other property (other than securities of the Company or any other entity
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in these subordination provisions
with respect to the indebtedness evidenced by the Securities, to the payment of
all Senior Debt at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment) shall be received
by the Trustee or any Holder in contravention of any of the terms hereof and
before all Senior Debt shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the Senior
Debt at the time outstanding in accordance with the priorities then existing
among such holders


                                       61



for application to the payment of all Senior Debt remaining unpaid, to the
extent necessary to pay all such Senior Debt (including any interest thereon
accruing after the commencement of any Proceeding) in full. In the event of the
failure of the Trustee or any Holder to endorse or assign any such payment,
distribution or security, each holder of Senior Debt is hereby irrevocably
authorized to endorse or assign the same.

     (d) The Trustee and the Holders, at the expense of the Company, shall take
such reasonable action (including the delivery of this Indenture to an agent for
any holders of Senior Debt or consent to the filing of a financing statement
with respect hereto) as may, in the opinion of counsel designated by the holders
of a majority in principal amount of the Senior Debt at the time outstanding, be
necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.

     (e) The provisions of this Section 12.2 shall not impair any rights,
interests, remedies or powers of any secured creditor of the Company in respect
of any security interest the creation of which is not prohibited by the
provisions of this Indenture.

     (f) The securing of any obligations of the Company, otherwise ranking on a
parity with the Securities or ranking junior to the Securities, shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.

     SECTION 12.3. Payment Permitted If No Default.

     Nothing contained in this Article XII or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time, except during
the pendency of the conditions described in paragraph (a) of Section 12.2 or of
any Proceeding referred to in Section 12.2, from making payments at any time of
principal of and any premium or interest (including any Additional Interest) on
the Securities or (b) the application by the Trustee of any moneys deposited
with it hereunder to the payment of or on account of the principal of and any
premium or interest (including any Additional Interest) on the Securities or the
retention of such payment by the Holders, if, at the time of such application by
the Trustee, it did not have knowledge (in accordance with Section 12.8) that
such payment would have been prohibited by the provisions of this Article XII,
except as provided in Section 12.8.

     SECTION 12.4. Subrogation to Rights of Holders of Senior Debt.

     Subject to the payment in full of all amounts due or to become due on all
Senior Debt, or the provision for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of
the Securities shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt pursuant to the provisions
of this Article XII (equally and ratably with the holders of all indebtedness of
the Company that by its express terms is subordinated to Senior Debt of the
Company to substantially the same extent as the Securities are subordinated to
the Senior Debt and is entitled to like rights of subrogation by reason of any
payments or distributions made to holders of such Senior Debt) to the rights of
the holders of such Senior Debt to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the principal of and
any premium and interest (including any Additional Interest) on the Securities
shall be paid in full. For purposes of


                                       62



such subrogation, no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holders of the Securities or
the Trustee would be entitled except for the provisions of this Article XII, and
no payments made pursuant to the provisions of this Article XII to the holders
of Senior Debt by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Debt, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.

     SECTION 12.5. Provisions Solely to Define Relative Rights.

     The provisions of this Article XII are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article XII or elsewhere in this Indenture or in the Securities is intended
to or shall (a) impair, as between the Company and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of and any
premium and interest (including any Additional Interest) on the Securities as
and when the same shall become due and payable in accordance with their terms,
(b) affect the relative rights against the Company of the Holders of the
Securities and creditors of the Company other than their rights in relation to
the holders of Senior Debt or (c) prevent the Trustee or the Holder of any
Security (or to the extent expressly provided herein, the holder of any
Preferred Security) from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, including filing and voting
claims in any Proceeding, subject to the rights, if any, under this Article XII
of the holders of Senior Debt to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.

     SECTION 12.6. Trustee to Effectuate Subordination.

     Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article XII and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.

     SECTION 12.7. No Waiver of Subordination Provisions.

     (a) No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with.

     (b) Without in any way limiting the generality of paragraph (a) of this
Section 12.7, the holders of Senior Debt may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to such Holders of the Securities
and without impairing or releasing the subordination provided in this Article
XII or the obligations hereunder of such Holders of the Securities to the
holders of Senior Debt, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the


                                       63



time of payment of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding, (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt, (iii) release any Person liable in any manner for the
payment of Senior Debt and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.

     SECTION 12.8. Notice to Trustee.

     (a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article XII or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment to or by the Trustee
in respect of the Securities, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof from the Company or a holder
of Senior Debt or from any trustee, agent or representative therefor; provided,
that if the Trustee shall not have received the notice provided for in this
Section 12.8 at least two Business Days prior to the date upon which by the
terms hereof any monies may become payable for any purpose (including, the
payment of the principal of and any premium on or interest (including any
Additional Interest) on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such monies and to apply the same to the purpose for which they were
received and shall not be affected by any notice to the contrary that may be
received by it within two Business Days prior to such date.

     (b) The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or herself to be a holder of
Senior Debt (or a trustee, agent, representative or attorney-in-fact therefor)
to establish that such notice has been given by a holder of Senior Debt (or a
trustee, agent, representative or attorney-in-fact therefor). In the event that
the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of Senior Debt to participate in
any payment or distribution pursuant to this Article XII, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Debt held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article XII, and
if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.

     SECTION 12.9. Reliance on Judicial Order or Certificate of Liquidating
Agent.

     Upon any payment or distribution of assets of the Company referred to in
this Article XII, the Trustee and the Holders of the Securities shall be
entitled to conclusively rely upon any order or decree entered by any court of
competent jurisdiction in which such Proceeding is pending, or a certificate of
the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee
for the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness


                                       64



of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XII.

     SECTION 12.10. Trustee Not Fiduciary for Holders of Senior Debt.

     The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be
liable to any such holders if it shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Debt shall be
entitled by virtue of this Article XII or otherwise.

     SECTION 12.11. Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights.

     The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article XII with respect to any Senior Debt that may at any
time be held by it, to the same extent as any other holder of Senior Debt, and
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder.

     SECTION 12.12. Article Applicable to Paying Agents.

     If at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article XII shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article XII in addition to or in place of the Trustee; provided,
that Sections 12.8 and 12.11 shall not apply to the Company or any Affiliate of
the Company if the Company or such Affiliate acts as Paying Agent.

                                     * * * *

     This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

                                     * * * *


                                       65



IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed as of the day and year first above written.

                                      NORTHSTAR REALTY FINANCE LIMITED
                                      PARTNERSHIP

                                      By : NorthStar Realty Finance Corp., as
                                           General Partner


                                      By: /s/ Mark E. Chertok
                                          --------------------------------------
                                          Name: Mark E. Chertok
                                          Title: Chief Financial Officer and
                                                 Treasurer.



                                      JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
                                      as Trustee


                                      By: /s/ Marie D. Calzado
                                          --------------------------------------
                                          Name:   Marie D. Calzado
                                          Title:  Vice President


                                       66



                                                                      SCHEDULE A

                             DETERMINATION OF LIBOR

     With respect to the Securities, the London interbank offered rate ("LIBOR")
shall be determined by the Calculation Agent in accordance with the following
provisions (in each case rounded to the nearest .000001%):

(1) On the second LIBOR Business Day (as defined below) prior to an Interest
Payment Date (except with respect to the first interest payment period, such
date shall be May 23, 2005) (each such day, a "LIBOR Determination Date"), LIBOR
for any given security shall for the following interest payment period equal the
rate, as obtained by the Calculation Agent from Bloomberg Financial Markets
Commodities News, for three-month Eurodollar deposits that appears on Dow Jones
Telerate Page 3750 (as defined in the International Swaps and Derivatives
Association, Inc. 2000 Interest Rate and Currency Exchange Definitions), or such
other page as may replace such Page 3750, as of 11:00 a.m. (London time) on such
LIBOR Determination Date.

(2) If, on any LIBOR Determination Date, such rate does not appear on Dow Jones
Telerate Page 3750 or such other page as may replace such Page 3750, the
Calculation Agent shall determine the arithmetic mean of the offered quotations
of the Reference Banks (as defined below) to leading banks in the London
interbank market for three-month Eurodollar deposits in an amount determined by
the Calculation Agent by reference to requests for quotations as of
approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by
the Calculation Agent to the Reference Banks. If, on any LIBOR Determination
Date, at least two of the Reference Banks provide such quotations, LIBOR shall
equal such arithmetic mean of such quotations. If, on any LIBOR Determination
Date, only one or none of the Reference Banks provide such quotations, LIBOR
shall be deemed to be the arithmetic mean of the offered quotations that leading
banks in the City of New York selected by the Calculation Agent are quoting on
the relevant LIBOR Determination Date for three-month Eurodollar deposits in an
amount determined by the Calculation Agent by reference to the principal London
offices of leading banks in the London interbank market; provided that, if the
Calculation Agent is required but is unable to determine a rate in accordance
with at least one of the procedures provided above, LIBOR shall be LIBOR as
determined on the previous LIBOR Determination Date.

(3) As used herein: "Reference Banks" means four major banks in the London
interbank market selected by the Calculation Agent; and "LIBOR Business Day"
means a day on which commercial banks are open for business (including dealings
in foreign exchange and foreign currency deposits) in London.


                                  Schedule A-1



                                                                       EXHIBIT A

                     FORM OF OFFICER'S FINANCIAL CERTIFICATE

     The undersigned, the [Chief Financial Officer/Treasurer/Assistant
Treasurer/ Secretary/ Assistant Secretary, Chairman/ViceChairman/Chief Executive
Officer/President/Vice President] of NorthStar Realty Finance Corp. (the
"Company") hereby certifies, pursuant to Section 7.3(b) of the Junior
Subordinated Indenture, dated as of May 25, 2005 (the "Indenture"), among
NorthStar Realty Finance Limited Partnership and JPMorgan Chase Bank, National
Association, as trustee, that, as of [date], [20__], the Company had the
following consolidated ratios and balances and, if applicable, its
unconsolidated subsidiaries had the following rations and balances:



As of [Quarterly/Annual Financial Date], 20__

<TABLE>
                                                                                     The Company and
                                                                                      Consolidated
                                                                   The Company and   Subsidiaries &
                                                                    Consolidated     Unconsolidated
                                                                    Subsidiaries      Subsidiaries
                                                                   ---------------   ---------------

Senior secured indebtedness for borrowed money ("Debt")                 $____              $____
Senior unsecured Debt                                                   $____              $____
Subordinated Debt                                                       $____              $____
Total Debt                                                              $____              $____
Ratio of (x) senior secured and unsecured Debt to (y) total Debt         ____%              ____%
</TABLE>


[FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial
statements (including the balance sheet, income statement and statement of cash
flows, and notes thereto, together with the report of the independent
accountants thereon) of the Company and its consolidated subsidiaries for the
three years ended [date], 20__.]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated
financial statements (including the balance sheet and income statement) of the
Company and its consolidated subsidiaries for the fiscal quarter ended [date],
20__.]

     The financial statements fairly present in all material respects, in
accordance with U.S. generally accepted accounting principles ("GAAP"), the
financial position of the Company and its consolidated subsidiaries, and the
results of operations and changes in financial condition as of the date, and for
the [quarter] [annual] period ended [date], 20__, and such financial statements
have been prepared in accordance with GAAP consistently applied throughout the
period involved (expect as otherwise noted therein).



                                                                       EXHIBIT A

     IN WITNESS WHEREOF, the undersigned has executed this Officer's Financial
Certificate as of this _____ day of _____________, 20__

                                              NORTHSTAR REALTY FINANCE CORP.


                                              By:
                                                  ------------------------------
                                                  Name:
                                                  Title:



                                                                  EXECUTION COPY

================================================================================

                      AMENDED AND RESTATED TRUST AGREEMENT

                                      among

                  NORTHSTAR REALTY FINANCE LIMITED PARTNERSHIP,
                                  as Depositor

                    JPMORGAN CHASE BANK, NATIONAL ASSOCIATION
                               as Property Trustee

                      CHASE BANK USA, NATIONAL ASSOCIATION,
                               as Delaware Trustee

                                       and

                    THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
                           as Administrative Trustees

                                   ----------

                            Dated as of May 25, 2005

                                   ----------

                        NORTHSTAR REALTY FINANCE TRUST II

================================================================================



                                    CONTENTS

CLAUSE                                                                      PAGE
                                                                            ----
ARTICLE I.      Defined Terms............................................     1

   Section 1.1.     Definitions..........................................     1

ARTICLE II.     The Trust................................................    11

   Section 2.1.     Name.................................................    11

   Section 2.2.     Office of the Delaware Trustee; Principal Place of
                       Business..........................................    11

   Section 2.3.     Initial Contribution of Trust Property; Fees, Costs
                       and Expenses......................................    11

   Section 2.4.     Purposes of Trust....................................    12

   Section 2.5.     Authorization to Enter into Certain Transactions.....    12

   Section 2.6.     Assets of Trust......................................    15

   Section 2.7.     Title to Trust Property..............................    15

ARTICLE III.    Payment Account; Paying Agents...........................    15

   Section 3.1.     Payment Account......................................    15

   Section 3.2.     Appointment of Paying Agents.........................    15

ARTICLE IV.     Distributions; Redemption................................    16

   Section 4.1.     Distributions........................................    16

   Section 4.2.     Redemption...........................................    18

   Section 4.3.     Subordination of Common Securities...................    20

   Section 4.4.     Payment Procedures...................................    21

   Section 4.5.     Withholding Tax......................................    21

   Section 4.6.     Tax Returns and Other Reports........................    22

   Section 4.7.     Payment of Taxes, Duties, Etc. of the Trust..........    22

   Section 4.8.     Payments under Indenture or Pursuant to Direct
                       Actions...........................................    22

   Section 4.9.     Exchanges............................................    22

   Section 4.10.    Calculation Agent....................................    23

   Section 4.11.    Certain Accounting Matters...........................    24

ARTICLE V.      Securities...............................................    25

   Section 5.1.     Initial Ownership....................................    25

   Section 5.2.     Authorized Trust Securities..........................    25

   Section 5.3.     Issuance of the Common Securities; Subscription and
                       Purchase of Notes.................................    25

   Section 5.4.     The Securities Certificates..........................    25

   Section 5.5.     Rights of Holders....................................    26

   Section 5.6.     Book-Entry Preferred Securities......................    26

   Section 5.7.     Registration of Transfer and Exchange of Preferred
                       Securities Certificates...........................    28


                                       i



                                    CONTENTS

CLAUSE                                                                      PAGE
                                                                            ----
   Section 5.8.     Mutilated, Destroyed, Lost or Stolen Securities
                       Certificates......................................    29

   Section 5.9.     Persons Deemed Holders...............................    30

   Section 5.10.    Cancellation.........................................    30

   Section 5.11.    Ownership of Common Securities by Depositor..........    31

   Section 5.12.    Restricted Legends...................................    31

   Section 5.13.    Form of Certificate of Authentication................    33

ARTICLE VI.     Meetings; Voting; Acts of Holders........................    34

   Section 6.1.     Notice of Meetings...................................    34

   Section 6.2.     Meetings of Holders of the Preferred Securities......    34

   Section 6.3.     Voting Rights........................................    35

   Section 6.4.     Proxies, Etc.........................................    35

   Section 6.5.     Holder Action by Written Consent.....................    35

   Section 6.6.     Record Date for Voting and Other Purposes............    35

   Section 6.7.     Acts of Holders......................................    35

   Section 6.8.     Inspection of Records................................    36

   Section 6.9.     Limitations on Voting Rights.........................    37

   Section 6.10.    Acceleration of Maturity; Rescission of Annulment;
                       Waivers of Past Defaults..........................    37

ARTICLE VII.    Representations and Warranties...........................    40

   Section 7.1.     Representations and Warranties of the Property
                       Trustee and the Delaware Trustee..................    40

   Section 7.2.  Representations and Warranties of Depositor.............    41

ARTICLE VIII.   The Trustees.............................................    42

   Section 8.1.     Number of Trustees...................................    42

   Section 8.2.     Property Trustee Required............................    42

   Section 8.3.     Delaware Trustee Required............................    43

   Section 8.4.     Appointment of Administrative Trustees...............    43

   Section 8.5.     Duties and Responsibilities of the Trustees..........    43

   Section 8.6.     Notices of Defaults and Extensions...................    45

   Section 8.7.     Certain Rights of Property Trustee...................    45

   Section 8.8.     Delegation of Power..................................    48

   Section 8.9.     May Hold Securities..................................    48

   Section 8.10.    Compensation; Reimbursement; Indemnity...............    48

   Section 8.11.    Resignation and Removal; Appointment of Successor....    49

   Section 8.12.    Acceptance of Appointment by Successor...............    50

   Section 8.13.    Merger, Conversion, Consolidation or Succession to
                       Business..........................................    51


                                       ii



                                    CONTENTS

CLAUSE                                                                      PAGE
                                                                            ----
   Section 8.14.    Not Responsible for Recitals or Issuance of
                       Securities........................................    51

   Section 8.15.    Property Trustee May File Proofs of Claim............    51

   Section 8.16.    Reports to the Property Trustee......................    52

ARTICLE IX.     Termination, Liquidation and Merger......................    53

   Section 9.1.     Dissolution Upon Expiration Date.....................    53

   Section 9.2.     Early Termination....................................    53

   Section 9.3.     Termination..........................................    53

   Section 9.4.     Liquidation..........................................    53

   Section 9.5.     Mergers, Consolidations, Amalgamations or
                       Replacements of Trust.............................    55

ARTICLE X.      Miscellaneous Provisions.................................    56

   Section 10.1.    Limitation of Rights of Holders......................    56

   Section 10.2.    Agreed Tax Treatment of Trust and Trust Securities...    56

   Section 10.3.    Amendment............................................    57

   Section 10.4.    Separability.........................................    58

   Section 10.5.    Governing Law........................................    58

   Section 10.6.    Successors...........................................    58

   Section 10.7.    Headings.............................................    58

   Section 10.8.    Reports, Notices and Demands.........................    59

   Section 10.9.    Agreement Not to Petition............................    59

   Section 10.10.   Counterparts.........................................    60

Exhibit A    Certificate of Trust of NorthStar Realty Finance Trust II
Exhibit B    Form of Common Securities Certificate
Exhibit C    Form of Preferred Securities Certificate
Exhibit D    Junior Subordinated Indenture
Exhibit E    Form of Transferor Certificate to be Executed by Transferees
Exhibit F    Form of Officer's Financial Certificate of the Depositor

Schedule A   Calculation of LIBOR


                                       iii



     THIS AMENDED AND RESTATED TRUST AGREEMENT, dated as of May 25, 2005, among
(i) NorthStar Realty Finance Limited Partnership, a Delaware limited partnership
(including any successors or permitted assigns, the "Depositor"), (ii) JPMorgan
Chase Bank, National Association, a national banking association, as property
trustee (in such capacity, the "Property Trustee"), (iii) Chase Bank USA,
National Association, a national banking association, as Delaware trustee (in
such capacity, the "Delaware Trustee"), (iv) David T. Hamamoto, an individual,
Mark E. Chertok, an individual and Richard J. McCready, an individual, each of
whose address is c/o NorthStar Realty Finance Limited Partnership, 527 Madison
Avenue, New York, New York 10022, as administrative trustees (in such
capacities, each an "Administrative Trustee" and, collectively, the
"Administrative Trustees" and, together with the Property Trustee and the
Delaware Trustee, the "Trustees") and (v) the several Holders, as hereinafter
defined.

                                   WITNESSETH

     WHEREAS, the Depositor and the Delaware Trustee have heretofore created a
Delaware statutory trust pursuant to the Delaware Statutory Trust Act by
entering into a Trust Agreement, dated as of May 13, 2005 (the "Original Trust
Agreement"), and by executing and filing with the Secretary of State of the
State of Delaware the Certificate of Trust, substantially in the form attached
as Exhibit A; and

     WHEREAS, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Trust to
the Depositor, (ii) the issuance and sale of the Preferred Securities by the
Trust pursuant to the Purchase Agreement and (iii) the acquisition by the Trust
from the Depositor of all of the right, title and interest in and to the Notes;

     NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Holders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees as follows:

                                   ARTICLE I.

                                  DEFINED TERMS

     SECTION 1.1. Definitions.

     For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:

          (a) the terms defined in this Article I have the meanings assigned to
     them in this Article I;

          (b) the words "include", "includes" and "including" shall be deemed to
     be followed by the phrase "without limitation";



          (c) all accounting terms used but not defined herein have the meanings
     assigned to them in accordance with United States generally accepted
     accounting principles;

          (d) unless the context otherwise requires, any reference to an
     "Article", a "Section", a "Schedule" or an "Exhibit" refers to an Article,
     a Section, a Schedule or an Exhibit, as the case may be, of or to this
     Trust Agreement;

          (e) the words "hereby", "herein", "hereof" and "hereunder" and other
     words of similar import refer to this Trust Agreement as a whole and not to
     any particular Article, Section or other subdivision;

          (f) a reference to the singular includes the plural and vice versa;
     and

          (g) the masculine, feminine or neuter genders used herein shall
     include the masculine, feminine and neuter genders.

     "Act" has the meaning specified in Section 6.7.

     "Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.

     "Additional Interest Amount" means, with respect to Trust Securities of a
given Liquidation Amount and/or a given period, the amount of Additional
Interest paid by the Depositor on a Like Amount of Notes for such period.

     "Additional Taxes" has the meaning specified in Section 1.1 of the
Indenture.

     "Additional Tax Sums" has the meaning specified in Section 10.5 of the
Indenture.

     "Administrative Trustee" means each of the Persons identified as an
"Administrative Trustee" in the preamble to this Trust Agreement, solely in each
such Person's capacity as Administrative Trustee of the Trust and not in such
Person's individual capacity, or any successor Administrative Trustee appointed
as herein provided.

     "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

     "Applicable Depositary Procedures" means, with respect to any transfer or
transaction involving a Book-Entry Preferred Security, the rules and procedures
of the Depositary for such Book-Entry Preferred Security, in each case to the
extent applicable to such transaction and as in effect from time to time.


                                        2



     "Bankruptcy Event" means, with respect to any Person:

          (a) the entry of a decree or order by a court having jurisdiction in
          the premises (i) judging such Person a bankrupt or insolvent, (ii)
          approving as properly filed a petition seeking reorganization,
          arrangement, adjudication or composition of or in respect of such
          Person under any applicable Federal or state bankruptcy, insolvency,
          reorganization or other similar law, (iii) appointing a custodian,
          receiver, liquidator, assignee, trustee, sequestrator or other similar
          official of such Person or of any substantial part of its property or
          (iv) ordering the winding up or liquidation of its affairs, and the
          continuance of any such decree or order unstayed and in effect for a
          period of sixty (60) consecutive days; or

          (b) the institution by such Person of proceedings to be adjudicated a
          bankrupt or insolvent, or the consent by it to the institution of
          bankruptcy or insolvency proceedings against it, or the filing by it
          of a petition or answer or consent seeking reorganization or relief
          under any applicable Federal or State bankruptcy, insolvency,
          reorganization or other similar law, or the consent by it to the
          filing of any such petition or to the appointment of a custodian,
          receiver, liquidator, assignee, trustee, sequestrator or similar
          official of such Person or of any substantial part of its property, or
          the making by it of an assignment for the benefit of creditors, or the
          admission by it in writing of its inability to pay its debts generally
          as they become due and its willingness to be adjudicated a bankrupt or
          insolvent, or the taking of corporate action by such Person in
          furtherance of any such action.

     "Bankruptcy Laws" means all Federal and state bankruptcy, insolvency,
reorganization and other similar laws, including the United States Bankruptcy
Code.

     "Book-Entry Preferred Security" means a Preferred Security, the ownership
and transfers of which shall be made through book entries by a Depositary.

     "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day
on which banking institutions in the City of New York are authorized or required
by law or executive order to remain closed or (c) a day on which the Corporate
Trust Office is closed for business.

     "Calculation Agent" has the meaning specified in Section 4.10.

     "Closing Date" has the meaning specified in the Purchase Agreement.

     "Code" means the United States Internal Revenue Code of 1986, as amended.

     "Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this Trust


                                        3



Agreement such Commission is not existing and performing the duties assigned to
it, then the body performing such duties at such time.

     "Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit B.

     "Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement.

     "Corporate Trust Office" means the principal office of the Property Trustee
at which any particular time its corporate trust business shall be administered,
which office at the date of this Trust Agreement is located at 600 Travis, 50th
Floor, Houston, Texas 77002, Attention: Institutional Trust Services-- NorthStar
Realty Finance Trust II.

     "Definitive Preferred Securities Certificates" means Preferred Securities
issued in certificated, fully registered form that are not Global Preferred
Securities.

     "Delaware Statutory Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code Section 3801 et seq., or any successor statute thereto, in
each case as amended from time to time.

     "Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement, solely in its capacity as Delaware Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor Delaware Trustee appointed as herein provided.

     "Depositary" means an organization registered as a clearing agency under
the Exchange Act that is designated as Depositary by the Depositor or any
successor thereto. DTC will be the initial Depositary.

     "Depositary Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Depositary effects
book-entry transfers and pledges of securities deposited with the Depositary.

     "Depositor" has the meaning specified in the preamble to this Trust
Agreement and any successors and permitted assigns.

     "Depositor Affiliate" has the meaning specified in Section 4.9.

     "Distribution Date" has the meaning specified in Section 4.1(a)(i).

     "Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.

     "DTC" means The Depository Trust Company, a New York corporation, or any
successor thereto.


                                        4



     "Early Termination Event" has the meaning specified in Section 9.2.

     "Event of Default" means any one of the following events (whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):

          (a) the occurrence of a Note Event of Default; or

          (b) default by the Trust in the payment of any Distribution when it
          becomes due and payable, and continuation of such default for a period
          of thirty (30) days; or

          (c) default by the Trust in the payment of any Redemption Price of any
          Trust Security when it becomes due and payable; or

          (d) default in the performance, or breach, in any material respect of
          any covenant or warranty of the Trustees in this Trust Agreement
          (other than those specified in clause (b) or (c) above) and
          continuation of such default or breach for a period of thirty (30)
          days after there has been given, by registered or certified mail, to
          the Trustees and to the Depositor by the Holders of at least twenty
          five percent (25%) in aggregate Liquidation Amount of the Outstanding
          Preferred Securities a written notice specifying such default or
          breach and requiring it to be remedied and stating that such notice is
          a "Notice of Default" hereunder; or

          (e) the occurrence of a Bankruptcy Event with respect to the Property
          Trustee if a successor Property Trustee has not been appointed within
          ninety (90) days thereof.

     "Exchange Act" means the Securities Exchange Act of 1934, and any successor
statute thereto, in each case as amended from time to time.

     "Expiration Date" has the meaning specified in Section 9.1.

     "Extension Period" has the meaning specified in Section 4.1(a)(ii).

     "Extension Right" has the meaning specified in Section 4.1(a)(ii).

     "Fiscal Year" shall be the fiscal year of the Trust, which shall be the
calendar year, or such other period as is required by the Code.

     "Fixed Rate Period" shall mean the period through the interest payment date
in June 2015.

     "Global Preferred Security" means a Preferred Securities Certificate
evidencing ownership of Book-Entry Preferred Securities.


                                        5



     "Holder" means a Person in whose name a Trust Security or Trust Securities
are registered in the Securities Register; any such Person shall be deemed to be
a beneficial owner within the meaning of the Delaware Statutory Trust Act.

     "Indemnified Person" has the meaning specified in Section 8.10(c).

     "Indenture" means the Junior Subordinated Indenture executed and delivered
by the Depositor and the Note Trustee contemporaneously with the execution and
delivery of this Trust Agreement, for the benefit of the holders of the Notes, a
copy of which is attached hereto as Exhibit D, as amended or supplemented from
time to time.

     "Indenture Redemption Price" means the Optional Note Redemption Price or
the Special Note Redemption Price, as applicable.

     "Interest Payment Date" has the meaning specified in Section 1.1 of the
Indenture.

     "Investment Company Act" means the Investment Company Act of 1940, or any
successor statute thereto, in each case as amended from time to time.

     "Investment Company Event" has the meaning specified in Section 1.1 of the
Indenture.

     "LIBOR" has the meaning specified in Schedule A.

     "LIBOR Business Day" has the meaning specified in Schedule A.

     "LIBOR Determination Date" has the meaning specified in Schedule A.

     "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.

     "Like Amount" means (a) with respect to a redemption of any Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Notes to be contemporaneously redeemed or paid at maturity in
accordance with the Indenture, the proceeds of which will be used to pay the
Redemption Price of such Trust Securities, (b) with respect to a distribution of
Notes to Holders of Trust Securities in connection with a dissolution of the
Trust, Notes having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Notes are distributed and (c) with
respect to any distribution of Additional Interest Amounts to Holders of Trust
Securities, Notes having a principal amount equal to the Liquidation Amount of
the Trust Securities in respect of which such distribution is made.

     "Liquidation Amount" means the stated amount of $1,000 per Trust Security.

     "Liquidation Date" means the date on which assets are to be distributed to
Holders in accordance with Section 9.4(a) hereunder following dissolution of the
Trust.

     "Liquidation Distribution" has the meaning specified in Section 9.4(d).


                                        6



     "Majority in Liquidation Amount" means Common or Preferred Securities, as
the case may be, representing more than fifty percent (50%) of the aggregate
Liquidation Amount of all (or a specified group of) then Outstanding Common or
Preferred Securities, as the case may be.

     "Note Event of Default" means any "Event of Default" specified in Section
5.1 of the Indenture.

     "Note Redemption Date" means, with respect to any Notes to be redeemed
under the Indenture, the date fixed for redemption of such Notes under the
Indenture.

     "Note Trustee" means the Person identified as the "Trustee" in the
Indenture, solely in its capacity as Trustee pursuant to the Indenture and not
in its individual capacity, or its successor in interest in such capacity, or
any successor Trustee appointed as provided in the Indenture.

     "Notes" means the Depositor's Floating Rate Junior Subordinated Notes
issued pursuant to the Indenture.

     "Officers' Certificate" means a certificate signed by the Chief Executive
Officer, the President or an Executive Vice President, and by the Chief
Financial Officer, Treasurer or an Assistant Treasurer, of the Depositor, and
delivered to the Trustees. Any Officers' Certificate delivered with respect to
compliance with a condition or covenant provided for in this Trust Agreement
(other than the certificate provided pursuant to Section 8.16 which is not an
Officers' Certificate) shall include:

          (a) a statement by each officer signing the Officers' Certificate that
          such officer has read the covenant or condition and the definitions
          relating thereto;

          (b) a brief statement of the nature and scope of the examination or
          investigation undertaken by such officer in rendering the Officers'
          Certificate;

          (c) a statement that such officer has made such examination or
          investigation as, in such officer's opinion, is necessary to enable
          such officer to express an informed opinion as to whether or not such
          covenant or condition has been complied with; and

          (d) a statement as to whether, in the opinion of such officer, such
          condition or covenant has been complied with.

     "Operative Documents" means the Purchase Agreement, the Indenture, the
Trust Agreement, the Notes and the Trust Securities.

     "Opinion of Counsel" means a written opinion of counsel, who may be counsel
for, or an employee of, the Depositor or any Affiliate of the Depositor.


                                        7



     "Optional Redemption Price" means, with respect to any Trust Security, an
amount equal to one hundred percent (100%) of the Liquidation Amount of such
Trust Security on the Redemption Date, plus accumulated and unpaid Distributions
to the Redemption Date, plus the related amount of the premium, if any, and/or
accrued interest, including Additional Interest, if any, thereon paid by the
Depositor upon the concurrent redemption or payment at maturity of a Like Amount
of Notes.

     "Optional Note Redemption Price" means, with respect to any Note to be
redeemed on any Redemption Date under the Indenture, an amount equal to one
hundred percent (100%) of the outstanding principal amount of such Note,
together with accrued interest, including any Additional Interest (to the extent
legally enforceable), thereon through but not including the date fixed as such
Redemption Date.

     "Original Issue Date" means the date of original issuance of the Trust
Securities.

     "Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.

     "Outstanding", when used with respect to any Trust Securities, means, as of
the date of determination, all Trust Securities theretofore executed and
delivered under this Trust Agreement, except:

          (a) Trust Securities theretofore canceled by the Property Trustee or
          delivered to the Property Trustee for cancellation;

          (b) Trust Securities for which payment or redemption money in the
          necessary amount has been theretofore deposited with the Property
          Trustee or any Paying Agent in trust for the Holders of such Trust
          Securities; provided, that if such Trust Securities are to be
          redeemed, notice of such redemption has been duly given pursuant to
          this Trust Agreement; and

          (c) Trust Securities that have been paid or in exchange for or in lieu
          of which other Trust Securities have been executed and delivered
          pursuant to the provisions of this Trust Agreement, unless proof
          satisfactory to the Property Trustee is presented that any such Trust
          Securities are held by Holders in whose hands such Trust Securities
          are valid, legal and binding obligations of the Trust;

provided, that in determining whether the Holders of the requisite Liquidation
Amount of the Outstanding Preferred Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Preferred
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or of any Trustee shall be disregarded and deemed not to be Outstanding, except
that (i) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Preferred Securities that such Trustee knows to be so owned shall be so
disregarded and (ii) the foregoing shall not apply at any time when all of the
Outstanding Preferred Securities are owned by the Depositor, one or more of the
Trustees and/or any such Affiliate. Preferred Securities so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Administrative Trustees the pledgee's right so to act
with


                                        8



respect to such Preferred Securities and that the pledgee is not the Depositor,
any Trustee or any Affiliate of the Depositor or of any Trustee.

     "Owner" means each Person who is the beneficial owner of Book-Entry
Preferred Securities as reflected in the records of the Depositary or, if a
Depositary Participant is not the beneficial owner, then the beneficial owner as
reflected in the records of the Depositary Participant.

     "Paying Agent" means any Person authorized by the Administrative Trustees
to pay Distributions or other amounts in respect of any Trust Securities on
behalf of the Trust.

     "Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee for the benefit of the Holders in
which all amounts paid in respect of the Notes will be held and from which the
Property Trustee, through the Paying Agent, shall make payments to the Holders
in accordance with Sections 3.1, 4.1 and 4.2.

     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, company,
limited liability company, trust, unincorporated association or government, or
any agency or political subdivision thereof, or any other entity of whatever
nature.

     "Preferred Security" means an undivided beneficial interest in the assets
of the Trust, having a Liquidation Amount of $1,000 and having the rights
provided therefor in this Trust Agreement.

     "Preferred Securities Certificate" means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached as Exhibit C.

     "Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement, solely in its capacity as Property Trustee
of the Trust and not in its individual capacity, or its successor in interest in
such capacity, or any successor Property Trustee appointed as herein provided.

     "Purchase Agreement" means the Purchase Agreement executed and delivered by
the Trust, the Depositor and Merrill Lynch International, as purchaser,
contemporaneously with the execution and delivery of this Trust Agreement, as
amended from time to time.

     "QIB" means a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act of 1933, as amended.

     "QP" means a "qualified purchaser" as defined in Section 2(a)(51) of the
Investment Company Act of 1940, as amended.

     "QIB/QP" means a QIB that is also a QP.

     "Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided, that each Note


                                        9



Redemption Date and the stated maturity (or any date of principal repayment upon
early maturity) of the Notes shall be a Redemption Date for a Like Amount of
Trust Securities.

     "Redemption Price" means the Special Redemption Price or Optional
Redemption Price, as applicable. If the Depositor has redeemed the Notes at the
Special Note Redemption Price, the Trust shall redeem the Trust Securities at
the Special Redemption Price. If the Depositor has redeemed the Notes at the
Optional Note Redemption Price, the Trust shall redeem the Trust Securities at
the Optional Redemption Price.

     "Reference Banks" has the meaning specified in Schedule A.

     "Responsible Officer" means, with respect to the Property Trustee, the
officer in the Institutional Trust Services department of the Property Trustee
having direct responsibility for the administration of this Trust Agreement.

     "Securities Act" means the Securities Act of 1933, and any successor
statute thereto, in each case as amended from time to time.

     "Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.

     "Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.7.

     "Special Redemption Price" means, with respect to any Trust Security, an
amount equal to one hundred seven and one half percent (107.5%) of the
Liquidation Amount of such Trust Security on the Redemption Date, plus
accumulated and unpaid Distributions to the Redemption Date, plus the related
amount of the premium, if any, and/or accrued interest, including Additional
Interest, if any, thereon paid by the Depositor upon the concurrent redemption
or payment at maturity of a Like Amount of Notes.

     "Special Note Redemption Price" means, with respect to any Note to be
redeemed on any Redemption Date under the Indenture, an amount equal to one
hundred seven and one half percent (107.5%) of the outstanding principal amount
of such Note, together with accrued interest, including Additional Interest,
thereon through but not including the date fixed as such Redemption Date.

     "Successor Securities" has the meaning specified in Section 9.5(a).

     "Tax Event" has the meaning specified in Section 1.1 of the Indenture.

     "Trust" means the Delaware statutory trust known as "NorthStar Realty
Finance Trust II," which was created on May 13, 2005 under the Delaware
Statutory Trust Act pursuant to the Original Trust Agreement and the filing of
the Certificate of Trust, and continued pursuant to this Trust Agreement.


                                       10



     "Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented from time to time in accordance
with the applicable provisions hereof, including all Schedules and Exhibits.

     "Trustees" means the Administrative Trustees, the Property Trustee and the
Delaware Trustee, each as defined in this Article I.

     "Trust Property" means (a) the Notes, (b) any cash on deposit in, or owing
to, the Payment Account and (c) all proceeds and rights in respect of the
foregoing and any other property and assets for the time being held or deemed to
be held by the Property Trustee pursuant to the trusts of this Trust Agreement.

     "Trust Security" means any one of the Common Securities or the Preferred
Securities.

                                   ARTICLE II.

                                    THE TRUST

     SECTION 2.1. Name.

     The trust continued hereby shall be known as "NorthStar Realty Finance
Trust II", as such name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust Securities and the
other Trustees, in which name the Trustees may conduct the business of the
Trust, make and execute contracts and other instruments on behalf of the Trust
and sue and be sued.

     SECTION 2.2. Office of the Delaware Trustee; Principal Place of Business.

     The address of the Delaware Trustee in the State of Delaware is Chase Bank
USA, National Association, 500 Stanton Christiana Road, Building 4 (3rd Floor),
Newark, DE 19713, Attention: Institutional Trust Services, or such other address
in the State of Delaware as the Delaware Trustee may designate by written notice
to the Holders, the Depositor, the Property Trustee and the Administrative
Trustees. The principal executive office of the Trust is 527 Madison Avenue, New
York, NY 10022, Attention: Richard J. McCready, as such address may be changed
from time to time by the Administrative Trustees following written notice to the
Holders and the other Trustees.

     SECTION 2.3. Initial Contribution of Trust Property; Fees, Costs and
Expenses.

     The Property Trustee acknowledges receipt from the Depositor in connection
with the Original Trust Agreement of the sum of ten dollars ($10), which
constituted the initial Trust Property. The Depositor shall pay all fees, costs
and expenses of the Trust (except with respect to the Trust Securities) as they
arise or shall, upon request of any Trustee, promptly reimburse such Trustee for
any such fees, costs and expenses paid by such Trustee. The Depositor shall make
no claim upon the Trust Property for the payment of such fees, costs or
expenses.


                                       11



     SECTION 2.4. Purposes of Trust.

     (a) The exclusive purposes and functions of the Trust are to (i) issue and
sell Trust Securities and use the proceeds from such sale to acquire the Notes
and (ii) engage in only those activities necessary or incidental thereto. The
Delaware Trustee, the Property Trustee and the Administrative Trustees are
trustees of the Trust, and have all the rights, powers and duties to the extent
set forth herein. The Trustees hereby acknowledge that they are trustees of the
Trust.

     (b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trust (or the Trustees acting on behalf of the Trust)
shall not (i) acquire any investments or engage in any activities not authorized
by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage,
pledge, set-off or otherwise dispose of any of the Trust Property or interests
therein, including to Holders, except as expressly provided herein, (iii) incur
any indebtedness for borrowed money or issue any other debt, (iv) take or
consent to any action that would result in the placement of a Lien on any of the
Trust Property, (v) take or consent to any action that would reasonably be
expected to cause the Trust to become taxable as a corporation or classified as
other than a grantor trust for United States federal income tax purposes, (vi)
take or consent to any action that would cause the Notes to be treated as other
than indebtedness of the Depositor for United States federal income tax purposes
or (vii) take or consent to any action that would cause the Trust to be deemed
to be an "investment company" required to be registered under the Investment
Company Act.

     SECTION 2.5. Authorization to Enter into Certain Transactions.

     (a) The Trustees shall conduct the affairs of the Trust in accordance with
and subject to the terms of this Trust Agreement. In accordance with the
following provisions (i) and (ii), the Trustees shall have the authority to
enter into all transactions and agreements determined by the Trustees to be
appropriate in exercising the authority, express or implied, otherwise granted
to the Trustees, under this Trust Agreement, and to perform all acts in
furtherance thereof, including the following:

          (i) As among the Trustees, each Administrative Trustee shall severally
     have the power and authority to act on behalf of the Trust with respect to
     the following matters:

               (A) the issuance and sale of the Trust Securities;

               (B) to cause the Trust to enter into, and to execute, deliver and
          perform on behalf of the Trust, such agreements as may be necessary or
          desirable in connection with the purposes and function of the Trust,
          including, without limitation, a common securities subscription
          agreement and a junior subordinated note purchase agreement;

               (C) assisting in the sale of the Preferred Securities in one or
          more transactions exempt from registration under the Securities Act,
          and in compliance with applicable state securities or blue sky laws;


                                       12



               (D) assisting in the sending of notices (other than notices of
          default) and other information regarding the Trust Securities and the
          Notes to the Holders in accordance with this Trust Agreement;

               (E) the appointment of a Paying Agent and Securities Registrar in
          accordance with this Trust Agreement;

               (F) execution of the Trust Securities on behalf of the Trust in
          accordance with this Trust Agreement;

               (G) execution and delivery of closing certificates, if any,
          pursuant to the Purchase Agreement and application for a taxpayer
          identification number for the Trust;

               (H) preparation and filing of all applicable tax returns and tax
          information reports that are required to be filed on behalf of the
          Trust;

               (I) establishing a record date with respect to all actions to be
          taken hereunder that require a record date to be established, except
          as provided in Section 6.10(a);

               (J) unless otherwise required by the Delaware Statutory Trust Act
          to execute on behalf of the Trust (either acting alone or together
          with the other Administrative Trustees) any documents that such
          Administrative Trustee has the power to execute pursuant to this Trust
          Agreement; and

               (K) the taking of any action incidental to the foregoing as such
          Administrative Trustee may from time to time determine is necessary or
          advisable to give effect to the terms of this Trust Agreement.

          (ii) As among the Trustees, the Property Trustee shall have the power,
     duty and authority to act on behalf of the Trust with respect to the
     following matters:

               (A) the receipt and holding of legal title of the Notes;

               (B) the establishment of the Payment Account;

               (C) the collection of interest, principal and any other payments
          made in respect of the Notes and the holding of such amounts in the
          Payment Account;

               (D) the distribution through the Paying Agent of amounts
          distributable to the Holders in respect of the Trust Securities;

               (E) the exercise of all of the rights, powers and privileges of a
          holder of the Notes in accordance with the terms of this Trust
          Agreement;


                                       13



               (F) the sending of notices of default and other information
          regarding the Trust Securities and the Notes to the Holders in
          accordance with this Trust Agreement;

               (G) the distribution of the Trust Property in accordance with the
          terms of this Trust Agreement;

               (H) to the extent provided in this Trust Agreement, the winding
          up of the affairs of and liquidation of the Trust, provided that the
          Administrative Trustees shall have the power, duty and authority to
          act on behalf of the Trust with respect to the preparation, execution
          and filing of the certificate of cancellation of the Trust with the
          Secretary of State of the State of Delaware; and

               (I) the taking of any action incidental to the foregoing as the
          Property Trustee may from time to time determine is necessary or
          advisable to give effect to the terms of this Trust Agreement and
          protect and conserve the Trust Property for the benefit of the Holders
          (without consideration of the effect of any such action on any
          particular Holder).

     (b) In connection with the issue and sale of the Preferred Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):

          (i) the negotiation of the terms of, and the execution and delivery
     of, the Purchase Agreement providing for the sale of the Preferred
     Securities in one or more transactions exempt from registration under the
     Securities Act, and in compliance with applicable state securities or blue
     sky laws; and

          (ii) the taking of any other actions necessary or desirable to carry
     out any of the foregoing activities.

     (c) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and
authorized to operate the Trust so that the Trust will not be taxable as a
corporation or classified as other than a grantor trust for United States
federal income tax purposes, so that the Notes will be treated as indebtedness
of the Depositor for United States federal income tax purposes and so that the
Trust will not be deemed to be an "investment company" required to be registered
under the Investment Company Act. In respect thereof, each Administrative
Trustee is authorized to take any action, not inconsistent with applicable law,
the Certificate of Trust or this Trust Agreement, that such Administrative
Trustee determines in his or her discretion to be necessary or desirable for
such purposes, as long as such action does not adversely affect in any material
respect the interests of the Holders of the Outstanding Preferred Securities. In
no event shall the Administrative Trustees be liable to the Trust or the Holders
for any failure to comply with this Section 2.5 to the extent that such failure
results solely from a change in law or regulation or in the interpretation
thereof.


                                       14



     (d) Any action taken by a Trustee in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with any Trustee
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of such Trustee to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of any Trustee as set
forth in this Trust Agreement.

     SECTION 2.6. Assets of Trust.

     The assets of the Trust shall consist of the Trust Property.

     SECTION 2.7. Title to Trust Property.

     (a) Legal title to all Trust Property shall be vested at all times in the
Property Trustee and shall be held and administered by the Property Trustee in
trust for the benefit of the Trust and the Holders in accordance with this Trust
Agreement.

     (b) The Holders shall not have any right or title to the Trust Property
other than the undivided beneficial interest in the assets of the Trust
conferred by their Trust Securities and they shall have no right to call for any
partition or division of property, profits or rights of the Trust except as
described below. The Trust Securities shall be personal property giving only the
rights specifically set forth therein and in this Trust Agreement.

                                  ARTICLE III.

                         PAYMENT ACCOUNT; PAYING AGENTS

     SECTION 3.1. Payment Account.

     (a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and the Paying Agent shall have
exclusive control and sole right of withdrawal with respect to the Payment
Account for the purpose of making deposits in and withdrawals from the Payment
Account in accordance with this Trust Agreement. All monies and other property
deposited or held from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit of the Holders
and for Distribution as herein provided.

     (b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments with respect to, the Notes. Amounts held in the Payment Account shall
not be invested by the Property Trustee pending distribution thereof.

     SECTION 3.2. Appointment of Paying Agents.

     The Paying Agent shall initially be the Property Trustee. The Paying Agent
shall make Distributions to Holders from the Payment Account and shall report
the amounts of such Distributions to the Property Trustee and the Administrative
Trustees. Any Paying Agent shall have the revocable power to withdraw funds from
the Payment Account solely for the purpose of


                                       15



making the Distributions referred to above. The Administrative Trustees may
revoke such power and remove the Paying Agent in their sole discretion. Any
Person acting as Paying Agent shall be permitted to resign as Paying Agent upon
thirty (30) days' written notice to the Administrative Trustees and the Property
Trustee. If the Property Trustee shall no longer be the Paying Agent or a
successor Paying Agent shall resign or its authority to act be revoked, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company) to act as Paying Agent. Such successor Paying Agent appointed by
the Administrative Trustees shall execute and deliver to the Trustees an
instrument in which such successor Paying Agent shall agree with the Trustees
that as Paying Agent, such successor Paying Agent will hold all sums, if any,
held by it for payment to the Holders in trust for the benefit of the Holders
entitled thereto until such sums shall be paid to such Holders. The Paying Agent
shall return all unclaimed funds to the Property Trustee and upon removal of a
Paying Agent such Paying Agent shall also return all funds in its possession to
the Property Trustee. The provisions of Article VIII shall apply to the Property
Trustee also in its role as Paying Agent, for so long as the Property Trustee
shall act as Paying Agent and, to the extent applicable, to any other Paying
Agent appointed hereunder. Any reference in this Trust Agreement to the Paying
Agent shall include any co-paying agent unless the context requires otherwise.

                                   ARTICLE IV.

                            DISTRIBUTIONS; REDEMPTION

     SECTION 4.1. Distributions.

     (a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including any Additional Interest Amounts)
will be made on the Trust Securities at the rate and on the dates that payments
of interest (including any Additional Interest) are made on the Notes.
Accordingly:

          (i) Distributions on the Trust Securities shall be cumulative, and
     shall accumulate whether or not there are funds of the Trust available for
     the payment of Distributions. Distributions shall accumulate from May 25,
     2005, and, except as provided in clause (ii) below, shall be payable
     quarterly in arrears on March 30, June 30, September 30 and December 30 of
     each year, commencing on September 30, 2005. If any date on which a
     Distribution is otherwise payable on the Trust Securities is not a Business
     Day, then the payment of such Distribution shall be made on the next
     succeeding Business Day (and no interest shall accrue in respect of the
     amounts whose payment is so delayed for the period from and after each such
     date until the next succeeding Business Day), except that, if such Business
     Day falls in the next succeeding calendar year, such payment shall be made
     on the immediately preceding Business Day, in each case, with the same
     force and effect as if made on such date (each date on which Distributions
     are payable in accordance with this Section 4.1(a)(i), a "Distribution
     Date");

          (ii) in the event (and to the extent) that the Depositor exercises its
     right under the Indenture to defer the payment of interest on the Notes,
     Distributions on the Trust


                                       16



     Securities shall be deferred. Under the Indenture, so long as no Note Event
     of Default has occurred and is continuing, after October 12, 2006, the
     Depositor shall have the right, at any time and from time to time during
     the term of the Notes, to defer the payment of interest on the Notes for a
     period of up to six (6) consecutive quarterly interest payment periods
     (such right to defer, the "Extension Right" and each such extended interest
     payment period, an "Extension Period"), during which Extension Period(s),
     no interest shall be due and payable (except any Additional Tax Sums that
     may be due and payable); provided, that, the Depositor shall not be
     entitled to exercise its Extension Right so that it would be able to defer
     the payment of interest on the Notes for more than six (6) quarterly
     interest payment periods; provided, further, that, after the expiration of
     any Extension Period, the Depositor may not exercise its Extension Right to
     begin any subsequent Extension Period until it pays all interest then
     accrued and unpaid on the Notes, together with such Additional Interest
     prior to beginning such subsequent Extension Period. No interest on the
     Notes shall be due and payable during an Extension Period, except at the
     end thereof, but each installment of interest that would otherwise have
     been due and payable during such Extension Period shall bear Additional
     Interest (to the extent payment of such interest would be legally
     enforceable) at a fixed rate equal to 7.74% per annum through the interest
     payment date in June 2015 and thereafter at a variable rate equal to LIBOR
     plus 3.25% per annum compounded quarterly, from the dates on which amounts
     would have otherwise been due and payable until paid or until funds for the
     payment thereof have been made available for payment. If Distributions are
     deferred, the deferred Distributions (including Additional Interest
     Amounts) shall be paid on the date that the related Extension Period
     terminates, to Holders of the Trust Securities as they appear on the books
     and records of the Trust on the record date immediately preceding such
     termination date.

          (iii) Distributions shall accumulate in respect of the Trust
     Securities at a fixed rate equal to 7.74% per annum through the interest
     payment date in June 2015 and thereafter at a variable rate equal to LIBOR
     plus 3.25% per annum of the Liquidation Amount of the Trust Securities,
     such rate being the rate of interest payable on the Notes. LIBOR shall be
     determined by the Calculation Agent in accordance with Schedule A. During
     the Fixed Rate Period, the amount of Distributions payable for any period
     less than a full Distribution period shall be computed on the basis of a
     360-day year of twelve 30-day months and the amount payable for any partial
     period shall be computed on the basis of the number of days elapsed in a
     360-day year of twelve 30-day months. Upon expiration of the Fixed Rate
     Period, the amount of interest payable for any Interest Payment Period will
     be computed on the basis of a 360-day year and the actual number of days
     elapsed in the relevant interest period. The amount of Distributions
     payable for any period shall include any Additional Interest Amounts in
     respect of such period; and

          (iv) Distributions on the Trust Securities shall be made by the Paying
     Agent from the Payment Account and shall be payable on each Distribution
     Date only to the extent that the Trust has funds then on hand and available
     in the Payment Account for the payment of such Distributions.

     (b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at


                                       17



the close of business on the relevant record date, which shall be at the close
of business on the fifteenth day (whether or not a Business Day) preceding the
relevant Distribution Date, except that Distributions and any Additional
Interest Amounts payable on the stated maturity (or any date of principal
repayment upon early maturity) of the principal of a Trust Security or on a
Redemption Date shall be paid to the Person to whom principal is paid.
Distributions payable on any Trust Securities that are not punctually paid on
any Distribution Date as a result of the Depositor having failed to make an
interest payment under the Notes will cease to be payable to the Person in whose
name such Trust Securities are registered on the relevant record date, and such
defaulted Distributions and any Additional Interest Amounts will instead be
payable to the Person in whose name such Trust Securities are registered on the
special record date, or other specified date for determining Holders entitled to
such defaulted Distribution and Additional Interest Amount, established in the
same manner, and on the same date, as such is established with respect to the
Notes under the Indenture.

     SECTION 4.2. Redemption.

     (a) On each Note Redemption Date and on the stated maturity (or any date of
principal repayment upon early maturity) of the Notes and on each other date on
(or in respect of) which any principal on the Notes is repaid, the Trust will be
required to redeem a Like Amount of Trust Securities at the Redemption Price.

     (b) Notice of redemption shall be given by the Property Trustee by
first-class mail, postage prepaid, mailed not less than thirty (30) nor more
than sixty (60) days prior to the Redemption Date to each Holder of Trust
Securities to be redeemed, at such Holder's address appearing in the Securities
Register. All notices of redemption shall state:

          (i) the Redemption Date;

          (ii) the Redemption Price or, if the Redemption Price cannot be
     calculated prior to the time the notice is required to be sent, the
     estimate of the Redemption Price provided pursuant to the Indenture, as
     calculated by the Depositor, together with a statement that it is an
     estimate and that the actual Redemption Price will be calculated by the
     Calculation Agent on the fifth Business Day prior to the Redemption Date
     (and if an estimate is provided, a further notice shall be sent of the
     actual Redemption Price on the date that such Redemption Price is
     calculated);

          (iii) if less than all the Outstanding Trust Securities are to be
     redeemed, the identification (and, in the case of partial redemption, the
     respective amounts) and Liquidation Amounts of the particular Trust
     Securities to be redeemed;

          (iv) that on the Redemption Date, the Redemption Price will become due
     and payable upon each such Trust Security, or portion thereof, to be
     redeemed and that Distributions thereon will cease to accumulate on such
     Trust Security or such portion, as the case may be, on and after said date,
     except as provided in Section 4.2(d);

          (v) the place or places where the Trust Securities are to be
     surrendered for the payment of the Redemption Price; and


                                       18



          (vi) such other provisions as the Property Trustee deems relevant.

     (c) The Trust Securities (or portion thereof) redeemed on each Redemption
Date shall be redeemed at the Redemption Price with the proceeds from the
contemporaneous redemption or payment at maturity of Notes. Redemptions of the
Trust Securities (or portion thereof) shall be made and the Redemption Price
shall be payable on each Redemption Date only to the extent that the Trust has
funds then on hand and available in the Payment Account for the payment of such
Redemption Price. Under the Indenture, the Notes may be redeemed by the
Depositor on any Interest Payment Date, at the Depositor's option, on or after
June 30, 2010, in whole or in part, from time to time at the Optional Note
Redemption Price. The Notes may also be redeemed by the Depositor, at its option
pursuant to the terms of the Indenture, in whole but not in part, upon the
occurrence and during the continuation of an Investment Company Event or a Tax
Event, at the Special Note Redemption Price.

     (d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then by 10:00 A.M., New York City time, on the Redemption
Date, the Depositor shall deposit sufficient funds with the Property Trustee to
pay the Redemption Price. If such deposit has been made by such time, then by
12:00 noon, New York City time, on the Redemption Date, the Property Trustee
will, with respect to Book-Entry Preferred Securities, irrevocably deposit with
the Depositary for such Book-Entry Preferred Securities, to the extent available
therefor, funds sufficient to pay the applicable Redemption Price and will give
such Depositary irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities. With respect to Preferred
Securities that are not Book-Entry Preferred Securities, the Property Trustee
will irrevocably deposit with the Paying Agent, to the extent available
therefor, funds sufficient to pay the applicable Redemption Price and will give
the Paying Agent irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities upon surrender of their
Preferred Securities Certificates. Notwithstanding the foregoing, Distributions
payable on or prior to the Redemption Date for any Trust Securities (or portion
thereof) called for redemption shall be payable to the Holders of such Trust
Securities as they appear on the Securities Register on the relevant record
dates for the related Distribution Dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such deposit,
all rights of Holders holding Trust Securities (or portion thereof) so called
for redemption will cease, except the right of such Holders to receive the
Redemption Price and any Distribution payable in respect of the Trust Securities
on or prior to the Redemption Date, but without interest, and, in the case of a
partial redemption, the right of such Holders to receive a new Trust Security or
Securities of authorized denominations, in aggregate Liquidation Amount equal to
the unredeemed portion of such Trust Security or Securities, and such Securities
(or portion thereof) called for redemption will cease to be Outstanding. In the
event that any date on which any Redemption Price is payable is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding Business Day (and no interest shall accrue in respect of the
amounts whose payment is so delayed for the period from and after each such date
until the next succeeding Business Day), except that, if such Business Day falls
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case, with the same force and effect
as if made on such date. In the event that payment of the Redemption Price in
respect of any Trust Securities (or portion thereof) called for redemption is
improperly withheld or refused and not paid either by the Trust, Distributions
on such Trust Securities (or portion


                                       19



thereof) will continue to accumulate, as set forth in Section 4.1, from the
Redemption Date originally established by the Trust for such Trust Securities
(or portion thereof) to the date such Redemption Price is actually paid, in
which case the actual payment date will be the date fixed for redemption for
purposes of calculating the Redemption Price.

     (e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated pro
rata to the Common Securities and the Preferred Securities based upon the
relative aggregate Liquidation Amounts of the Common Securities and the
Preferred Securities. The Preferred Securities to be redeemed shall be selected
on a pro rata basis based upon their respective Liquidation Amounts not more
than sixty (60) days prior to the Redemption Date by the Property Trustee from
the Outstanding Preferred Securities not previously called for redemption;
provided, that with respect to Holders that would be required to hold less than
one hundred (100) but more than zero (0) Trust Securities as a result of such
redemption, the Trust shall redeem Trust Securities of each such Holder so that
after such redemption such Holder shall hold either one hundred (100) Trust
Securities or such Holder no longer holds any Trust Securities, and shall use
such method (including, without limitation, by lot) as the Trust shall deem fair
and appropriate; and provided, further, that so long as the Preferred Securities
are Book-Entry Preferred Securities, such selection shall be made in accordance
with the Applicable Depositary Procedures for the Preferred Securities by such
Depositary. The Property Trustee shall promptly notify the Securities Registrar
in writing of the Preferred Securities (or portion thereof) selected for
redemption and, in the case of any Preferred Securities selected for partial
redemption, the Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part, to the portion
of the aggregate Liquidation Amount of Preferred Securities that has been or is
to be redeemed.

     (f) The Trust in issuing the Trust Securities may use "CUSIP" numbers (if
then generally in use), and, if so, the Property Trustee shall indicate the
"CUSIP" numbers of the Trust Securities in notices of redemption and related
materials as a convenience to Holders; provided, that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Trust Securities or as contained in any notice of redemption and
related materials.

     SECTION 4.3. Subordination of Common Securities.

     (a) Payment of Distributions (including any Additional Interest Amounts)
on, the Redemption Price of and the Liquidation Distribution in respect of, the
Trust Securities, as applicable, shall be made, pro rata among the Common
Securities and the Preferred Securities based on the Liquidation Amount of the
respective Trust Securities; provided, that if on any Distribution Date,
Redemption Date or Liquidation Date an Event of Default shall have occurred and
be continuing, no payment of any Distribution (including any Additional Interest
Amounts) on, Redemption Price of or Liquidation Distribution in respect of, any
Common Security, and no other payment on account of the redemption, liquidation
or other acquisition of Common Securities, shall be made unless payment in full
in cash of all accumulated and unpaid Distributions (including any Additional
Interest Amounts) on all Outstanding Preferred


                                       20



Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all Outstanding Preferred Securities then called for redemption, or in
the case of payment of the Liquidation Distribution the full amount of such
Liquidation Distribution on all Outstanding Preferred Securities, shall have
been made or provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions (including any Additional Interest Amounts) on, or the Redemption
Price of or the Liquidation Distribution in respect of, the Preferred Securities
then due and payable.

     (b) In the case of the occurrence of any Event of Default, the Holders of
the Common Securities shall have no right to act with respect to any such Event
of Default under this Trust Agreement until all such Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated. Until all such Events of Default under this Trust Agreement with
respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the Holders of
the Preferred Securities and not on behalf of the Holders of the Common
Securities, and only the Holders of all the Preferred Securities will have the
right to direct the Property Trustee to act on their behalf.

     SECTION 4.4. Payment Procedures.

     Payments of Distributions (including any Additional Interest Amounts), the
Redemption Price, Liquidation Amount or any other amounts in respect of the
Preferred Securities shall be made by wire transfer at such place and to such
account at a banking institution in the United States as may be designated in
writing at least ten (10) Business Days prior to the date for payment by the
Person entitled thereto unless proper written transfer instructions have not
been received by the relevant record date, in which case such payments shall be
made by check mailed to the address of such Person as such address shall appear
in the Securities Register. If any Preferred Securities are held by a
Depositary, such Distributions thereon shall be made to the Depositary in
immediately available funds. Payments in respect of the Common Securities shall
be made in such manner as shall be mutually agreed between the Property Trustee
and the Holder of all the Common Securities.

     SECTION 4.5. Withholding Tax.

     (a) The Trust and the Administrative Trustees shall comply with all
withholding and backup withholding tax requirements under United States federal,
state and local law. The Administrative Trustees on behalf of the Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding and backup
withholding tax with respect to each Holder and any representations and forms as
shall reasonably be requested by the Administrative Trustees on behalf of the
Trust to assist it in determining the extent of, and in fulfilling, its
withholding and backup withholding tax obligations. The Administrative Trustees
shall file required forms with applicable jurisdictions and, unless an exemption
from withholding and backup withholding tax is properly established by a Holder,
shall remit amounts withheld with respect to the Holder to applicable
jurisdictions. To the extent that the Trust is required to withhold and pay over
any amounts to any jurisdiction with respect to Distributions or allocations to
any Holder, the amount withheld shall be deemed to be a Distribution in the
amount of the withholding to the Holder. In the event of any claimed


                                       21



overwithholding, Holders shall be limited to an action against the applicable
jurisdiction. If the amount required to be withheld was not withheld from actual
Distributions made, the Administrative Trustees on behalf of the Trust may
reduce subsequent Distributions by the amount of such required withholding.

     SECTION 4.6. Tax Returns and Other Reports.

     The Administrative Trustees shall prepare (or cause to be prepared) at the
principal office of the Trust in the United States, as defined for purposes of
Treasury regulations section 301.7701-7, at the Depositor's expense, and file,
all United States federal, state and local tax and information returns and
reports required to be filed by or in respect of the Trust. The Administrative
Trustees shall prepare at the principal office of the Trust in the United
States, as defined for purposes of Treasury regulations section 301.7701-7, and
furnish (or cause to be prepared and furnished), by January 31 in each taxable
year of the Trust to each Holder all Internal Revenue Service forms and returns
required to be provided by the Trust. The Administrative Trustees shall provide
the Depositor, Cohen Bros. & Company and the Property Trustee with a copy of all
such returns and reports promptly after such filing or furnishing.

     SECTION 4.7. Payment of Taxes, Duties, Etc. of the Trust.

     Upon receipt under the Notes of Additional Tax Sums and upon the written
direction of the Administrative Trustees, the Property Trustee shall promptly
pay, solely out of monies on deposit pursuant to this Trust Agreement, any
Additional Taxes imposed on the Trust by the United States or any other taxing
authority.

     SECTION 4.8. Payments under Indenture or Pursuant to Direct Actions.

     Any amount payable hereunder to any Holder of Preferred Securities shall be
reduced by the amount of any corresponding payment such Holder (or any Owner
with respect thereto) has directly received pursuant to Section 5.8 of the
Indenture or Section 6.10(b) of this Trust Agreement.

     SECTION 4.9. Exchanges.

     (a) If at any time the Depositor or any of its Affiliates (in either case,
a "Depositor Affiliate") is the Owner or Holder of any Preferred Securities,
such Depositor Affiliate shall have the right to deliver to the Property Trustee
all or such portion of its Preferred Securities as it elects and, subject to
compliance with Sections 2.2 and 3.5 of the Indenture, receive, in exchange
therefor, a Like Amount of Notes. Such election shall be exercisable effective
on any Distribution Date by such Depositor Affiliate delivering to the Property
Trustee (i) at least ten (10) Business Days prior to the Distribution Date on
which such exchange is to occur, the registration instructions and the
documentation, if any, required pursuant to Sections 2.2 and 3.5 of the
Indenture to enable the Indenture Trustee to issue the requested Like Amount of
Notes, (ii) a written notice of such election specifying the Liquidation Amount
of Preferred Securities with respect to which such election is being made and
the Distribution Date on which such exchange shall occur, which Distribution
Date shall be not less than ten (10) Business Days after the date of receipt by
the Property Trustee of such election notice and (iii) shall be conditioned upon
such Depositor Affiliate having delivered or caused to be delivered to the
Property Trustee or its


                                       22



designee the Preferred Securities that are the subject of such election by 10:00
A.M. New York time, on the Distribution Date on which such exchange is to occur.
After the exchange, such Preferred Securities will be canceled and will no
longer be deemed to be Outstanding and all rights of the Depositor Affiliate
with respect to such Preferred Securities will cease.

     (b) In the case of an exchange described in Section 4.9(a), the Property
Trustee on behalf of the Trust will, on the date of such exchange, exchange
Notes having a principal amount equal to a proportional amount of the aggregate
Liquidation Amount of the Outstanding Common Securities, based on the ratio of
the aggregate Liquidation Amount of the Preferred Securities exchanged pursuant
to Section 4.9(a) divided by the aggregate Liquidation Amount of the Preferred
Securities Outstanding immediately prior to such exchange, for such proportional
amount of Common Securities held by the Depositor (which contemporaneously shall
be canceled and no longer be deemed to be Outstanding); provided, that the
Depositor delivers or causes to be delivered to the Property Trustee or its
designee the required amount of Common Securities to be exchanged by 10:00 A.M.
New York time, on the Distribution Date on which such exchange is to occur.

     SECTION 4.10. Calculation Agent.

     (a) The Property Trustee shall initially, and, subject to the immediately
following sentence, for so long as it holds any of the Notes, be the Calculation
Agent for purposes of determining LIBOR for each Distribution Date. The
Calculation Agent may be removed by the Administrative Trustees at any time. If
the Calculation Agent is unable or unwilling to act as such or is removed by the
Administrative Trustees, the Administrative Trustees will promptly appoint as a
replacement Calculation Agent the London office of a leading bank which is
engaged in transactions in six-month Eurodollar deposits in the international
Eurodollar market and which does not control or is not controlled by or under
common control with the Administrative Trustee or its Affiliates. The
Calculation Agent may not resign its duties without a successor having been duly
appointed.

     (b) The Calculation Agent shall be required to agree that, as soon as
possible after 11:00 a.m. (London time) on each LIBOR Determination Date, but in
no event later than 11:00 a.m. (London time) on the Business Day immediately
following each LIBOR Determination Date, the Calculation Agent will calculate
the interest rate (rounded to the nearest cent, with half a cent being rounded
upwards) for the related Distribution Date, and will communicate such rate and
amount to the Depositor, the Administrative Trustees, the Note Trustee, each
Paying Agent and the Depositary. The Calculation Agent will also specify to the
Administrative Trustee the quotations upon which the foregoing rates and amounts
are based and, in any event, the Calculation Agent shall notify the
Administrative Trustees before 5:00 p.m. (London time) on each LIBOR
Determination Date that either: (i) it has determined or is in the process of
determining the foregoing rates and amounts or (ii) it has not determined and is
not in the process of determining the foregoing rates and amounts, together with
its reasons therefor. The Calculation Agent's determination of the foregoing
rates and amounts for any Distribution Date will (in the absence of manifest
error) be final and binding upon all parties. For the sole purpose of
calculating the interest rate for the Trust Securities, "Business Day" shall be
defined as any day on which dealings in deposits in Dollars are transacted in
the London interbank market.


                                       23



     SECTION 4.11. Certain Accounting Matters.

     (a) At all times during the existence of the Trust, the Administrative
Trustees shall keep, or cause to be kept at the principal office of the Trust in
the United States, as defined for purposes of Treasury Regulations section
301.7701-7, full books of account, records and supporting documents, which shall
reflect in reasonable detail each transaction of the Trust. The books of account
shall be maintained on the accrual method of accounting, in accordance with
generally accepted accounting principles, consistently applied.

     (b) The Administrative Trustees shall either (i) if the Depositor is then
subject to such reporting requirements, cause each Form 10-K and Form 10-Q
prepared by the Depositor and filed with the Commission in accordance with the
Exchange Act to be delivered to each Holder, with a copy to the Property
Trustee, within thirty (30) days after the filing thereof or (ii) cause to be
prepared at the principal office of the Trust in the United States, as defined
for purposes of Treasury Regulations section 301.7701-7, and delivered to each
of the Holders, with a copy to the Property Trustee, within ninety (90) days
after the end of each Fiscal Year, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss.

     (c) If the Depositor intends to file its annual and quarterly information
with the Commission in electronic form pursuant to Regulation S-T of the
Commission using the Commission's Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, the Administrative Trustees shall notify the
Property Trustee in the manner prescribed herein of each such annual and
quarterly filing. The Property Trustee is hereby authorized and directed to
access the EDGAR system for purposes of retrieving the financial information so
filed. Compliance with the foregoing shall constitute delivery by the
Administrative Trustees of its financial statements to the Property Trustee in
compliance with the provisions of Section 314(a) of the Trust Indenture Act, if
applicable. The Property Trustee shall have no duty to search for or obtain any
electronic or other filings that the Depositor makes with the Commission,
regardless of whether such filings are periodic, supplemental or otherwise.
Delivery of reports, information and documents to the Property Trustee pursuant
to this Section 4.11(c) shall be solely for purposes of compliance with this
Section 4.11 and, if applicable, with Section 314(a) of the Trust Indenture Act.
The Property Trustee's receipt of such reports, information and documents shall
not constitute notice to it of the content thereof or any matter determinable
from the content thereof, including the Depositor's compliance with any of its
covenants hereunder, as to which the Property Trustee is entitled to rely upon
Officers' Certificates.

     (d) The Trust shall maintain one or more bank accounts in the United
States, as defined for purposes of Treasury Regulations section 301.7701-7, in
the name and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Notes held by the Property Trustee shall be
made directly to the Payment Account and no other funds of the Trust shall be
deposited in the Payment Account. The sole signatories for such accounts
(including the Payment Account) shall be designated by the Property Trustee.


                                       24



                                   ARTICLE V.

                                   SECURITIES

     SECTION 5.1. Initial Ownership.

     Upon the creation of the Trust and the contribution by the Depositor
referred to in Section 2.3 and until the issuance of the Trust Securities, and
at any time during which no Trust Securities are Outstanding, the Depositor
shall be the sole beneficial owner of the Trust.

     SECTION 5.2. Authorized Trust Securities.

     The Trust shall be authorized to issue one series of Preferred Securities
having an aggregate Liquidation Amount of $25,000,000 and one series of Common
Securities having an aggregate Liquidation Amount of $780,000.

     SECTION 5.3. Issuance of the Common Securities; Subscription and Purchase
of Notes.

     On the Closing Date, an Administrative Trustee, on behalf of the Trust,
shall execute and deliver to the Depositor Common Securities Certificates,
registered in the name of the Depositor, evidencing an aggregate of Seven
Hundred Eighty Thousand (780) Common Securities having an aggregate Liquidation
Amount of Seven Hundred Eighty Thousand Dollars ($780,000), against receipt by
the Trust of the aggregate purchase price of such Common Securities of Seven
Hundred Eighty Thousand Dollars ($780,000). Contemporaneously therewith and with
the sale by the Trust to the Holders of an aggregate of Twenty Five Thousand
(25,000) Preferred Securities having an aggregate Liquidation Amount of Twenty
Five Million Dollars ($25,000,000), an Administrative Trustee, on behalf of the
Trust, shall purchase from the Depositor Notes, to be registered in the name of
the Property Trustee on behalf of the Trust and having an aggregate principal
amount equal to Twenty Five Million Seven Hundred Eighty Thousand Dollars
($25,780,000), and, in satisfaction of the purchase price for such Notes, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of Twenty Five Million Seven Hundred Eighty Thousand Dollars ($25,780,000)
(being the aggregate amount paid by the Holders for the Preferred Securities,
and the amount paid by the Depositor for the Common Securities).

     SECTION 5.4. The Securities Certificates.

     (a) The Preferred Securities Certificates shall be issued in minimum
denominations of $100,000 Liquidation Amount and integral multiples of $1,000 in
excess thereof, and the Common Securities Certificates shall be issued in
minimum denominations of $10,000 Liquidation Amount and integral multiples of
$1,000 in excess thereof. The Securities Certificates shall be executed on
behalf of the Trust by manual or facsimile signature of at least one
Administrative Trustee. Securities Certificates bearing the signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign such Securities Certificates on behalf of the Trust shall be
validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so


                                       25



authorized prior to the delivery of such Securities Certificates or did not have
such authority at the date of delivery of such Securities Certificates.

     (b) On the Closing Date, upon the written order of an authorized officer of
the Depositor, the Administrative Trustees shall cause Securities Certificates
to be executed on behalf of the Trust and delivered, without further corporate
action by the Depositor, in authorized denominations.

     (c) The Preferred Securities issued to QIBs/QPs shall be, except as
provided in Section 5.6, Book-Entry Preferred Securities issued in the form of
one or more Global Preferred Securities registered in the name of the
Depositary, or its nominee and deposited with the Depositary or a custodian for
the Depositary for credit by the Depositary to the respective accounts of the
Depositary Participants thereof (or such other accounts as they may direct). The
Preferred Securities issued to a Person other than a QIB/QP shall be issued in
the form of Definitive Preferred Securities Certificates.

     (d) A Preferred Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. Such
signature shall be conclusive evidence that the Preferred Security has been
authenticated under this Trust Agreement. Upon written order of the Trust signed
by one Administrative Trustee, the Property Trustee shall authenticate the
Preferred Securities for original issue. The Property Trustee may appoint an
authenticating agent that is a U.S. Person acceptable to the Trust to
authenticate the Preferred Securities. A Common Security need not be so
authenticated and shall be valid upon execution by one or more Administrative
Trustees. The form of this certificate of authentication can be found in Section
5.13.

     SECTION 5.5. Rights of Holders.

     The Trust Securities shall have no preemptive or similar rights and when
issued and delivered to Holders against payment of the purchase price therefor
will be fully paid and non-assessable by the Trust. Except as provided in
Section 5.11(b), the Holders of the Trust Securities, in their capacities as
such, shall 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.

     SECTION 5.6. Book-Entry Preferred Securities.

     (a) A Global Preferred Security may be exchanged, in whole or in part, for
Definitive Preferred Securities Certificates registered in the names of the
Owners only if such exchange complies with Section 5.7 and (i) the Depositary
advises the Administrative Trustees and the Property Trustee in writing that the
Depositary is no longer willing or able properly to discharge its
responsibilities with respect to the Global Preferred Security, and no qualified
successor is appointed by the Administrative Trustees within ninety (90) days of
receipt of such notice, (ii) the Depositary ceases to be a clearing agency
registered under the Exchange Act and the Administrative Trustees fail to
appoint a qualified successor within ninety (90) days of obtaining knowledge of
such event, (iii) the Administrative Trustees at their option advise the
Property Trustee in writing that the Trust elects to terminate the book-entry
system through the Depositary


                                       26



or (iv) a Note Event of Default has occurred and is continuing. Upon the
occurrence of any event specified in clause (i), (ii), (iii) or (iv) above, the
Administrative Trustees shall notify the Depositary and instruct the Depositary
to notify all Owners of Book-Entry Preferred Securities, the Delaware Trustee
and the Property Trustee of the occurrence of such event and of the availability
of the Definitive Preferred Securities Certificates to Owners of the Preferred
Securities requesting the same. Upon the issuance of Definitive Preferred
Securities Certificates, the Trustees shall recognize the Holders of the
Definitive Preferred Securities Certificates as Holders. Notwithstanding the
foregoing, if an Owner of a beneficial interest in a Global Preferred Security
wishes at any time to transfer an interest in such Global Preferred Security to
a Person other than a QIB/QP, such transfer shall be effected, subject to the
Applicable Depositary Procedures, in accordance with the provisions of this
Section 5.6 and Section 5.7, and the transferee shall receive a Definitive
Preferred Securities Certificate in connection with such transfer. A holder of a
Definitive Preferred Securities Certificate that is a QIB/QP may, upon request
and in accordance with the provisions of this Section 5.6 and Section 5.7,
exchange such Definitive Preferred Securities Certificate for a beneficial
interest in a Global Preferred Security.

     (b) If any Global Preferred Security is to be exchanged for Definitive
Preferred Securities Certificates or canceled in part, or if any Definitive
Preferred Securities Certificate is to be exchanged in whole or in part for any
Global Preferred Security, then either (i) such Global Preferred Security shall
be so surrendered for exchange or cancellation as provided in this Article V or
(ii) the aggregate Liquidation Amount represented by such Global Preferred
Security shall be reduced, subject to Section 5.4, or increased by an amount
equal to the Liquidation Amount represented by that portion of the Global
Preferred Security to be so exchanged or canceled, or equal to the Liquidation
Amount represented by such Definitive Preferred Securities Certificates to be so
exchanged for any Global Preferred Security, as the case may be, by means of an
appropriate adjustment made on the records of the Securities Registrar,
whereupon the Property Trustee, in accordance with the Applicable Depositary
Procedures, shall instruct the Depositary or its authorized representative to
make a corresponding adjustment to its records. Upon any such surrender to the
Administrative Trustees or the Securities Registrar of any Global Preferred
Security or Securities by the Depositary, accompanied by registration
instructions, the Administrative Trustees, or any one of them, shall execute the
Definitive Preferred Securities Certificates in accordance with the instructions
of the Depositary. None of the Securities Registrar or the Trustees shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be fully protected in relying on, such instructions.

     (c) Every Definitive Preferred Securities Certificate executed and
delivered upon registration or transfer of, or in exchange for or in lieu of, a
Global Preferred Security or any portion thereof shall be executed and delivered
in the form of, and shall be, a Global Preferred Security, unless such
Definitive Preferred Securities Certificate is registered in the name of a
Person other than the Depositary for such Global Preferred Security or a nominee
thereof.

     (d) The Depositary or its nominee, as registered owner of a Global
Preferred Security, shall be the Holder of such Global Preferred Security for
all purposes under this Trust Agreement and the Global Preferred Security, and
Owners with respect to a Global Preferred Security shall hold such interests
pursuant to the Applicable Depositary Procedures. The Securities Registrar and
the Trustees shall be entitled to deal with the Depositary for all purposes of
this Trust Agreement relating to the Global Preferred Securities (including the
payment of the


                                       27



Liquidation Amount of and Distributions on the Book-Entry Preferred Securities
represented thereby and the giving of instructions or directions by Owners of
Book-Entry Preferred Securities represented thereby and the giving of notices)
as the sole Holder of the Book-Entry Preferred Securities represented thereby
and shall have no obligations to the Owners thereof. None of the Trustees nor
the Securities Registrar shall have any liability in respect of any transfers
effected by the Depositary.

     (e) The rights of the Owners of the Book-Entry Preferred Securities shall
be exercised only through the Depositary and shall be limited to those
established by law, the Applicable Depositary Procedures and agreements between
such Owners and the Depositary and/or the Depositary Participants; provided,
that solely for the purpose of determining whether the Holders of the requisite
amount of Preferred Securities have voted on any matter provided for in this
Trust Agreement, to the extent that Preferred Securities are represented by a
Global Preferred Security, the Trustees may conclusively rely on, and shall be
fully protected in relying on, any written instrument (including a proxy)
delivered to the Property Trustee by the Depositary setting forth the Owners'
votes or assigning the right to vote on any matter to any other Persons either
in whole or in part. To the extent that Preferred Securities are represented by
a Global Preferred Security, the initial Depositary will make book-entry
transfers among the Depositary Participants and receive and transmit payments on
the Preferred Securities that are represented by a Global Preferred Security to
such Depositary Participants, and none of the Depositor or the Trustees shall
have any responsibility or obligation with respect thereto.

     (f) To the extent that a notice or other communication to the Holders is
required under this Trust Agreement, for so long as Preferred Securities are
represented by a Global Preferred Security, the Trustees shall give all such
notices and communications to the Depositary, and shall have no obligations to
the Owners.

     SECTION 5.7. Registration of Transfer and Exchange of Preferred Securities
Certificates.

     (a) The Property Trustee shall keep or cause to be kept, at the Corporate
Trust Office, a register or registers (the "Securities Register") in which the
registrar and transfer agent with respect to the Trust Securities (the
"Securities Registrar"), subject to such reasonable regulations as it may
prescribe, shall provide for the registration of Preferred Securities
Certificates and Common Securities Certificates and registration of transfers
and exchanges of Preferred Securities Certificates as herein provided. The
Person acting as the Property Trustee shall at all times also be the Securities
Registrar. The provisions of Article VIII shall apply to the Property Trustee in
its role as Securities Registrar.

     (b) Subject to Section 5.7(d), upon surrender for registration of transfer
of any Preferred Securities Certificate at the office or agency maintained
pursuant to Section 5.7(f), the Administrative Trustees or any one of them shall
execute by manual or facsimile signature and deliver to the Property Trustee,
and the Property Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Preferred Securities
Certificates in authorized denominations of a like aggregate Liquidation Amount
as may be required by this Trust Agreement dated the date of execution by such
Administrative Trustee or Trustees. At the option of a Holder, Preferred
Securities Certificates may be exchanged for other


                                       28



Preferred Securities Certificates in authorized denominations and of a like
aggregate Liquidation Amount upon surrender of the Preferred Securities
Certificate to be exchanged at the office or agency maintained pursuant to
Section 5.7(f). Whenever any Preferred Securities Certificates are so
surrendered for exchange, the Administrative Trustees or any one of them shall
execute by manual or facsimile signature and deliver to the Property Trustee,
and the Property Trustee shall authenticate and deliver, the Preferred
Securities Certificates that the Holder making the exchange is entitled to
receive.

     (c) The Securities Registrar shall not be required, (i) to issue, register
the transfer of or exchange any Preferred Security during a period beginning at
the opening of business fifteen (15) days before the day of selection for
redemption of such Preferred Securities pursuant to Article IV and ending at the
close of business on the day of mailing of the notice of redemption or (ii) to
register the transfer of or exchange any Preferred Security so selected for
redemption in whole or in part, except, in the case of any such Preferred
Security to be redeemed in part, any portion thereof not to be redeemed.

     (d) Every Preferred Securities Certificate presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Securities
Registrar duly executed by the Holder or such Holder's attorney duly authorized
in writing and (i) if such Preferred Securities Certificate is being transferred
to a QIB, accompanied by a certificate of the transferor substantially in the
form set forth as Exhibit E hereto or (ii) if such Preferred Securities
Certificate is being transferred otherwise than to a QIB, accompanied by a
certificate of the transferee substantially in the form set forth as Exhibit F
hereto.

     (e) No service charge shall be made for any registration of transfer or
exchange of Preferred Securities Certificates, but the Property Trustee on
behalf of the Trust may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Preferred Securities Certificates.

     (f) The Administrative Trustees shall designate an office or offices or
agency or agencies where Preferred Securities Certificates may be surrendered
for registration of transfer or exchange and initially designate the Corporate
Trust Office as its office and agency for such purposes. The Administrative
Trustees shall give prompt written notice to the Depositor, the Property Trustee
and to the Holders of any change in the location of any such office or agency.

     SECTION 5.8. Mutilated, Destroyed, Lost or Stolen Securities Certificates.

     (a) If any mutilated Securities Certificate shall be surrendered to the
Securities Registrar together with such security or indemnity as may be required
by the Securities Registrar to save each of the Trustees harmless, the
Administrative Trustees, or any one of them, on behalf of the Trust, shall
execute and make available for delivery in exchange therefor a new Securities
Certificate of like class, tenor and denomination.

     (b) If the Securities Registrar shall receive evidence to its satisfaction
of the destruction, loss or theft of any Securities Certificate and there shall
be delivered to the Securities Registrar such security or indemnity as may be
required by it to save each of the


                                       29



Trustees harmless, then in the absence of notice that such Securities
Certificate shall have been acquired by a protected purchaser, the
Administrative Trustees, or any one of them, on behalf of the Trust, shall
execute and make available for delivery, and, with respect to Preferred
Securities, the Property Trustee shall authenticate, in exchange for or in lieu
of any such destroyed, lost or stolen Securities Certificate, a new Securities
Certificate of like class, tenor and denomination.

     (c) In connection with the issuance of any new Securities Certificate under
this Section 5.8, the Administrative Trustees or the Securities Registrar may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.

     (d) Any duplicate Securities Certificate issued pursuant to this Section
5.8 shall constitute conclusive evidence of an undivided beneficial interest in
the assets of the Trust corresponding to that evidenced by the mutilated, lost,
stolen or destroyed Securities Certificate, as if originally issued, whether or
not the lost, stolen or destroyed Securities Certificate shall be found at any
time.

     (e) If any such mutilated, destroyed, lost or stolen Securities Certificate
has become or is about to become due and payable, the Depositor in its
discretion may provide the Administrative Trustee with the funds to pay such
Trust Security and upon receipt of such funds, the Administrative Trustee shall
pay such Trust Security instead of issuing a new Securities Certificate.

     (f) The provisions of this Section 5.8 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
of mutilated, destroyed, lost or stolen Securities Certificates.

     SECTION 5.9. Persons Deemed Holders.

     The Trustees and the Securities Registrar shall each treat the Person in
whose name any Securities Certificate shall be registered in the Securities
Register as the owner of such Securities Certificate for the purpose of
receiving Distributions and for all other purposes whatsoever, and none of the
Trustees and the Securities Registrar shall be bound by any notice to the
contrary.

     SECTION 5.10. Cancellation.

     All Preferred Securities Certificates surrendered for registration of
transfer or exchange or for payment shall, if surrendered to any Person other
than the Property Trustee, be delivered to the Property Trustee, and any such
Preferred Securities Certificates and Preferred Securities Certificates
surrendered directly to the Property Trustee for any such purpose shall be
promptly canceled by it. The Administrative Trustees may at any time deliver to
the Property Trustee for cancellation any Preferred Securities Certificates
previously delivered hereunder that the Administrative Trustees may have
acquired in any manner whatsoever, and all Preferred Securities Certificates so
delivered shall be promptly canceled by the Property Trustee. No Preferred
Securities Certificates shall be executed and delivered in lieu of or in
exchange for any Preferred Securities Certificates canceled as provided in this
Section 5.10, except as expressly permitted by this Trust Agreement. All
canceled Preferred Securities Certificates shall be retained by the Property
Trustee in accordance with its customary practices.


                                       30



     SECTION 5.11. Ownership of Common Securities by Depositor.

     (a) On the Closing Date, the Depositor shall acquire, and thereafter shall
retain, beneficial and record ownership of the Common Securities. Neither the
Depositor nor any successor Holder of the Common Securities may transfer less
than all the Common Securities, and the Depositor or any such successor Holder
may transfer the Common Securities only (i) in connection with a consolidation
or merger of the Depositor into another Person, or any conveyance, transfer or
lease by the Depositor of its properties and assets substantially as an entirety
to any Person (in which event such Common Securities will be transferred to such
surviving entity, transferee or lessee, as the case may be), pursuant to Section
8.1 of the Indenture or (ii) to the Depositor or an Affiliate of the Depositor,
in each such case in compliance with applicable law (including the Securities
Act, and applicable state securities and blue sky laws). To the fullest extent
permitted by law, any attempted transfer of the Common Securities other than as
set forth in the immediately preceding sentence shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating substantially "THIS CERTIFICATE IS NOT
TRANSFERABLE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 5.11 OF THE
TRUST AGREEMENT."

     (b) Any Holder of the Common Securities shall be liable for the debts and
obligations of the Trust in the manner and to the extent set forth with respect
to the Depositor and agrees that it shall be subject to all liabilities to which
the Depositor may be subject and, prior to becoming such a Holder, shall deliver
to the Administrative Trustees an instrument of assumption satisfactory to such
Trustees.

     SECTION 5.12. Restricted Legends.

     (a) Each Preferred Security Certificate shall bear a legend in
substantially the following form:

     "[IF THIS SECURITY IS A GLOBAL SECURITY INSERT: THIS PREFERRED SECURITY IS
     A GLOBAL SECURITY WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER
     REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY
     ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR
     SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE
     ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT, AND NO
     TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS
     PREFERRED SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF
     DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED
     CIRCUMSTANCES.

     UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
     OF DTC TO NORTHSTAR REALTY FINANCE TRUST II OR ITS AGENT FOR REGISTRATION
     OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS
     REGISTERED IN THE NAME OF


                                       31



     CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
     REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO
     SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
     ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
     ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
     HAS AN INTEREST HEREIN.]

     THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
     ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
     OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH PREFERRED SECURITIES
     OR ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
     IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
     EACH PURCHASER OF ANY PREFERRED SECURITIES IS HEREBY NOTIFIED THAT THE
     SELLER OF THE PREFERRED SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE
     PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A UNDER
     THE SECURITIES ACT.

     THE HOLDER OF THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE
     AGREES FOR THE BENEFIT OF THE TRUST AND THE DEPOSITOR THAT (A) SUCH
     PREFERRED SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY
     (I) TO THE TRUST, (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
     "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
     SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
     (III) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
     SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
     THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
     AN "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO,
     OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
     THE SECURITIES ACT, (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
     UNDER THE SECURITIES ACT OR (V) PURSUANT TO AN EXEMPTION FROM THE
     SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
     LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
     AND, IN THE CASE OF (III) OR (V), SUBJECT TO THE RIGHT OF THE TRUST AND THE
     DEPOSITOR TO REQUIRE AN OPINION OF COUNSEL AND OTHER INFORMATION
     SATISFACTORY TO EACH OF THEM AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER
     OF ANY PREFERRED SECURITIES FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
     IN (A) ABOVE.

     THE PREFERRED SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN
     BLOCKS HAVING AN AGGREGATE LIQUIDATION AMOUNT OF NOT LESS THAN $100,000. TO
     THE FULLEST EXTENT PERMITTED BY LAW, ANY


                                       32



     ATTEMPTED TRANSFER OF PREFERRED SECURITIES, OR ANY INTEREST THEREIN, IN A
     BLOCK HAVING AN AGGREGATE LIQUIDATION AMOUNT OF LESS THAN $100,000 AND
     MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE DEEMED TO BE VOID AND OF NO
     LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY SUCH
     PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH PREFERRED
     SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF
     PRINCIPAL OF OR INTEREST ON SUCH PREFERRED SECURITIES, OR ANY INTEREST
     THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST
     WHATSOEVER IN SUCH PREFERRED SECURITIES.

     THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE
     HEREOF OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN
     EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR
     ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY
     ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE
     CODE OF 1986, AS AMENDED (THE "CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE
     UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT
     IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN MAY
     ACQUIRE OR HOLD THIS PREFERRED SECURITY OR ANY INTEREST THEREIN. ANY
     PURCHASER OR HOLDER OF THE PREFERRED SECURITIES OR ANY INTEREST THEREIN
     WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT
     IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF
     ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE
     OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR
     ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR
     PLAN TO FINANCE SUCH PURCHASE."

     (b) The above legend shall not be removed from any of the Preferred
Securities Certificates unless there is delivered to the Property Trustee and
the Depositor satisfactory evidence, which may include an opinion of counsel, as
may be reasonably required to ensure that any future transfers thereof may be
made without restriction under the provisions of the Securities Act and other
applicable law. Upon provision of such satisfactory evidence, one or more of the
Administrative Trustees on behalf of the Trust shall execute and deliver to the
Property Trustee, and the Property Trustee shall deliver, at the written
direction of the Administrative Trustees and the Depositor, Preferred Securities
Certificates that do not bear the legend.

     SECTION 5.13. Form of Certificate of Authentication.

          The Property Trustee's certificate of authentication shall be in
     substantially the following form:


                                       33



          This is one of the Preferred Securities referred to in the
     within-mentioned Trust Agreement.



Dated:                                JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
                                      not in its individual capacity, but solely
                                      as Property Trustee


                                      By:
                                          --------------------------------------
                                          Authorized signatory


                                   ARTICLE VI.

                        MEETINGS; VOTING; ACTS OF HOLDERS

     SECTION 6.1. Notice of Meetings.

     Notice of all meetings of the Holders of the Preferred Securities, stating
the time, place and purpose of the meeting, shall be given by the Property
Trustee pursuant to Section 10.8 to each Holder of Preferred Securities, at such
Holder's registered address, at least fifteen (15) days and not more than ninety
(90) days before the meeting. At any such meeting, any business properly before
the meeting may be so considered whether or not stated in the notice of the
meeting. Any adjourned meeting may be held as adjourned without further notice.

     SECTION 6.2. Meetings of Holders of the Preferred Securities.

     (a) No annual meeting of Holders is required to be held. The Property
Trustee, however, shall call a meeting of the Holders of the Preferred
Securities to vote on any matter upon the written request of the Holders of at
least twenty five percent (25%) in aggregate Liquidation Amount of the
Outstanding Preferred Securities and the Administrative Trustees or the Property
Trustee may, at any time in their discretion, call a meeting of the Holders of
the Preferred Securities to vote on any matters as to which such Holders are
entitled to vote.

     (b) The Holders of at least a Majority in Liquidation Amount of the
Preferred Securities, present in person or by proxy, shall constitute a quorum
at any meeting of the Holders of the Preferred Securities.

     (c) If a quorum is present at a meeting, an affirmative vote by the Holders
present, in person or by proxy, holding Preferred Securities representing at
least a Majority in Liquidation Amount of the Preferred Securities held by the
Holders present, either in person or by proxy, at such meeting shall constitute
the action of the Holders of the Preferred Securities, unless this Trust
Agreement requires a lesser or greater number of affirmative votes.


                                       34



     SECTION 6.3. Voting Rights.

     Holders shall be entitled to one vote for each $10,000 of Liquidation
Amount represented by their Outstanding Trust Securities in respect of any
matter as to which such Holders are entitled to vote.

     SECTION 6.4. Proxies, Etc.

     At any meeting of Holders, any Holder entitled to vote thereat may vote by
proxy, provided, that no proxy shall be voted at any meeting unless it shall
have been placed on file with the Administrative Trustees, or with such other
officer or agent of the Trust as the Administrative Trustees may direct, for
verification prior to the time at which such vote shall be taken. Pursuant to a
resolution of the Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee. Only Holders
of record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Holder shall be deemed valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.

     SECTION 6.5. Holder Action by Written Consent.

     Any action that may be taken by Holders at a meeting may be taken without a
meeting and without prior notice if Holders holding at least a Majority in
Liquidation Amount of all Preferred Securities entitled to vote in respect of
such action (or such lesser or greater proportion thereof as shall be required
by any other provision of this Trust Agreement) shall consent to the action in
writing; provided, that notice of such action is promptly provided to the
Holders of Preferred Securities that did not consent to such action. Any action
that may be taken by the Holders of all the Common Securities may be taken
without a meeting and without prior notice if such Holders shall consent to the
action in writing.

     SECTION 6.6. Record Date for Voting and Other Purposes.

     Except as provided in Section 6.10(a), for the purposes of determining the
Holders who are entitled to notice of and to vote at any meeting or to act by
written consent, or to participate in any distribution on the Trust Securities
in respect of which a record date is not otherwise provided for in this Trust
Agreement, or for the purpose of any other action, the Administrative Trustees
may from time to time fix a date, not more than ninety (90) days prior to the
date of any meeting of Holders or the payment of a Distribution or other action,
as the case may be, as a record date for the determination of the identity of
the Holders of record for such purposes.

     SECTION 6.7. Acts of Holders.

     (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Holders may


                                       35



be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent thereof duly appointed in
writing; and, except as otherwise expressly provided herein, such action shall
become effective when such instrument or instruments are delivered to an
Administrative Trustee. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Trust Agreement and conclusive in favor of the Trustees,
if made in the manner provided in this Section 6.7.

     (b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than such signer's individual capacity, such
certificate or affidavit shall also constitute sufficient proof of such signer's
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner that any Trustee receiving the same deems sufficient.

     (c) The ownership of Trust Securities shall be proved by the Securities
Register.

     (d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Trust Security shall bind every future Holder
of the same Trust Security and the Holder of every Trust Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustees, the
Administrative Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.

     (e) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.

     (f) If any dispute shall arise among the Holders or the Trustees with
respect to the authenticity, validity or binding nature of any request, demand,
authorization, direction, notice, consent, waiver or other Act of such Holder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.

     SECTION 6.8. Inspection of Records.

     Upon reasonable written notice to the Administrative Trustees and the
Property Trustee, the records of the Trust shall be open to inspection by any
Holder during normal business hours for any purpose reasonably related to such
Holder's interest as a Holder.


                                       36



     SECTION 6.9. Limitations on Voting Rights.

     (a) Except as expressly provided in this Trust Agreement and in the
Indenture and as otherwise required by law, no Holder of Preferred Securities
shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Securities Certificates, be construed so as to constitute the Holders
from time to time as partners or members of an association.

     (b) So long as any Notes are held by the Property Trustee on behalf of the
Trust, the Property Trustee shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Note Trustee, or
exercise any trust or power conferred on the Property Trustee with respect to
the Notes, (ii) waive any past default that may be waived under Section 5.13 of
the Indenture or waive compliance with any covenant or condition under Section
10.7 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Notes shall be due and payable or (iv)
consent to any amendment, modification or termination of the Indenture or the
Notes, where such consent shall be required, without, in each case, obtaining
the prior approval of the Holders of at least a Majority in Liquidation Amount
of the Preferred Securities; provided, that where a consent under the Indenture
would require the consent of each holder of Notes (or each Holder of Preferred
Securities) affected thereby, no such consent shall be given by the Property
Trustee without the prior written consent of each Holder of Preferred
Securities. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of the Preferred Securities,
except by a subsequent vote of the Holders of the Preferred Securities. In
addition to obtaining the foregoing approvals of the Holders of the Preferred
Securities, prior to taking any of the foregoing actions, the Property Trustee
shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced
in such matters to the effect that such action shall not cause the Trust to be
taxable as a corporation or classified as other than a grantor trust for United
States federal income tax purposes.

     (c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise or (ii) the dissolution, winding-up or termination of the Trust, other
than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority in Liquidation
Amount of the Preferred Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Trust to be taxable as a
corporation or classified as other than a grantor trust for United States
federal income tax purposes.

     SECTION 6.10. Acceleration of Maturity; Rescission of Annulment; Waivers of
Past Defaults.

     (a) For so long as any Preferred Securities remain Outstanding, if, upon a
Note Event of Default, the Note Trustee fails or the holders of not less than
twenty five percent (25%) in


                                       37



principal amount of the outstanding Notes fail to declare the principal of all
of the Notes to be immediately due and payable, the Holders of at least twenty
five percent (25%) in Liquidation Amount of the Preferred Securities then
Outstanding shall have the right to make such declaration by a notice in writing
to the Property Trustee, the Depositor and the Note Trustee. At any time after a
declaration of acceleration with respect to the Notes has been made and before a
judgment or decree for payment of the money due has been obtained by the Note
Trustee as provided in the Indenture, the Holders of at least a Majority in
Liquidation Amount of the Preferred Securities, by written notice to the
Property Trustee, the Depositor and the Note Trustee, may rescind and annul such
declaration and its consequences if:

          (i) the Depositor has paid or deposited with the Note Trustee a sum
     sufficient to pay:

               (A) all overdue installments of interest on all of the Notes;

               (B) any accrued Additional Interest on all of the Notes;

               (C) the principal of and any premium, if any, on any Notes that
          have become due otherwise than by such declaration of acceleration and
          interest and Additional Interest thereon at the rate borne by the
          Notes; and

               (D) all sums paid or advanced by the Note Trustee under the
          Indenture and the reasonable compensation, expenses, disbursements and
          advances of the Note Trustee, the Property Trustee and their agents
          and counsel; and

          (ii) all Note Events of Default, other than the non-payment of the
     principal of the Notes that has become due solely by such acceleration,
     have been cured or waived as provided in Section 5.13 of the Indenture.

     Upon receipt by the Property Trustee of written notice requesting such an
acceleration, or rescission and annulment thereof, by Holders of any part of the
Preferred Securities, a record date shall be established for determining Holders
of Outstanding Preferred Securities entitled to join in such notice, which
record date shall be at the close of business on the day the Property Trustee
receives such notice. The Holders on such record date, or their duly designated
proxies, and only such Persons, shall be entitled to join in such notice,
whether or not such Holders remain Holders after such record date; provided,
that, unless such declaration of acceleration, or rescission and annulment, as
the case may be, shall have become effective by virtue of the requisite
percentage having joined in such notice prior to the day that is ninety (90)
days after such record date, such notice of declaration of acceleration, or
rescission and annulment, as the case may be, shall automatically and without
further action by any Holder be canceled and of no further effect. Nothing in
this paragraph shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such ninety (90)-day period, a new written notice of
declaration of acceleration, or rescission and annulment thereof, as the case
may be, that is identical to a written notice that has been canceled pursuant to
the proviso to the preceding sentence, in which event a new record date shall be
established pursuant to the provisions of this Section 6.10(a).

     (b) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Note


                                       38



Event of Default specified in paragraph (a) or (b) of Section 5.1 of the
Indenture, any Holder of Preferred Securities shall have the right to institute
a proceeding directly against the Depositor, pursuant to Section 5.8 of the
Indenture, for enforcement of payment to such Holder of any amounts payable in
respect of Notes having an aggregate principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such Holder. Except as set
forth in Section 6.10(a) and this Section 6.10(b), the Holders of Preferred
Securities shall have no right to exercise directly any right or remedy
available to the holders of, or in respect of, the Notes.

     (c) Notwithstanding paragraphs (a) and (b) of this Section 6.10, the
Holders of at least a Majority in Liquidation Amount of the Preferred Securities
may, on behalf of the Holders of all the Preferred Securities, waive any Note
Event of Default, except any Note Event of Default arising from the failure to
pay any principal of or any premium, if any, or interest on (including any
Additional Interest) the Notes (unless such Note Event of Default has been cured
and a sum sufficient to pay all matured installments of interest and all
principal and premium, if any, on all Notes due otherwise than by acceleration
has been deposited with the Note Trustee) or a Note Event of Default in respect
of a covenant or provision that under the Indenture cannot be modified or
amended without the consent of the holder of each outstanding Note. Upon any
such waiver, such Note Event of Default shall cease to exist and any Note Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of the Indenture; but no such waiver shall affect any subsequent Note
Event of Default or impair any right consequent thereon.

     (d) Notwithstanding paragraphs (a) and (b) of this Section 6.10, the
Holders of at least a Majority in Liquidation Amount of the Preferred Securities
may, on behalf of the Holders of all the Preferred Securities, waive any past
Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Trust Agreement, but no
such waiver shall extend to any subsequent or other Event of Default or impair
any right consequent thereon.

     (e) The Holders of a Majority in Liquidation Amount of the Preferred
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee in
respect of this Trust Agreement or the Notes or exercising any trust or power
conferred upon the Property Trustee under this Trust Agreement; provided, that,
subject to Sections 8.5 and 8.7, the Property Trustee shall have the right to
decline to follow any such direction if the Property Trustee being advised by
counsel determines that the action so directed may not lawfully be taken, or if
the Property Trustee in good faith shall, by an officer or officers of the
Property Trustee, determine that the proceedings so directed would be illegal or
involve it in personal liability or be unduly prejudicial to the rights of
Holders not party to such direction, and provided, further, that nothing in this
Trust Agreement shall impair the right of the Property Trustee to take any
action deemed proper by the Property Trustee and which is not inconsistent with
such direction.


                                       39



                                  ARTICLE VII.

                         REPRESENTATIONS AND WARRANTIES

     SECTION 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee.

     The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Holders that:

          (a) the Property Trustee is a national banking association, duly
     organized and validly existing under the laws of the United States;

          (b) the Property Trustee has full corporate power, authority and legal
     right to execute, deliver and perform its obligations under this Trust
     Agreement and has taken all necessary action to authorize the execution,
     delivery and performance by it of this Trust Agreement;

          (c) the Delaware Trustee is a national banking association, duly
     formed and validly existing under the laws of the United States;

          (d) the Delaware Trustee has full corporate power, authority and legal
     right to execute, deliver and perform its obligations under this Trust
     Agreement and has taken all necessary action to authorize the execution,
     delivery and performance by it of this Trust Agreement;

          (e) this Trust Agreement has been duly authorized, executed and
     delivered by the Property Trustee and the Delaware Trustee and constitutes
     the legal, valid and binding agreement of each of the Property Trustee and
     the Delaware Trustee enforceable against each of them in accordance with
     its terms, subject to applicable bankruptcy, insolvency, fraudulent
     transfer, reorganization, moratorium and similar laws affecting creditors'
     rights generally and to general principles of equity;

          (f) the execution, delivery and performance of this Trust Agreement
     have been duly authorized by all necessary corporate or other action on the
     part of the Property Trustee and the Delaware Trustee and do not require
     any approval of stockholders of the Property Trustee and the Delaware
     Trustee and such execution, delivery and performance will not (i) violate
     the Restated Organization Certificate or Articles of Association, as
     applicable, or By-laws of the Property Trustee or the Delaware Trustee,
     (ii) violate any provision of, or constitute, with or without notice or
     lapse of time, a default under, or result in the imposition of any lien on
     any properties included in the Trust Property pursuant to the provisions of
     any indenture, mortgage, credit agreement, license or other agreement or
     instrument to which the Property Trustee or the Delaware Trustee is a party
     or by which it is bound, or (iii) violate any applicable law, governmental
     rule or regulation of the United States or the State of Delaware, as the
     case may be, governing the banking, trust or general powers of the Property
     Trustee or the Delaware Trustee or any order, judgment or decree applicable
     to the Property Trustee or the Delaware Trustee;


                                       40



          (g) neither the authorization, execution or delivery by the Property
     Trustee or the Delaware Trustee of this Trust Agreement nor the
     consummation of any of the transactions by the Property Trustee or the
     Delaware Trustee contemplated herein requires the consent or approval of,
     the giving of notice to, the registration with or the taking of any other
     action with respect to any governmental authority or agency under any
     existing law of the United States or the State of Delaware governing the
     banking, trust or general powers of the Property Trustee or the Delaware
     Trustee, as the case may be; and

          (h) to the best of each of the Property Trustee's and the Delaware
     Trustee's knowledge, there are no proceedings pending or threatened against
     or affecting the Property Trustee or the Delaware Trustee in any court or
     before any governmental authority, agency or arbitration board or tribunal
     that, individually or in the aggregate, would materially and adversely
     affect the Trust or would question the right, power and authority of the
     Property Trustee or the Delaware Trustee, as the case may be, to enter into
     or perform its obligations as one of the Trustees under this Trust
     Agreement.

     SECTION 7.2. Representations and Warranties of Depositor.

     The Depositor hereby represents and warrants for the benefit of the Holders
that:

          (a) the Depositor is a corporation duly organized, validly existing
     and in good standing under the laws of its state of incorporation;

          (b) the Depositor has full corporate power, authority and legal right
     to execute, deliver and perform its obligations under this Trust Agreement
     and has taken all necessary action to authorize the execution, delivery and
     performance by it of this Trust Agreement;

          (c) this Trust Agreement has been duly authorized, executed and
     delivered by the Depositor and constitutes the legal, valid and binding
     agreement of the Depositor enforceable against the Depositor in accordance
     with its terms, subject to applicable bankruptcy, insolvency and similar
     laws affecting creditors' rights generally and to general principles of
     equity;

          (d) the Securities Certificates issued at the Closing Date on behalf
     of the Trust have been duly authorized and will have been duly and validly
     executed, issued and delivered by the applicable Trustees pursuant to the
     terms and provisions of, and in accordance with the requirements of, this
     Trust Agreement and the Holders will be, as of such date, entitled to the
     benefits of this Trust Agreement;

          (e) the execution, delivery and performance of this Trust Agreement
     have been duly authorized by all necessary corporate or other action on the
     part of the Depositor and do not require any approval of stockholders of
     the Depositor and such execution, delivery and performance will not (i)
     violate the articles or certificate of incorporation or by-laws (or other
     organizational documents) of the Depositor or (ii) violate any applicable
     law, governmental rule or regulation governing the Depositor


                                       41



     or any material portion of its property or any order, judgment or decree
     applicable to the Depositor or any material portion of its property;

          (f) neither the authorization, execution or delivery by the Depositor
     of this Trust Agreement nor the consummation of any of the transactions by
     the Depositor contemplated herein requires the consent or approval of, the
     giving of notice to, the registration with or the taking of any other
     action with respect to any governmental authority or agency under any
     existing law governing the Depositor or any material portion of its
     property; and

          (g) there are no proceedings pending or, to the best of the
     Depositor's knowledge, threatened against or affecting the Depositor or any
     material portion of its property in any court or before any governmental
     authority, agency or arbitration board or tribunal that, individually or in
     the aggregate, would materially and adversely affect the Trust or would
     question the right, power and authority of the Depositor, as the case may
     be, to enter into or perform its obligations under this Trust Agreement.

                                  ARTICLE VIII.

                                  THE TRUSTEES

     SECTION 8.1. Number of Trustees.

     The number of Trustees shall be five (5); provided, that the Property
Trustee and the Delaware Trustee may be the same Person, in which case the
number of Trustees shall be four (4). The number of Trustees may be increased or
decreased by Act of the Holder of the Common Securities subject to Sections 8.2,
8.3, and 8.4. The death, resignation, retirement, removal, bankruptcy,
incompetence or incapacity to perform the duties of a Trustee shall not operate
to annul, dissolve or terminate the Trust.

     SECTION 8.2. Property Trustee Required.

     There shall at all times be a Property Trustee hereunder with respect to
the Trust Securities. The Property Trustee shall be a corporation organized and
doing business under the laws of the United States or of any state thereof,
authorized to exercise corporate trust powers, having a combined capital and
surplus of at least fifty million dollars ($50,000,000), subject to supervision
or examination by federal or state authority and having an office within the
United States. If any such Person publishes reports of condition at least
annually pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section 8.2, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Property Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.2, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article VIII.


                                       42



     SECTION 8.3. Delaware Trustee Required.

     (a) If required by the Delaware Statutory Trust Act, there shall at all
times be a Delaware Trustee with respect to the Trust Securities. The Delaware
Trustee shall either be (i) a natural person who is at least 21 years of age and
a resident of the State of Delaware or (ii) a legal entity that has its
principal place of business in the State of Delaware, otherwise meets the
requirements of applicable Delaware law and shall act through one or more
persons authorized to bind such entity. If at any time the Delaware Trustee
shall cease to be eligible in accordance with the provisions of this Section
8.3, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article VIII. The Delaware Trustee shall have the same rights,
privileges and immunities as the Property Trustee.

     (b) The Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities, of the
Property Trustee or the Administrative Trustees set forth herein. The Delaware
Trustee shall be one of the trustees of the Trust for the sole and limited
purpose of fulfilling the requirements of Section 3807 of the Delaware Statutory
Trust Act and for taking such actions as are required to be taken by a Delaware
trustee under the Delaware Statutory Trust Act. The duties (including fiduciary
duties), liabilities and obligations of the Delaware Trustee shall be limited to
(a) accepting legal process served on the Trust in the State of Delaware and (b)
the execution of any certificates required to be filed with the Secretary of
State of the State of Delaware that the Delaware Trustee is required to execute
under Section 3811 of the Delaware Statutory Trust Act and there shall be no
other duties (including fiduciary duties) or obligations, express or implied, at
law or in equity, of the Delaware Trustee.

     SECTION 8.4. Appointment of Administrative Trustees.

     (a) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity. Each of the individuals identified as an "Administrative Trustee" in the
preamble of this Trust Agreement hereby accepts his or her appointment as such.

     (b) Except where a requirement for action by a specific number of
Administrative Trustees is expressly set forth in this Trust Agreement, any act
required or permitted to be taken by, and any power of the Administrative
Trustees may be exercised by, or with the consent of, any one such
Administrative Trustee. Whenever a vacancy in the number of Administrative
Trustees shall occur, until such vacancy is filled by the appointment of an
Administrative Trustee in accordance with Section 8.11, the Administrative
Trustees in office, regardless of their number (and notwithstanding any other
provision of this Trust Agreement), shall have all the powers granted to the
Administrative Trustees and shall discharge all the duties imposed upon the
Administrative Trustees by this Trust Agreement.

     SECTION 8.5. Duties and Responsibilities of the Trustees.

     (a) The rights, immunities, duties and responsibilities of the Trustees
shall be as provided by this Trust Agreement and there shall be no other duties
(including fiduciary duties)


                                       43



or obligations, express or implied, at law or in equity, of the Trustees;
provided, however, that if an Event of Default known to the Property Trustee has
occurred and is continuing, the Property Trustee shall, prior to the receipt of
directions, if any, from the Holders of at least a Majority in Liquidation
Amount of the Preferred Securities, exercise such of the rights and powers
vested in it by this Trust Agreement, and use the same degree of care and skill
in its exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. Notwithstanding the
foregoing, no provision of this Trust Agreement shall require any of the
Trustees to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its or their rights or powers, if it or they shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not herein
expressly so provided, every provision of this Trust Agreement relating to the
conduct or affecting the liability of or affording protection to the Trustees
shall be subject to the provisions of this Section 8.5. Nothing in this Trust
Agreement shall be construed to release any Administrative Trustee from
liability for his or her own negligent action, negligent failure to act; or his
or her own willful misconduct. To the extent that, at law or in equity, a
Trustee has duties and liabilities relating to the Trust or to the Holders, such
Trustee shall not be liable to the Trust or to any Holder for such Trustee's
good faith reliance on the provisions of this Trust Agreement. The provisions of
this Trust Agreement, to the extent that they restrict the duties and
liabilities of the Trustees otherwise existing at law or in equity, are agreed
by the Depositor and the Holders to replace such other duties and liabilities of
the Trustees.

     (b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Holder, by its
acceptance of a Trust Security, agrees that it will look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 8.5(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement.

     (c) No provisions of this Trust Agreement shall be construed to relieve the
Property Trustee from liability with respect to matters that are within the
authority of the Property Trustee under this Trust Agreement for its own
negligent action, negligent failure to act or willful misconduct, except that:

          (i) the Property Trustee shall not be liable for any error or judgment
     made in good faith by an authorized officer of the Property Trustee, unless
     it shall be proved that the Property Trustee was negligent in ascertaining
     the pertinent facts;

          (ii) the Property Trustee shall not be liable with respect to any
     action taken or omitted to be taken by it in good faith in accordance with
     the direction of the Holders of at least a Majority in Liquidation Amount
     of the Preferred Securities relating to the time, method and place of
     conducting any proceeding for any remedy available to the Property


                                       44



     Trustee hereunder or under the Indenture, or exercising any trust or power
     conferred upon the Property Trustee under this Trust Agreement;

          (iii) the Property Trustee's sole duty with respect to the custody,
     safe keeping and physical preservation of the Notes and the Payment Account
     shall be to deal with such Property in a similar manner as the Property
     Trustee deals with similar property for its own account, subject to the
     protections and limitations on liability afforded to the Property Trustee
     under this Trust Agreement;

          (iv) the Property Trustee shall not be liable for any interest on any
     money received by it except as it may otherwise agree in writing with the
     Depositor; and money held by the Property Trustee need not be segregated
     from other funds held by it except in relation to the Payment Account
     maintained by the Property Trustee pursuant to Section 3.1 and except to
     the extent otherwise required by law; and

          (v) the Property Trustee shall not be responsible for monitoring the
     compliance by the Administrative Trustees or the Depositor with their
     respective duties under this Trust Agreement, nor shall the Property
     Trustee be liable for the default or misconduct of any other Trustee or the
     Depositor.

     SECTION 8.6. Notices of Defaults and Extensions.

     (a) Within ninety (90) days after the occurrence of a default actually
known to the Property Trustee, the Property Trustee shall transmit notice of
such default to the Holders, the Administrative Trustees and the Depositor,
unless such default shall have been cured or waived. For the purpose of this
Section 8.6, the term "default" means any event that is, or after notice or
lapse of time or both would become, an Event of Default.

     (b) Within five (5) Business Days after the receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the Notes
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Holders and the Administrative Trustees, unless such exercise shall have been
revoked.

     (c) The Property Trustee shall not be charged with knowledge of any Event
of Default unless either (i) a Responsible Officer of the Property Trustee shall
have actual knowledge or (ii) the Property Trustee shall have received written
notice thereof from the Depositor, an Administrative Trustee or a Holder.

     (d) The Property Trustee shall notify all Holders of the Preferred
Securities of any notice of default received with respect to the Notes.

     SECTION 8.7. Certain Rights of Property Trustee.

     Subject to the provisions of Section 8.5:

          (a) the Property Trustee may conclusively rely and shall be protected
     in acting or refraining from acting in good faith and in accordance with
     the terms hereof upon any


                                       45



     resolution, Opinion of Counsel, certificate, written representation of a
     Holder or transferee, certificate of auditors or any other resolution,
     certificate, statement, instrument, opinion, report, notice, request,
     direction, consent, order, appraisal, bond, debenture, note, other evidence
     of indebtedness or other paper or document believed by it to be genuine and
     to have been signed or presented by the proper party or parties;

          (b) if (i) in performing its duties under this Trust Agreement the
     Property Trustee is required to decide between alternative courses of
     action, (ii) in construing any of the provisions of this Trust Agreement
     the Property Trustee finds a provision ambiguous or inconsistent with any
     other provisions contained herein or (iii) the Property Trustee is unsure
     of the application of any provision of this Trust Agreement, then, except
     as to any matter as to which the Holders of the Preferred Securities are
     entitled to vote under the terms of this Trust Agreement, the Property
     Trustee shall deliver a notice to the Depositor requesting the Depositor's
     written instruction as to the course of action to be taken and the Property
     Trustee shall take such action, or refrain from taking such action, as the
     Property Trustee shall be instructed in writing to take, or to refrain from
     taking, by the Depositor; provided, that if the Property Trustee does not
     receive such instructions of the Depositor within ten (10) Business Days
     after it has delivered such notice or such reasonably shorter period of
     time set forth in such notice, the Property Trustee may, but shall be under
     no duty to, take such action, or refrain from taking such action, as the
     Property Trustee shall deem advisable and in the best interests of the
     Holders, in which event the Property Trustee shall have no liability except
     for its own negligence, bad faith or willful misconduct;

          (c) any direction or act of the Depositor contemplated by this Trust
     Agreement shall be sufficiently evidenced by an Officers' Certificate
     unless otherwise expressly provided herein;

          (d) any direction or act of an Administrative Trustee contemplated by
     this Trust Agreement shall be sufficiently evidenced by a certificate
     executed by such Administrative Trustee and setting forth such direction or
     act;

          (e) the Property Trustee shall have no duty to see to any recording,
     filing or registration of any instrument (including any financing or
     continuation statement or any filing under tax or securities laws) or any
     re-recording, re-filing or re-registration thereof;

          (f) the Property Trustee may consult with counsel (which counsel may
     be counsel to the Property Trustee, the Depositor or any of its Affiliates,
     and may include any of its employees) and the advice of such counsel shall
     be full and complete authorization and protection in respect of any action
     taken, suffered or omitted by it hereunder in good faith and in reliance
     thereon and in accordance with such advice; the Property Trustee shall have
     the right at any time to seek instructions concerning the administration of
     this Trust Agreement from any court of competent jurisdiction;

          (g) the Property Trustee shall be under no obligation to exercise any
     of the rights or powers vested in it by this Trust Agreement at the request
     or direction of any of the Holders pursuant to this Trust Agreement, unless
     such Holders shall have offered to


                                       46



     the Property Trustee reasonable security or indemnity against the costs,
     expenses (including reasonable attorneys' fees and expenses) and
     liabilities that might be incurred by it in compliance with such request or
     direction, including reasonable advances as may be requested by the
     Property Trustee; provided, however, that nothing contained in this Section
     8.7(g) shall be construed to relieve the Property Trustee, upon the
     occurrence of an Event of Default, of its obligation to exercise the rights
     and powers in it vested by this Trust Agreement; provided, further, that
     nothing contained in this Section 8.7(g) shall prevent the Property Trustee
     from exercising its rights under Section 8.11 hereof;

          (h) the Property Trustee shall not be bound to make any investigation
     into the facts or matters stated in any resolution, certificate, statement,
     instrument, opinion, report, notice, request, direction, consent, order,
     approval, bond, debenture, note or other evidence of indebtedness or other
     paper or document, unless requested in writing to do so by one or more
     Holders, but the Property Trustee may make such further inquiry or
     investigation into such facts or matters as it may see fit, and, if the
     Property Trustee shall determine to make such inquiry or investigation, it
     shall be entitled to examine the books, records and premises of the
     Depositor, personally or by agent or attorney;

          (i) the Property Trustee may execute any of the trusts or powers
     hereunder or perform any duties hereunder either directly or by or through
     its agents, attorneys, custodians or nominees and the Property Trustee
     shall not be responsible for any negligence or misconduct on the part of
     any such agent, attorney, custodian or nominee appointed with due care by
     it hereunder;

          (j) whenever in the administration of this Trust Agreement the
     Property Trustee shall deem it desirable to receive instructions with
     respect to enforcing any remedy or right hereunder, the Property Trustee
     (i) may request instructions from the Holders (which instructions may only
     be given by the Holders of the same proportion in Liquidation Amount of the
     Trust Securities as would be entitled to direct the Property Trustee under
     this Trust Agreement in respect of such remedy, right or action), (ii) may
     refrain from enforcing such remedy or right or taking such other action
     until such instructions are received and (iii) shall be protected in acting
     in accordance with such instructions;

          (k) except as otherwise expressly provided by this Trust Agreement,
     the Property Trustee shall not be under any obligation to take any action
     that is discretionary under the provisions of this Trust Agreement;

          (l) without prejudice to any other rights available to the Property
     Trustee under applicable law, when the Property Trustee incurs expenses or
     renders services in connection with a Bankruptcy Event, such expenses
     (including legal fees and expenses of its agents and counsel) and the
     compensation for such services are intended to constitute expenses of
     administration under any bankruptcy law or law relating to creditors rights
     generally; and

          (m) whenever in the administration of this Trust Agreement the
     Property Trustee shall deem it desirable that a matter be proved or
     established prior to taking,


                                       47



     suffering or omitting any action hereunder, the Property Trustee (unless
     other evidence be herein specifically prescribed) may, in the absence of
     bad faith on its part, request and rely on an Officers' Certificate which,
     upon receipt of such request, shall be promptly delivered by the Depositor.

     No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on any Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it, in any jurisdiction in
which it shall be illegal, or in which such Person shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or acts,
or to exercise any such right, power, duty or obligation.

     SECTION 8.8. Delegation of Power.

     Any Trustee may, by power of attorney consistent with applicable law,
delegate to any other natural person over the age of 21 its, his or her power
for the purpose of executing any documents contemplated in Section 2.5. The
Trustees shall have power to delegate from time to time to such of their number
or to the Depositor the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the extent such delegation is
not prohibited by applicable law or contrary to the provisions of this Trust
Agreement.

     SECTION 8.9. May Hold Securities.

     Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and except as provided in the definition of the term "Outstanding" in
Article I, may otherwise deal with the Trust with the same rights it would have
if it were not an Trustee or such other agent.

     SECTION 8.10. Compensation; Reimbursement; Indemnity.

     The Depositor agrees:

          (a) to pay to the Trustees from time to time such reasonable
     compensation for all services rendered by them hereunder as may be agreed
     by the Depositor and the Trustees from time to time (which compensation
     shall not be limited by any provision of law in regard to the compensation
     of a trustee of an express trust);

          (b) to reimburse the Trustees upon request for all reasonable
     expenses, disbursements and advances incurred or made by the Trustees in
     accordance with any provision of this Trust Agreement (including the
     reasonable compensation and the expenses and disbursements of their agents
     and counsel), except any such expense, disbursement or advance as may be
     attributable to their gross negligence, bad faith or willful misconduct;
     and

          (c) to the fullest extent permitted by applicable law, to indemnify
     and hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee,
     (iii) any officer, director, shareholder, employee, representative or agent
     of any Trustee or any Affiliate of any Trustee and (iv) any employee or
     agent of the Trust (referred to herein as an


                                       48



     "Indemnified Person") from and against any loss, damage, liability, tax
     (other than income, franchise or other taxes imposed on amounts paid
     pursuant to Section 8.10(a) or (b) hereof), penalty, expense or claim of
     any kind or nature whatsoever incurred without negligence, bad faith or
     willful misconduct on its part, arising out of or in connection with the
     acceptance or administration of the Trust hereunder, including the
     advancement of funds to cover the costs and expenses of defending itself
     against any claim or liability in connection with the exercise or
     performance of any of its powers or duties hereunder.

     The Trust shall have no payment, reimbursement or indemnity obligations to
the Trustees under this Section 8.10. The provisions of this Section 8.10 shall
survive the termination of this Trust Agreement and the earlier removal or
resignation of any Trustee.

     No Trustee may claim any Lien on any Trust Property whether before or after
termination of the Trust as a result of any amount due pursuant to this Section
8.10.

     To the fullest extent permitted by law, in no event shall the Property
Trustee and the Delaware Trustee be liable for any indirect, special, punitive
or consequential loss or damage of any kind whatsoever, including, but not
limited to, lost profits, even if the Trustee has been advised of the likelihood
of such loss or damage and regardless of the form of action.

     In no event shall the Property Trustee and the Delaware Trustee be liable
for any failure or delay in the performance of its obligations hereunder because
of circumstances beyond its control, including, but not limited to, acts of God,
flood, war (whether declared or undeclared), terrorism, fire, riot, embargo,
government action, including any laws, ordinances, regulations, governmental
action or the like which delay, restrict or prohibit the providing of the
services contemplated by this Trust Agreement.

     SECTION 8.11. Resignation and Removal; Appointment of Successor.

     (a) No resignation or removal of any Trustee and no appointment of a
successor Trustee pursuant to this Article VIII shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 8.12.

     (b) A Trustee may resign at any time by giving written notice thereof to
the Depositor and, in the case of the Property Trustee and the Delaware Trustee,
to the Holders.

     (c) Unless an Event of Default shall have occurred and be continuing, the
Property Trustee or the Delaware Trustee, or both of them, may be removed (with
or without cause) at any time by Act of the Holder of Common Securities. If an
Event of Default shall have occurred and be continuing, the Property Trustee or
the Delaware Trustee, or both of them, may be removed (with or without cause) at
such time by Act of the Holders of at least a Majority in Liquidation Amount of
the Preferred Securities, delivered to the removed Trustee (in its individual
capacity and on behalf of the Trust). An Administrative Trustee may be removed
(with or without cause) only by Act of the Holder of the Common Securities at
any time.

     (d) If any Trustee shall resign, be removed or become incapable of acting
as Trustee, or if a vacancy shall occur in the office of any Trustee for any
reason, at a time when no Event of Default shall have occurred and be
continuing, the Holder of the Common Securities, by Act of


                                       49



the Holder of the Common Securities, shall promptly appoint a successor Trustee
or Trustees, and such successor Trustee and the retiring Trustee shall comply
with the applicable requirements of Section 8.12. If the Property Trustee or the
Delaware Trustee shall resign, be removed or become incapable of continuing to
act as the Property Trustee or the Delaware Trustee, as the case may be, at a
time when an Event of Default shall have occurred and be continuing, the Holders
of the Preferred Securities, by Act of the Holders of a Majority in Liquidation
Amount of the Preferred Securities, shall promptly appoint a successor Property
Trustee or Delaware Trustee, and such successor Property Trustee or Delaware
Trustee and the retiring Property Trustee or Delaware Trustee shall comply with
the applicable requirements of Section 8.12. If an Administrative Trustee shall
resign, be removed or become incapable of acting as Administrative Trustee, at a
time when an Event of Default shall have occurred and be continuing, the Holder
of the Common Securities by Act of the Holder of Common Securities shall
promptly appoint a successor Administrative Trustee and such successor
Administrative Trustee and the retiring Administrative Trustee shall comply with
the applicable requirements of Section 8.12. If no successor Trustee shall have
been so appointed by the Holder of the Common Securities or Holders of the
Preferred Securities, as the case may be, and accepted appointment in the manner
required by Section 8.12 within thirty (30) days after the giving of a notice of
resignation by a Trustee, the removal of a Trustee, or a Trustee becoming
incapable of acting as such Trustee, any Holder who has been a Holder of
Preferred Securities for at least six (6) months may, on behalf of himself and
all others similarly situated, and any resigning Trustee may, in each case, at
the expense of the Depositor, petition any court of competent jurisdiction for
the appointment of a successor Trustee.

     (e) The Depositor shall give notice of each resignation and each removal of
the Property Trustee or the Delaware Trustee and each appointment of a successor
Property Trustee or Delaware Trustee to all Holders in the manner provided in
Section 10.8. Each notice shall include the name of the successor Property
Trustee or Delaware Trustee and the address of its Corporate Trust Office if it
is the Property Trustee.

     (f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Holder of Common
Securities, incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by (i) the unanimous act of the
remaining Administrative Trustees if there are at least two of them or (ii)
otherwise by the Holder of the Common Securities (with the successor in each
case being a Person who satisfies the eligibility requirement for Administrative
Trustees or Delaware Trustee, as the case may be, set forth in Sections 8.3 and
8.4).

     (g) Upon the appointment of a successor Delaware Trustee, such successor
Delaware Trustee shall file a Certificate of Amendment to the Certificate of
Trust in accordance with Section 3810 of the Delaware Statutory Trust Act.

     SECTION 8.12. Acceptance of Appointment by Successor.

     (a) In case of the appointment hereunder of a successor Trustee, each
successor Trustee shall execute and deliver to the Depositor and to the retiring
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Trustee


                                       50



shall become effective and each such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Trust or any successor
Trustee such retiring Trustee shall, upon payment of its charges, duly assign,
transfer and deliver to such successor Trustee all Trust Property, all proceeds
thereof and money held by such retiring Trustee hereunder with respect to the
Trust Securities and the Trust.

     (b) Upon request of any such successor Trustee, the Trust (or the retiring
Trustee if requested by the Depositor) shall execute any and all instruments for
more fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts referred to in the preceding paragraph.

     (c) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article VIII.

     SECTION 8.13. Merger, Conversion, Consolidation or Succession to Business.

     Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any Person succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such Trustee
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided, that such Person shall be
otherwise qualified and eligible under this Article VIII.

     SECTION 8.14. Not Responsible for Recitals or Issuance of Securities.

     The recitals contained herein and in the Securities Certificates shall be
taken as the statements of the Trust and the Depositor, and the Trustees do not
assume any responsibility for their correctness. The Trustees make no
representations as to the title to, or value or condition of, the property of
the Trust or any part thereof, nor as to the validity or sufficiency of this
Trust Agreement, the Notes or the Trust Securities. The Trustees shall not be
accountable for the use or application by the Depositor of the proceeds of the
Notes.

     SECTION 8.15. Property Trustee May File Proofs of Claim.

     (a) In case of any Bankruptcy Event (or event that with the passage of time
would become a Bankruptcy Event) relative to the Trust or any other obligor upon
the Trust Securities or the property of the Trust or of such other obligor or
their creditors, the Property Trustee (irrespective of whether any Distributions
on the Trust Securities shall then be due and payable and irrespective of
whether the Property Trustee shall have made any demand on the Trust for the
payment of any past due Distributions) shall be entitled and empowered, to the
fullest extent permitted by law, by intervention in such proceeding or
otherwise:

          (i) to file and prove a claim for the whole amount of any
     Distributions owing and unpaid in respect of the Trust Securities and to
     file such other papers or documents as may be necessary or advisable in
     order to have the claims of the Property Trustee (including any claim for
     the reasonable compensation, expenses, disbursements and


                                       51



     advances of the Property Trustee, its agents and counsel) and of the
     Holders allowed in such judicial proceeding; and

          (ii) to collect and receive any monies or other property payable or
     deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such proceeding is hereby authorized by each
Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee first any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Property
Trustee, its agents and counsel, and any other amounts due the Property Trustee.

     (b) Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or compensation affecting
the Trust Securities or the rights of any Holder thereof or to authorize the
Property Trustee to vote in respect of the claim of any Holder in any such
proceeding.

     SECTION 8.16. Reports to the Property Trustee.

     (a) The Depositor and the Administrative Trustees shall deliver to the
Property Trustee, not later than forty five (45) days after the end of each of
the first three fiscal quarters of the Depositor and not later than ninety (90)
days after the end of each fiscal year of the Trust ending after the date of
this Trust Agreement, an Officers' Certificate covering the preceding fiscal
year, stating whether or not to the knowledge of the signers thereof the
Depositor and the Trust are in default in the performance or observance of any
of the terms, provisions and conditions of this Trust Agreement (without regard
to any period of grace or requirement of notice provided hereunder) and, if the
Depositor or the Trust shall be in default, specifying all such defaults and the
nature and status thereof of which they have knowledge.

     (b) The Depositor shall cause NorthStar Realty Finance Corp., the general
partner of the Depositor, to furnish (i) to the Property Trustee; (ii) Cohen
Bros. & Company, 450 Park, 23rd Floor, New York, NY 10022 or such other address
as designated by Cohen Bros. & Company); and (iii) any Owner of the Preferred
Securities reasonably identified to the Depositor and the Trust (which
identification may be made either by such Owner or by Cohen Bros. & Company) a
duly completed and executed certificate substantively and substantially in the
form attached hereto as Exhibit G, including the financial statements referenced
in such Exhibit, which certificate and financial statements shall be so
furnished by the Depositor not later than fifty (50) days after the end of each
of the first three fiscal quarters of each fiscal year of the Depositor and not
later than ninety-five (95) days after the end of each fiscal year of the
Depositor.

     The Property Trustee shall obtain all reports, certificate and information,
which it is entitled to obtain under each of the Operative Documents.


                                       52



                                  ARTICLE IX.

                       TERMINATION, LIQUIDATION AND MERGER

     SECTION 9.1. Dissolution Upon Expiration Date.

     Unless earlier dissolved, the Trust shall automatically dissolve on June
30, 2040 (the "Expiration Date"), and the Trust Property shall be liquidated in
accordance with Section 9.4.

     SECTION 9.2. Early Termination.

     The first to occur of any of the following events is an "Early Termination
Event", upon the occurrence of which the Trust shall be dissolved:

          (a) the occurrence of a Bankruptcy Event in respect of, or the
     dissolution or liquidation of, the Depositor, in its capacity as the Holder
     of the Common Securities, unless the Depositor shall have transferred the
     Common Securities as provided by Section 5.11, in which case this provision
     shall refer instead to any such successor Holder of the Common Securities;

          (b) the written direction to the Property Trustee from the Holder of
     the Common Securities at any time to dissolve the Trust and, after
     satisfaction of any liabilities of the Trust as required by applicable law,
     to distribute the Notes to Holders in exchange for the Preferred Securities
     (which direction is optional and wholly within the discretion of the Holder
     of the Common Securities);

          (c) the redemption of all of the Preferred Securities in connection
     with the payment at maturity or redemption of all the Notes; and

          (d) the entry of an order for dissolution of the Trust by a court of
     competent jurisdiction.

     SECTION 9.3. Termination.

     The respective obligations and responsibilities of the Trustees and the
Trust shall terminate upon the latest to occur of the following: (a) the
distribution by the Property Trustee to Holders of all amounts required to be
distributed hereunder upon the liquidation of the Trust pursuant to Section 9.4,
or upon the redemption of all of the Trust Securities pursuant to Section 4.2;
(b) the satisfaction of any expenses owed by the Trust; and (c) the discharge of
all administrative duties of the Administrative Trustees, including the
performance of any tax reporting obligations with respect to the Trust or the
Holders.

     SECTION 9.4. Liquidation.

     (a) If an Early Termination Event specified in Section 9.2(a), (b) or (d)
occurs or upon the Expiration Date, the Trust shall be liquidated by the
Property Trustee as expeditiously as the Property Trustee shall determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
Trust as provided by applicable law, to each Holder a Like Amount


                                       53



of Notes, subject to Section 9.4(d). Notice of liquidation shall be given by the
Property Trustee not less than thirty (30) nor more than sixty (60) days prior
to the Liquidation Date to each Holder of Trust Securities at such Holder's
address appearing in the Securities Register. All such notices of liquidation
shall:

          (i) state the Liquidation Date;

          (ii) state that from and after the Liquidation Date, the Trust
     Securities will no longer be deemed to be Outstanding and (subject to
     Section 9.4(d)) any Securities Certificates not surrendered for exchange
     will be deemed to represent a Like Amount of Notes; and

          (iii) provide such information with respect to the mechanics by which
     Holders may exchange Securities Certificates for Notes, or if Section
     9.4(d) applies, receive a Liquidation Distribution, as the Property Trustee
     shall deem appropriate.

     (b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Trust and distribution of the Notes to Holders, the Property
Trustee, either itself acting as exchange agent or through the appointment of a
separate exchange agent, shall establish a record date for such distribution
(which shall not be more than forty five (45) days prior to the Liquidation Date
nor prior to the date on which notice of such liquidation is given to the
Holders) and establish such procedures as it shall deem appropriate to effect
the distribution of Notes in exchange for the Outstanding Securities
Certificates.

     (c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Notes will be issued to Holders of
Securities Certificates, upon surrender of such Certificates to the exchange
agent for exchange, (iii) the Depositor shall use its best efforts to have the
Notes listed on the New York Stock Exchange or on such other exchange,
interdealer quotation system or self-regulatory organization on which the
Preferred Securities are then listed, if any, (iv) Securities Certificates not
so surrendered for exchange will be deemed to represent a Like Amount of Notes
bearing accrued and unpaid interest in an amount equal to the accumulated and
unpaid Distributions on such Securities Certificates until such certificates are
so surrendered (and until such certificates are so surrendered, no payments of
interest or principal will be made to Holders of Securities Certificates with
respect to such Notes) and (v) all rights of Holders holding Trust Securities
will cease, except the right of such Holders to receive Notes upon surrender of
Securities Certificates.

     (d) Notwithstanding the other provisions of this Section 9.4, if
distribution of the Notes in the manner provided herein is determined by the
Property Trustee not to be permitted or practical, the Trust Property shall be
liquidated, and the Trust shall be wound up by the Property Trustee in such
manner as the Property Trustee determines. In such event, Holders will be
entitled to receive out of the assets of the Trust available for distribution to
Holders, after satisfaction of liabilities to creditors of the Trust as provided
by applicable law, an amount equal to the Liquidation Amount per Trust Security
plus accumulated and unpaid Distributions thereon to the date of payment (such
amount being the "Liquidation Distribution"). If, upon any such winding up the
Liquidation Distribution can be paid only in part because the Trust has


                                       54



insufficient assets available to pay in full the aggregate Liquidation
Distribution, then, subject to the next succeeding sentence, the amounts payable
by the Trust on the Trust Securities shall be paid on a pro rata basis (based
upon Liquidation Amounts). The Holder of the Common Securities will be entitled
to receive Liquidation Distributions upon any such winding up pro rata (based
upon Liquidation Amounts) with Holders of all Trust Securities, except that, if
an Event of Default has occurred and is continuing, the Preferred Securities
shall have a priority over the Common Securities as provided in Section 4.3.

     SECTION 9.5. Mergers, Consolidations, Amalgamations or Replacements of
Trust.

     The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any Person except pursuant to this Article IX.
At the request of the Holders of the Common Securities, without the consent of
the Holders of the Preferred Securities, the Trust may merge with or into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any State; provided, that:

          (a) such successor entity either (i) expressly assumes all of the
     obligations of the Trust under this Trust Agreement with respect to the
     Preferred Securities or (ii) substitutes for the Preferred Securities other
     securities having substantially the same terms as the Preferred Securities
     (such other Securities, the "Successor Securities") so long as the
     Successor Securities have the same priority as the Preferred Securities
     with respect to distributions and payments upon liquidation, redemption and
     otherwise;

          (b) a trustee of such successor entity possessing substantially the
     same powers and duties as the Property Trustee is appointed to hold the
     Notes;

          (c) if the Preferred Securities or the Notes are rated, such merger,
     consolidation, amalgamation, replacement, conveyance, transfer or lease
     does not cause the Preferred Securities or the Notes (including any
     Successor Securities) to be downgraded by any nationally recognized
     statistical rating organization that then assigns a rating to the Preferred
     Securities or the Notes;

          (d) the Preferred Securities are listed, or any Successor Securities
     will be listed upon notice of issuance, on any national securities exchange
     or interdealer quotation system on which the Preferred Securities are then
     listed, if any;

          (e) such merger, consolidation, amalgamation, replacement, conveyance,
     transfer or lease does not adversely affect the rights, preferences and
     privileges of the Holders of the Preferred Securities (including any
     Successor Securities) in any material respect;

          (f) such successor entity has a purpose substantially identical to
     that of the Trust;

          (g) prior to such merger, consolidation, amalgamation, replacement,
     conveyance, transfer or lease, the Depositor has received an Opinion of
     Counsel to the


                                       55



     effect that (i) such merger, consolidation, amalgamation, replacement,
     conveyance, transfer or lease does not adversely affect the rights,
     preferences and privileges of the Holders of the Preferred Securities
     (including any Successor Securities) in any material respect; (ii)
     following such merger, consolidation, amalgamation, replacement,
     conveyance, transfer or lease, neither the Trust nor such successor entity
     will be required to register as an "investment company" under the
     Investment Company Act and (iii) following such merger, consolidation,
     amalgamation, replacement, conveyance, transfer or lease, the Trust (or the
     successor entity) will continue to be classified as a grantor trust for
     U.S. federal income tax purposes; and

          (h) the Depositor or its permitted transferee owns all of the common
     securities of such successor entity.

Notwithstanding the foregoing, the Trust shall not, except with the consent of
Holders of all of the Preferred Securities, consolidate, amalgamate, merge with
or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other Person or permit any other
entity to consolidate, amalgamate, merge with or into, or replace, the Trust if
such consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Trust or the successor entity to be taxable as a
corporation or classified as other than a grantor trust for United States
federal income tax purposes or cause the Notes to be treated as other than
indebtedness of the Depositor for United States federal income tax purposes.

                                   ARTICLE X.

                            MISCELLANEOUS PROVISIONS

     SECTION 10.1. Limitation of Rights of Holders.

     Except as set forth in Section 9.2, the death, bankruptcy, termination,
dissolution or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor annul, dissolve or terminate the Trust nor entitle the legal
representatives or heirs of such Person or any Holder for such Person, to claim
an accounting, take any action or bring any proceeding in any court for a
partition or winding up of the arrangements contemplated hereby, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.

     SECTION 10.2. Agreed Tax Treatment of Trust and Trust Securities.

     The parties hereto and, by its acceptance or acquisition of a Trust
Security or a beneficial interest therein, the Holder of, and any Person that
acquires a beneficial interest in, such Trust Security intend and agree to treat
the Trust as a grantor trust for United States federal, state and local tax
purposes, and to treat the Trust Securities (including all payments and proceeds
with respect to such Trust Securities) as undivided beneficial ownership
interests in the Trust Property (and payments and proceeds therefrom,
respectively) for United States federal, state and local tax purposes and to
treat the Notes as indebtedness of the Depositor for United States federal,
state and local tax purposes. The provisions of this Trust Agreement shall be
interpreted to further this intention and agreement of the parties.


                                       56



     SECTION 10.3. Amendment.

     (a) This Trust Agreement may be amended from time to time by the Property
Trustee, the Administrative Trustees and the Holder of all the Common
Securities, without the consent of any Holder of the Preferred Securities, (i)
to cure any ambiguity, correct or supplement any provision herein that may be
defective or inconsistent with any other provision herein, or to make or amend
any other provisions with respect to matters or questions arising under this
Trust Agreement, which shall not be inconsistent with the other provisions of
this Trust Agreement, (ii) to modify, eliminate or add to any provisions of this
Trust Agreement to such extent as shall be necessary to ensure that the Trust
will neither be taxable as a corporation nor be classified as other than a
grantor trust for United States federal income tax purposes at all times that
any Trust Securities are Outstanding or to ensure that the Notes are treated as
indebtedness of the Depositor for United States federal income tax purposes, or
to ensure that the Trust will not be required to register as an "investment
company" under the Investment Company Act or (iii) to add to the covenants,
restrictions or obligations of the Depositor; provided, that in the case of
clauses (i), (ii) or (iii), such action shall not adversely affect in any
material respect the interests of any Holder.

     (b) Except as provided in Section 10.3(c), any provision of this Trust
Agreement may be amended by the Property Trustee, the Administrative Trustees
and the Holder of all of the Common Securities and with (i) the consent of
Holders of at least a Majority in Liquidation Amount of the Preferred Securities
and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that
such amendment or the exercise of any power granted to the Trustees in
accordance with such amendment will not cause the Trust to be taxable as a
corporation or classified as other than a grantor trust for United States
federal income tax purposes or affect the treatment of the Notes as indebtedness
of the Depositor for United States federal income tax purposes or affect the
Trust's exemption from status (or from any requirement to register) as an
"investment company" under the Investment Company Act.

     (c) Notwithstanding any other provision of this Trust Agreement, without
the consent of each Holder, this Trust Agreement may not be amended to (i)
change the accrual rate, amount, currency or timing of any Distribution on or
the redemption price of the Trust Securities or otherwise adversely affect the
amount of any Distribution or other payment required to be made in respect of
the Trust Securities as of a specified date, (ii) restrict or impair the right
of a Holder to institute suit for the enforcement of any such payment on or
after such date, (iii) reduce the percentage of aggregate Liquidation Amount of
Outstanding Preferred Securities, the consent of whose Holders is required for
any such amendment, or the consent of whose Holders is required for any waiver
of compliance with any provision of this Trust Agreement or of defaults
hereunder and their consequences provided for in this Trust Agreement; (iv)
impair or adversely affect the rights and interests of the Holders in the Trust
Property, or permit the creation of any Lien on any portion of the Trust
Property; or (v) modify the definition of "Outstanding," this Section 10.3(c),
Sections 4.1, 4.2, 4.3, 6.10(e) or Article IX.

     (d) Notwithstanding any other provision of this Trust Agreement, no Trustee
shall enter into or consent to any amendment to this Trust Agreement that would
cause the Trust to be taxable as a corporation or to be classified as other than
a grantor trust for United States federal income tax purposes or that would
cause the Notes to fail or cease to be treated as indebtedness


                                       57



of the Depositor for United States federal income tax purposes or that would
cause the Trust to fail or cease to qualify for the exemption from status (or
from any requirement to register) as an "investment company" under the
Investment Company Act.

     (e) If any amendment to this Trust Agreement is made, the Administrative
Trustees or the Property Trustee shall promptly provide to the Depositor and the
Note Trustee a copy of such amendment.

     (f) No Trustee shall be required to enter into any amendment to this Trust
Agreement that affects its own rights, duties or immunities under this Trust
Agreement. The Trustees shall be entitled to receive an Opinion of Counsel and
an Officers' Certificate stating that any amendment to this Trust Agreement is
in compliance with this Trust Agreement and all conditions precedent herein
provided for relating to such action have been met.

     (g) No amendment or modification to this Trust Agreement that adversely
affects in any material respect the rights, duties, liabilities, indemnities or
immunities of the Delaware Trustee hereunder shall be permitted without the
prior written consent of the Delaware Trustee.

     SECTION 10.4. Separability.

     If any provision in this Trust Agreement or in the Securities Certificates
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and there shall be deemed substituted for the provision at
issue a valid, legal and enforceable provision as similar as possible to the
provision at issue.

     SECTION 10.5. Governing Law.

     THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE HOLDERS,
THE TRUST, THE DEPOSITOR AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS CONFLICTS
OF LAWS PROVISIONS.

     SECTION 10.6. Successors.

     This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust and any Trustee, including any
successor by operation of law. Except in connection with a transaction involving
the Depositor that is permitted under Article VIII of the Indenture and pursuant
to which the assignee agrees in writing to perform the Depositor's obligations
hereunder, the Depositor shall not assign its obligations hereunder.

     SECTION 10.7. Headings.

     The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement


                                       58



     SECTION 10.8. Reports, Notices and Demands.

     (a) Any report, notice, demand or other communication that by any provision
of this Trust Agreement is required or permitted to be given or served to or
upon any Holder or the Depositor may be given or served in writing delivered in
person, or by reputable, overnight courier, by telecopy or by deposit thereof,
first-class postage prepaid, in the United States mail, addressed, (a) in the
case of a Holder of Preferred Securities, to such Holder as such Holder's name
and address may appear on the Securities Register; and (b) in the case of the
Holder of all the Common Securities or the Depositor, to NorthStar Realty
Finance Limited Partnership, 527 Madison Avenue, New York, NY 10022, Attention:
Richard J. McCready, or to such other address as may be specified in a written
notice by the Holder of all the Common Securities or the Depositor, as the case
may be, to the Property Trustee. Such report, notice, demand or other
communication to or upon a Holder or the Depositor shall be deemed to have been
given when received in person, within one (1) Business Day following delivery by
overnight courier, when telecopied with receipt confirmed, or within three (3)
Business Days following delivery by mail, except that if a notice or other
document is refused delivery or cannot be delivered because of a changed address
of which no notice was given, such notice or other document shall be deemed to
have been delivered on the date of such refusal or inability to deliver.

     (b) Any notice, demand or other communication that by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Property Trustee, the Delaware Trustee, the Administrative Trustees or the Trust
shall be given in writing by deposit thereof, first-class postage prepaid, in
the U.S. mail, personal delivery or facsimile transmission, addressed to such
Person as follows: (i) with respect to the Property Trustee to JPMorgan Chase
Bank, National Association, 600 Travis, 50th Floor, Houston, Texas 77002,
Attention: Institutional Trust Services-- NorthStar Realty Finance Trust II,
facsimile no. (713) 216-2101, (ii) with respect to the Delaware Trustee, to
Chase Bank USA, National Association, c/o JPMorgan Chase Bank, National
Association, 500 Stanton Christiana Road, Building 4 (3rd Floor), Newark,
Delaware 19713, Attention: Institutional Trust Services-- NorthStar Realty
Finance Trust II, facsimile no. (302) 552-6280; (iii) with respect to the
Administrative Trustees, to them at the address above for notices to the
Depositor, marked "Attention: Administrative Trustees of NorthStar Realty
Finance Trust II", and (iv) with respect to the Trust, to its principal
executive office specified in Section 2.2, with a copy to the Property Trustee.
Such notice, demand or other communication to or upon the Trust, the Property
Trustee or the Administrative Trustees shall be deemed to have been sufficiently
given or made only upon actual receipt of the writing by the Trust, the Property
Trustee or the Administrative Trustees.

     SECTION 10.9. Agreement Not to Petition.

     Each of the Trustees and the Depositor agree for the benefit of the Holders
that, until at least one year and one day after the Trust has been terminated in
accordance with Article IX, they shall not file, or join in the filing of, a
petition against the Trust under any Bankruptcy Law or otherwise join in the
commencement of any proceeding against the Trust under any Bankruptcy Law. If
the Depositor takes action in violation of this Section 10.9, the Property
Trustee agrees, for the benefit of Holders, that at the expense of the
Depositor, it shall file an answer with the applicable bankruptcy court or
otherwise properly contest the filing of such petition by the Depositor against
the Trust or the commencement of such action and raise the


                                       59



defense that the Depositor has agreed in writing not to take such action and
should be estopped and precluded therefrom and such other defenses, if any, as
counsel for the Property Trustee or the Trust may assert.

     SECTION 10.10. Counterparts. This instrument may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       60



     IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Trust Agreement as of the day and year first above written.

                                          NORTHSTAR REALTY FINANCE LIMITED
                                          PARTNERSHIP,

                                          as Depositor

                                          By: NorthStar Realty Finance Corp., as
                                              General Partner


                                          By: /s/ Mark E. Chertok
                                              ----------------------------------
                                              Name: Mark E. Chertok
                                              Title: Chief Financial Officer and
                                              Treasurer


JPMORGAN CHASE BANK, NATIONAL             CHASE BANK USA, NATIONAL ASSOCIATION,
ASSOCIATION, not in its individual        as Delaware Trustee
capacity but solely as Property Trustee


By: /s/ Marie D. Calzado                 By: /s/ Sarika M. Sheth
    -----------------------------------      -----------------------------------
    Name:  Marie D. Calzado                  Name:  Sarika M. Sheth
    Title: Vice President                    Title: Trust Officer

/s/ David T. Hamamoto
---------------------------------------   --------------------------------------
   David T. Hamamoto, as Administrative      Mark E. Chertok, as Administrative
Trustee                                   Trustee

/s/ Richard J. McCready, as
---------------------------------------
   Richard J. McCready, as
Administrative Trustee



                                                                       Exhibit A

                              CERTIFICATE OF TRUST

                                       OF

                        NORTHSTAR REALTY FINANCE TRUST II

     This Certificate of Trust of NorthStar Realty Finance Trust II (the
"Trust") is being duly executed and filed on behalf of the Trust by the
undersigned, as trustees, to form a statutory trust under the Delaware Statutory
Trust Act (12 Del. C. Section3801 et seq.) (the "Act").

     1. Name. The name of the statutory trust formed by this Certificate of
Trust is: NorthStar Realty Finance Trust II.

     2. Delaware Trustee. The name and business address of the trustee of the
Trust with its principal place of business in the State of Delaware are Chase
Bank USA, National Association c/o JPMorgan Chase Bank, National Association,
500 Stanton Christiana Road, Building 4 (3rd Floor), Newark, Delaware 19713,
Attention: Institutional Trust Services.

     3. Effective Date. This Certificate of Trust shall be effective upon its
filing with the Secretary of State of the State of Delaware.

     IN WITNESS WHEREOF, the undersigned have duly executed this Certificate of
Trust in accordance with Section 3811(a)(1) of the Act.

                                    CHASE BANK USA, NATIONAL ASSOCIATION, not in
                                    its individual capacity, but solely as
                                    Delaware Trustee


                                    By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                       A-1





                                                                       Exhibit B

                     [FORM OF COMMON SECURITIES CERTIFICATE]

             THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE
       SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS OR
          ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED,
          SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
              EXEMPTION FROM REGISTRATION. THIS CERTIFICATE IS NOT
            TRANSFERABLE EXCEPT IN COMPLIANCE WITH APPLICABLE LAW AND
                       SECTION 5.11 OF THE TRUST AGREEMENT

CERTIFICATE NUMBER                                   NUMBER OF COMMON SECURITIES

   C-1                                                                       780


                    CERTIFICATE EVIDENCING COMMON SECURITIES

                                       OF

                        NORTHSTAR REALTY FINANCE TRUST II

                         FLOATING RATE COMMON SECURITIES

                 (LIQUIDATION AMOUNT $1,000 PER COMMON SECURITY)

NorthStar Realty Finance Trust II, a statutory trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that NorthStar Realty
Finance Limited Partnership, a Delaware limited partnership (the "Holder") is
the registered owner of Seven Hundred Eighty (780) common securities of the
Trust representing undivided common beneficial interests in the assets of the
Trust and designated the NorthStar Realty Finance Trust II Floating Rate Common
Securities (liquidation amount $1,000 per Common Security) (the "Common
Securities"). Except in accordance with Section 5.11 of the Trust Agreement (as
defined below), the Common Securities are not transferable and, to the fullest
extent permitted by law, any attempted transfer hereof other than in accordance
therewith shall be void. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust, dated as of May 25, 2005 as
the same may be amended from time to time (the "Trust Agreement"), among
NorthStar Realty Finance Limited Partnership, as Depositor, JPMorgan Chase Bank,
National Association, as Property Trustee, Chase Bank USA, National Association,
as Delaware Trustee, the Administrative Trustees named therein and the Holders,
from time to time, of Trust Securities. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.


                                       B-1



Upon receipt of this certificate, the Holder is bound by the Trust Agreement and
is entitled to the benefits thereunder.

This Common Securities Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.

Terms used but not defined herein have the meanings set forth in the Trust
Agreement.

IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed
on behalf of the Trust this certificate this __ day of _______________, 200__.

                                          NORTHSTAR REALTY FINANCE TRUST II


                                          By:
                                              ----------------------------------
                                              _____________, as Administrative
                                              Trustee


                                       B-2



                                                                       Exhibit C

                   [FORM OF PREFERRED SECURITIES CERTIFICATE]

"[IF THIS SECURITY IS A GLOBAL SECURITY INSERT: THIS PREFERRED SECURITY IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED
TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A
NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT, AND NO TRANSFER OF THIS
PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE
BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF
DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC TO NORTHSTAR REALTY FINANCE TRUST II OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SUCH PREFERRED SECURITIES OR ANY INTEREST
THEREIN MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY
PREFERRED SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE PREFERRED
SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A UNDER THE SECURITIES ACT.

THE HOLDER OF THE PREFERRED SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES
FOR THE BENEFIT OF THE TRUST AND THE DEPOSITOR THAT (A) SUCH PREFERRED
SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO THE
TRUST, (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a) (1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF AN "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR


                                       C-1



OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (V) PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT, IN EACH
CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND, IN THE CASE OF (III) OR
(V), SUBJECT TO THE RIGHT OF THE TRUST AND THE DEPOSITOR TO REQUIRE AN OPINION
OF COUNSEL AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (B) THE HOLDER
WILL NOTIFY ANY PURCHASER OF ANY PREFERRED SECURITIES FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.

THE PREFERRED SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS
HAVING AN AGGREGATE LIQUIDATION AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY ATTEMPTED TRANSFER OF PREFERRED SECURITIES, OR ANY
INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE LIQUIDATION AMOUNT OF LESS THAN
$100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE DEEMED TO BE VOID
AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH PREFERRED
SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF
PRINCIPAL OF OR INTEREST ON SUCH PREFERRED SECURITIES, OR ANY INTEREST THEREIN,
AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN
SUCH PREFERRED SECURITIES.

THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF
OR THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE
BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") (EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN
ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON
INVESTING "PLAN ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THIS PREFERRED SECURITY
OR ANY INTEREST THEREIN. ANY PURCHASER OR HOLDER OF THE PREFERRED SECURITIES OR
ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND
HOLDING THEREOF THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF
SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT
PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE
BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE.



THIS OBLIGATION IS NOT A DEPOSIT AND IS NOT INSURED BY THE UNITED STATES OR ANY
AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC").


                                       C-2



CERTIFICATE NUMBER                                  AGGREGATE LIQUIDATION AMOUNT
                                                            PREFERRED SECURITIES
P-______                                                   $____________________

                                   ----------


                   CERTIFICATE EVIDENCING PREFERRED SECURITIES

                                       OF

                        NORTHSTAR REALTY FINANCE TRUST II

                       FLOATING RATE PREFERRED SECURITIES
               (LIQUIDATION AMOUNT $1,000 PER PREFERRED SECURITY)

NorthStar Realty Finance Trust II, a statutory trust created under the laws of
the State of Delaware (the "Trust"), hereby certifies that _____________, a
_________ (the "Holder") is the registered owner of [___________ (______)]
Preferred Securities [if the Preferred Security is a Global Security, then
insert - or such other number of Preferred Securities represented hereby as may
be set forth in the records of the Securities Registrar hereinafter referred to
in accordance with the Trust Agreement (as defined below)] of the Trust
representing an undivided preferred beneficial interest in the assets of the
Trust and designated the NorthStar Realty Finance Trust II Floating Rate
Preferred Securities, (liquidation amount $1,000 per Preferred Security) (the
"Preferred Securities"). Subject to the terms of the Trust Agreement (as defined
below), the Preferred Securities are transferable on the books and records of
the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer as provided in Section
5.7 of the Trust Agreement (as defined below). The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Securities are set forth in, and this certificate and the Preferred
Securities represented hereby are issued and shall in all respects be subject to
the terms and provisions of, the Amended and Restated Trust Agreement of the
Trust, dated as of May 25, 2005, as the same may be amended from time to time
(the "Trust Agreement"), among NorthStar Realty Finance Limited Partnership, as
Depositor, JPMorgan Chase Bank, National Association, as Property Trustee, Chase
Bank USA, National Association, as Delaware Trustee, the Administrative Trustees
named therein and the Holders, from time to time, of Trust Securities. The Trust
will furnish a copy of the Trust Agreement to the Holder without charge upon
written request to the Property Trustee at its Corporate Trust Office.

Upon receipt of this certificate, the Holder is bound by the Trust Agreement and
is entitled to the benefits thereunder.


                                       C-3



This Preferred Securities Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.

All capitalized terms used but not defined in this Preferred Securities
Certificate are used with the meanings specified in the Trust Agreement,
including the Schedules and Exhibits thereto.

IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed
on behalf of the Trust this certificate this __ day of __________, 2005.

                                      NORTHSTAR REALTY FINANCE TRUST II


                                      By:
                                          --------------------------------------
                                          Name:
                                          Administrative Trustee

     This is one of the Preferred Securities referred to in the within-mentioned
Trust Agreement.

Dated:

                                      JPMORGAN CHASE BANK, NATIONAL ASSOCIATION,
                                      not in its individual capacity, but solely
                                      as Property Trustee


                                      By:
                                          --------------------------------------
                                          Authorized signatory


                                       C-4



                          [FORM OF REVERSE OF SECURITY]

     The Trust promises to pay Distributions from May 25, 2005, or from the most
recent Distribution Date to which Distributions have been paid or duly provided
for, quarterly (subject to deferral as set forth herein) in arrears on March 30,
June 30, September 30 and December 30 of each year, commencing on September 30,
2005, at a fixed rate equal to 7.74% per annum through the interest payment date
in June 2015 and thereafter at a variable rate equal to LIBOR plus 3.25% per
annum of the Liquidation Amount of the Preferred Securities represented by this
Preferred Securities Certificate, together with any Additional Interest Amounts,
in respect to such period.

     Distributions on the Trust Securities shall be made by the Paying Agent
from the Payment Account and shall be payable on each Distribution Date only to
the extent that the Trust has funds then on hand and available in the Payment
Account for the payment of such Distributions.

     In the event (and to the extent) that the Depositor exercises its right
under the Indenture to defer the payment of interest on the Notes, Distributions
on the Preferred Securities shall be deferred.

     Under the Indenture, so long as no Note Event of Default has occurred and
is continuing, after October 12, 2006, the Depositor shall have the right, at
any time and from time to time during the term of the Notes, to defer the
payment of interest on the Notes for a period of up to six (6) consecutive
quarterly interest payment periods (such right to defer, the "Extension Right"
and each such extended interest payment period, an "Extension Period"), during
which Extension Period(s), no interest shall be due and payable (except any
Additional Tax Sums that may be due and payable); provided, that, the Depositor
shall not be entitled to exercise its Extension Right so that it would be able
to defer the payment of interest on the Notes for more than six (6) quarterly
interest payment periods; provided, further, that, after the expiration of any
Extension Period, the Depositor may not exercise its Extension Right to begin
any subsequent Extension Period until it pays all interest then accrued and
unpaid on the Notes, together with such Additional Interest prior to beginning
such subsequent Extension Period. No interest on the Notes shall be due and
payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest (to the extent payment of
such interest would be legally enforceable) at a fixed rate equal to 7.74% per
annum through the interest payment date in June 2015 and thereafter at a
variable rate equal to LIBOR plus 3.25% per annum compounded quarterly, from the
dates on which amounts would have otherwise been due and payable until paid or
until funds for the payment thereof have been made available for payment. If
Distributions are deferred, the deferred Distributions (including Additional
Interest Amounts) shall be paid on the date that the related Extension Period
terminates to Holders (as defined in the Trust Agreement) of the Trust
Securities as they appear on the books and records of the Trust on the record
date immediately preceding such termination date.

     Distributions on the Securities must be paid on the dates payable (after
giving effect to any Extension Period) to the extent that the Trust has funds
available for the payment of such Distributions in the Payment Account of the
Trust. The Trust's funds available for Distribution


                                       C-5



to the Holders of the Preferred Securities will be limited to payments received
from the Depositor.

     During any Extension Period or Event of Default, the Depositor shall not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Depositor's
capital stock or (ii) make any payment of principal of or any interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Depositor that rank pari passu in all respects with or junior in interest to the
Notes (other than (a) repurchases, redemptions or other acquisitions of shares
of capital stock of the Depositor in connection with (1) any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) a dividend
reinvestment or stockholder stock purchase plan or (3) the issuance of capital
stock of the Depositor (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period or Event of Default, (b) as a result of an
exchange or conversion of any class or series of the Depositor's capital stock
(or any capital stock of a Subsidiary (as defined in the Indenture) of the
Depositor) for any class or series of the Depositor's capital stock or of any
class or series of the Depositor's indebtedness for any class or series of the
Depositor's capital stock, (c) the purchase of fractional interests in shares of
the Depositor's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any Rights Plan (as defined in the
Indenture), the issuance of rights, stock or other property under any Rights
Plan, or the redemption or repurchase of rights pursuant thereto or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock).

     On each Note Redemption Date, on the stated maturity (or any date of
principal repayment upon early maturity) of the Notes and on each other date on
(or in respect of) which any principal on the Notes is repaid, the Trust will be
required to redeem a Like Amount of Trust Securities at the Redemption Price.
Under the Indenture, the Notes may be redeemed by the Depositor on any Interest
Payment Date, at the Depositor's option, on or after June 30, 2010 in whole or
in part from time to time at the Optional Note Redemption Price of the principal
amount thereof or the redeemed portion thereof, as applicable, together, in the
case of any such redemption, with accrued interest, including any Additional
Interest, to but excluding the date fixed for redemption. The Notes may also be
redeemed by the Depositor, at its option, at any time, in whole but not in part,
upon the occurrence of an Investment Company Event or a Tax Event at the Special
Note Redemption Price; provided, that such Investment Company Event or a Tax
Event is continuing on the Redemption Date.

     The Trust Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the proceeds from the contemporaneous redemption or
payment at maturity of Notes. Redemptions of the Trust Securities (or portion
thereof) shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Trust has funds then on hand and
available in the Payment Account for the payment of such Redemption Price.


                                       C-6



     Payments of Distributions (including any Additional Interest Amounts), the
Redemption Price, Liquidation Amount or any other amounts in respect of the
Preferred Securities shall be made by wire transfer at such place and to such
account at a banking institution in the United States as may be designated in
writing at least ten (10) Business Days prior to the date for payment by the
Person entitled thereto unless proper written transfer instructions have not
been received by the relevant record date, in which case such payments shall be
made by check mailed to the address of such Person as such address shall appear
in the Security Register. If any Preferred Securities are held by a Depositary,
such Distributions shall be made to the Depositary in immediately available
funds.

     The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate and junior in right of payment to the prior payment in
full of all Senior Debt (as defined in the Indenture), and this Security is
issued subject to the provisions of the Indenture with respect thereto.


                                       C-7



                                   ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Securities Certificate to:

        (Insert assignee's social security or tax identification number)

                    (Insert address and zip code of assignee)

and irrevocably appoints

agent to transfer this Preferred Securities Certificate on the books of the
Trust. The agent may substitute another to act for him or her.

Date: _______________________


Signature:
           ---------------------------------------------------------------------
               (Sign exactly as your name appears on the other side of this
                            Preferred Securities Certificate)

The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.


                                       C-8



                                                                       Exhibit D

                          JUNIOR SUBORDINATED INDENTURE

                                    See tab#4


                                       D-1



                                                                       Exhibit E

                         FORM OF TRANSFEREE CERTIFICATE
                          TO BE EXECUTED BY TRANSFEREES

                                                                __________, [__]

JPMorgan Chase Bank, National Association
600 Travis, 50th Floor
Houston, Texas 77002
Attention: Institutional Trust Services

NorthStar Realty Finance Limited Partnership
NorthStar Realty Finance Trust II
527 Madison Avenue
New York, NY 10022

          Re: Purchase of $____________ stated liquidation amount of Floating
              Rate Preferred Securities (the "Preferred Securities") of
              NorthStar Realty Finance Trust II

Ladies and Gentlemen:

          In connection with our purchase of the Preferred Securities we confirm
that:

          1. We understand that the Floating Rate Preferred Securities (the
"Preferred Securities") of NorthStar Realty Finance Trust II (the "Trust") and
the Floating Rate Junior Subordinated Notes due 2035 (the "Subordinated Notes")
of NorthStar Realty Finance Limited Partnership (the "Company") (the entire
amount of the Trust's outstanding Preferred Securities and the Subordinated
Notes together being referred to herein as the "Offered Securities"), have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered or sold except as permitted in the following
sentence. We agree on our own behalf and on behalf of any investor account for
which we are purchasing the Offered Securities that, if we decide to offer, sell
or otherwise transfer any such Offered Securities, (i) such offer, sale or
transfer will be made only (a) to the Trust, (b) to a person we reasonably
believe is a "qualified purchaser" (a "QP") (as defined in Section 2(a)(51) of
the Investment Company Act of 1940, as amended). We understand that the
certificates for any Offered Security that we receive will bear a legend
substantially to the effect of the foregoing.

          2. We are a "qualified purchaser" within the meaning of Section
2(a)(51) of the Investment Company Act of 1940, as amended, and are purchasing
for our own account or for the account of such a "qualified purchaser," and we
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Offered
Securities, and we and any account for which we are acting are each able to bear
the economic risks of our or its investment.

          3. We are acquiring the Offered Securities purchased by us for our own
account (or for one or more accounts as to each of which we exercise sole
investment discretion and have authority to make, and do make, the statements
contained in this letter) and not with a


                                       E-1



view to any distribution of the Offered Securities, subject, nevertheless, to
the understanding that the disposition of our property will at all times be and
remain within our control.

          4. In the event that we purchase any Preferred Securities or any
Subordinated Notes, we will acquire such Preferred Securities having an
aggregate stated liquidation amount of not less than $100,000 or such
Subordinated Notes having an aggregate principal amount not less than $100,000,
for our own account and for each separate account for which we are acting.

          5. We acknowledge that we are not a fiduciary of (i) an employee
benefit, individual retirement account or other plan or arrangement subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") (each a "Plan"); or (ii) an entity whose underlying assets include "plan
assets" by reason of any Plan's investment in the entity, and are not purchasing
any of the Offered Securities on behalf of or with "plan assets" by reason of
any Plan's investment in the entity.

          6. We acknowledge that the Trust and the Company and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations,
warranties and agreements and agree that if any of the acknowledgments,
representations, warranties and agreements deemed to have been made by our
purchase of any of the Offered Securities are no longer accurate, we shall
promptly notify the Company. If we are acquiring any Offered Securities as a
fiduciary or agent for one or more investor accounts, we represent that we have
sole discretion with respect to each such investor account and that we have full
power to make the foregoing acknowledgments, representations and agreement on
behalf of each such investor account.

                                      (Name of Purchaser)


                                      By:
                                          --------------------------------------
                                      Date:
                                            ------------------------------------

          Upon transfer, the Preferred Securities (having a stated liquidation
amount of $_____________) would be registered in the name of the new beneficial
owner as follows.

Name:

Address: _____________________________

Taxpayer ID Number: __________________


                                       E-2



                                                                       Exhibit F

                         OFFICER'S FINANCIAL CERTIFICATE

     The undersigned, the [Chairman/Vice Chairman/Chief Executive
Officer/President/Vice President/Chief Financial Officer/Treasurer/Assistant
Treasurer], hereby certifies pursuant to Section 8.16(b) of the Amended and
Restated Trust Agreement, dated as of May 25, 2005 (the "Trust Agreement"),
among NorthStar Realty Finance Limited Partnership, JPMorgan Chase Bank,
National Association, as property trustee, Chase Bank USA, National Association,
as Delaware trustee, and the administrative trustees named therein, that, as of
[date], [20__], NorthStar Realty Finance Corp. (the "Company") had the following
consolidated ratios and balances and, if applicable, its unconsolidated
subsidiaries had the following ratios and balances:



As of [Quarterly/Annual Financial Date], 20__

<TABLE>

                                                                                     The Company and
                                                                                       Consolidated
                                                                   The Company and    Subsidiaries &
                                                                     Consolidated     Unconsolidated
                                                                     Subsidiaries      Subsidiaries
                                                                   ---------------   ---------------

Senior secured indebtedness for borrowed money ("Debt")                 $_____            $_____
Senior unsecured Debt                                                   $_____            $_____
Subordinated Debt                                                       $_____            $_____
Total Debt                                                              $_____            $_____
Ratio of (x) senior secured and unsecured Debt to (y) total Debt         _____%            _____%
</TABLE>


[FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial
statements (including the balance sheet, income statement and statement of cash
flows, and notes thereto, together with the report of the independent
accountants thereon) of the Company and its consolidated subsidiaries for the
three years ended [date], 20___].]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated
financial statements (including the balance sheet and income statement) of the
Company and its consolidated subsidiaries for the fiscal quarter ended [date],
20__.]

The financial statements fairly present in all material respects, in accordance
with U.S. generally accepted accounting principles ("GAAP"), the financial
position of the Company and its consolidated subsidiaries, and the results of
operations and changes in financial condition as of the date, and for the
[QUARTER] [ANNUAL] period ended [DATE], 20__, and such financial statements have
been prepared in accordance with GAAP consistently applied throughout the period
involved (expect as otherwise noted therein).


                                       F-1



     IN WITNESS WHEREOF, the undersigned has executed this Officer's Financial
Certificate as of this _____ day of _____________, 20__.

                                      NORTHSTAR REALTY FINANCE CORP.


                                      By:
                                          --------------------------------------
                                          Name:
                                          Title:


                                       F-2



                                                                      Schedule A

                             DETERMINATION OF LIBOR

     With respect to the Trust Securities, the London interbank offered rate
("LIBOR") shall be determined by the Calculation Agent in accordance with the
following provisions (in each case rounded to the nearest .000001%):

     (1) On the second LIBOR Business Day (as defined below) prior to a
Distribution Date (except with respect to the first interest payment period,
such date shall be May 23, 2005) (each such day, a "LIBOR Determination Date"),
LIBOR for any given security shall for the following interest payment period
equal the rate, as obtained by the Calculation Agent from Bloomberg Financial
Markets Commodities News, for three-month Eurodollar deposits that appears on
Dow Jones Telerate Page 3750 (as defined in the International Swaps and
Derivatives Association, Inc. 2000 Interest Rate and Currency Exchange
Definitions), or such other page as may replace such Page 3750, as of 11:00 a.m.
(London time) on such LIBOR Determination Date.

     (2) If, on any LIBOR Determination Date, such rate does not appear on Dow
Jones Telerate Page 3750 or such other page as may replace such Page 3750, the
Calculation Agent shall determine the arithmetic mean of the offered quotations
of the Reference Banks (as defined below) to leading banks in the London
interbank market for three-month Eurodollar deposits in an amount determined by
the Calculation Agent by reference to requests for quotations as of
approximately 11:00 a.m. (London time) on the LIBOR Determination Date made by
the Calculation Agent to the Reference Banks. If, on any LIBOR Determination
Date, at least two of the Reference Banks provide such quotations, LIBOR shall
equal such arithmetic mean of such quotations. If, on any LIBOR Determination
Date, only one or none of the Reference Banks provide such quotations, LIBOR
shall be deemed to be the arithmetic mean of the offered quotations that leading
banks in the City of New York selected by the Calculation Agent are quoting on
the relevant LIBOR Determination Date for three-month Eurodollar deposits in an
amount determined by the Calculation Agent by reference to the principal London
offices of leading banks in the London interbank market; provided, that if the
Calculation Agent is required but is unable to determine a rate in accordance
with at least one of the procedures provided above, LIBOR shall be LIBOR as
determined on the previous LIBOR Determination Date.

     (3) As used herein: "Reference Banks" means four major banks in the London
interbank market selected by the Calculation Agent; and "LIBOR Business Day"
means a day on which commercial banks are open for business (including dealings
in foreign exchange and foreign currency deposits) in London.



[THE BOND MARKET ASSOCIATION LOGO]

                                                               -----------------
                                                               EXECUTION VERSION
                                                               -----------------

                           MASTER REPURCHASE AGREEMENT
                             SEPTEMBER 1996 VERSION

                                                       Dated as of July 13, 2005

Among:

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,

                                        as Buyer

                                        NRFC WA HOLDINGS, LLC,

                                        as Seller

                                        and

                                        NORTHSTAR REALTY FINANCE CORP.,

                                        as Guarantor

1. APPLICABILITY

     From time to time the parties hereto may enter into transactions in which
     one party ("Seller") agrees to transfer to the other ("Buyer") securities
     or other assets ("Securities") against the transfer of funds by Buyer, with
     a simultaneous agreement by Buyer to transfer to Seller such Securities at
     a date certain or on demand, against the transfer of funds by Seller. Each
     such transaction shall be referred to herein as a "Transaction" and, unless
     otherwise agreed in writing, shall be governed by this Agreement, including
     any supplemental terms or conditions contained in Annex I and Annex II
     hereto and in any other annexes identified herein or therein as applicable
     hereunder.

2. DEFINITIONS

     (a) "Act of Insolvency", with respect to any party, (i) the commencement by
     such party as debtor of any case or proceeding under any bankruptcy,
     insolvency, reorganization, liquidation, moratorium, dissolution,
     delinquency or similar law, or such party seeking the appointment or
     election of a receiver, conservator, trustee, custodian or similar official
     for such party or any substantial part of its property, or the convening of
     any meeting of creditors for purposes of commencing any such case or
     proceeding or seeking such an appointment or election, (ii) the



     commencement of any such case or proceeding against such party, or another
     seeking such an appointment or election, or the filing against a party of
     an application for a protective decree under the provisions of the
     Securities Investor Protection Act of 1970, which (A) is consented to or
     not timely contested by such party, (B) results in the entry of an order
     for relief, such an appointment or election, the issuance of such a
     protective decree or the entry of an order having a similar effect, or (C)
     is not dismissed within 15 days, (iii) the making by such party of a
     general assignment for the benefit of creditors, or (iv) the admission in
     writing by such party of such party's inability to pay such party's debts
     as they become due;

(b)  "Additional Purchased Securities", Securities provided by Seller to Buyer
     pursuant to Paragraph 4(a) hereof;

(c)  "Buyer's Margin Amount", with respect to any Transaction as of any date,
     the amount obtained by application of the Buyer's Margin Percentage to the
     Repurchase Price for such Transaction as of such date;

(d)  "Buyer's Margin Percentage", with respect to any Transaction as of any
     date, a percentage (which may be equal to the Seller's Margin Percentage)
     agreed to by Buyer and Seller or, in the absence of any such agreement, the
     percentage obtained by dividing the Market Value of the Purchased
     Securities on the Purchase Date by the Purchase Price on the Purchase Date
     for such Transaction;

(e)  "Confirmation", the meaning specified in Paragraph 3(b) hereof;

(f)  "Income", with respect to any Security at any time, any principal thereof
     and all interest, dividends or other distributions thereon;

(g)  "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;

(h)  "Margin Excess", the meaning specified in Paragraph 4(b) hereof;

(i)  "Margin Notice Deadline", the time agreed to by the parties in the relevant
     Confirmation, Annex I hereto or otherwise as the deadline for giving notice
     requiring same-day satisfaction of margin maintenance obligations as
     provided in Paragraph 4 hereof (or, in the absence of any such agreement,
     the deadline for such purposes established in accordance with market
     price);

(j)  "Market Value", with respect to any Securities as of any date, the price
     for such Securities on such date obtained from a generally recognized
     source agreed to by the parties or the most recent closing bid quotation
     from such a source, plus accrued Income to the extent not included therein
     (other than any Income credited or transferred to, or applied to the
     obligations of, Seller pursuant to Paragraph 5 hereof) as of such date
     (unless contrary to market practice for such Securities);

(k)  "Price Differential", with respect to any Transaction as of any date, the
     aggregate amount obtained by daily application of the Pricing Rate for such
     Transaction to the Purchase Price for such Transaction on a 360
     day-per-year basis for the actual number of days during the period
     commencing on (and including) the Purchase Date for such Transaction and
     ending on (but excluding) the date of determination (reduced by any amount
     of such Price Differential previously paid by Seller to Buyer with respect
     to such Transaction);

(l)  "Pricing Rate", the per annum percentage rate for determination of the
     Price Differential;


                                        2



(m)  "Prime Rate", the prime rate of U.S. money center commercial banks as
     published in The Wall Street Journal (or, if more than one such rate is
     published; the average of such rates);

(n)  "Purchase Date", the date on which Purchased Securities are transferred by
     Seller to Buyer;

(o)  "Purchase Price", (i) on the Purchase Date, the price at which Purchased
     Securities are transferred by Seller to Buyer, and (ii) thereafter, except
     where Buyer and Seller agree otherwise, such price increased by the amount
     of any cash transferred by Buyer to Seller pursuant to Paragraph 4(b)
     hereof and decreased by the amount of any cash transferred by Seller to
     Buyer pursuant to Paragraph 4(a) hereof or applied to reduce Seller's
     obligations under clause (ii) of Paragraph 5 hereof;

(p)  "Purchased Securities", the Securities transferred by Seller to Buyer in a
     Transaction hereunder, and any Securities substituted therefor in
     accordance with Paragraph 9 hereof. The term "Purchased Securities" with
     respect to any Transaction at any time also shall include Additional
     Purchased Securities delivered pursuant to Paragraph 4(a) hereof and shall
     exclude Securities returned pursuant to Paragraph 4(b) hereof;

(q)  "Repurchase Date", the date on which Seller is to repurchase the Purchased
     Securities from Buyer, including any date determined by application of the
     provisions of Paragraphs 3(c) or 11 hereof;

(r)  "Repurchase Price", the price at which Purchased Securities are to be
     transferred from Buyer to Seller upon termination of a Transaction, which
     will be determined in each case (including Transactions terminable upon
     demand) as the sum of the Purchase Price and the Price Differential as of
     the date of such determination.

(s)  "Seller's Margin Amount", with respect to any Transaction as of any date,
     the amount obtained by application of the Seller's Margin Percentage to the
     Repurchase Price for such Transaction as of such date;

(t)  "Seller's Margin Percentage", with respect to any Transaction as of any
     date, a percentage (which may be equal to the Buyer's Margin Percentage)
     agreed to by Buyer and Seller or, in the absence of any such agreement, the
     percentage obtained by dividing the Market Value of the Purchased
     Securities on the Purchase Date by the Purchase Price on the Purchase Date
     for such Transaction.

3. INITIATION; CONFIRMATION; TERMINATION

(a)  An agreement to enter into a Transaction may be made orally or in writing
     at the initiation of either Buyer or Seller. On the Purchase Date for the
     Transaction, the Purchased Securities shall be transferred to Buyer or its
     agent against the transfer of the Purchase Price to an account of Seller.

(b)  Upon agreeing to enter into a Transaction hereunder, Buyer or Seller (or
     both), as shall be agreed, shall promptly deliver to the other party a
     written confirmation of each Transaction (a "Confirmation"). The
     Confirmation shall describe the Purchased Securities (including CUSIP
     number, if any), identify Buyer and Seller and set forth (i) the Purchase
     Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the
     Transaction is to be terminable on demand, (iv) the Pricing Rate or
     Repurchase Price applicable to the Transaction, and (v) any additional
     terms or conditions of the Transaction not inconsistent with this
     Agreement. The Confirmation, together with this Agreement, shall constitute
     conclusive evidence of the terms agreed between Buyer and Seller with
     respect to the Transaction to which the Confirmation relates, unless with
     respect to the


                                        3



     Confirmation specific objection is made promptly after receipt thereof. In
     the event of any conflict between the terms of such Confirmation and this
     Agreement, this Agreement shall prevail.

(c)  In the case of Transactions terminable upon demand, such demand shall be
     made by Buyer or Seller, no later than such time as is customary in
     accordance with market practice, by telephone or otherwise on or prior to
     the business day on which such termination will be effective. On the date
     specified in such demand, or on the date fixed for termination in the case
     of Transactions having a fixed term, termination of the Transaction will be
     effected by transfer to Seller or its agent of the Purchased Securities and
     any Income in respect thereof received by Buyer (and not previously
     credited or transferred to, or applied to the obligations of, Seller
     pursuant to Paragraph 5 hereof) against the transfer of the Repurchase
     Price to an account of Buyer.

4. MARGIN MAINTENANCE

(a)  If at any time the aggregate Market Value of all Purchased Securities
     subject to all Transactions in which a particular party hereto is acting as
     Buyer is less than the aggregate Buyer's Margin Amount for all such
     Transactions (a "Margin Deficit"), then Buyer may by notice to Seller
     require Seller in such Transactions, at Seller's option, to transfer to
     Buyer cash or additional Securities reasonably acceptable to Buyer
     ("Additional Purchased Securities"), so that the cash and aggregate Market
     Value of the Purchased Securities, including any such Additional Purchased
     Securities, will thereupon equal or exceed such aggregate Buyer's Margin
     Amount (decreased by the amount of any Margin Deficit as of such date
     arising from any Transactions in which such Buyer is acting as Seller).

(b)  If at any time the aggregate Market Value of all Purchased Securities
     subject to all Transactions in which a particular party hereto is acting as
     Seller exceeds the aggregate Seller's Margin Amount for all such
     Transactions at such time (a "Margin Excess"), then Seller may by notice to
     Buyer require Buyer in such Transactions, at Buyer's option, to transfer
     cash or Purchased Securities to Seller, so that the aggregate Market Value
     of the Purchased Securities, after deduction of any such cash or any
     Purchased Securities so transferred, will thereupon not exceed such
     aggregate Seller's Margin Amount (increased by the amount of any Margin
     Excess as of such date arising from any Transactions in which the Seller is
     acting as Buyer).

(c)  If any notice is given by the Buyer or Seller under subparagraph (a) or (b)
     of this paragraph at or before the Margin Notice Deadline on any business
     day, the party receiving such notice shall transfer cash or Additional
     Purchased Securities as provided in such subparagraph no later than the
     close of business in the relevant market on such day. If any such notice is
     given after the Margin Notice Deadline, the party receiving such notice
     shall transfer such cash or Securities no later than the close of business
     in the relevant market on the next business day following such notice.

(d)  Any cash transferred pursuant to this Paragraph shall be attributed to such
     Transactions as shall be agreed upon by Buyer and Seller.

(e)  Seller and Buyer may agree, with respect to any or all Transactions
     hereunder, that the respective rights of Buyer or Seller (or both) under
     subparagraphs (a) and (b) of this Paragraph may be exercised only where a
     Margin Deficit or Margin Excess, as the case may be, exceeds a specified
     dollar amount or a specified percentage of the Repurchase Prices for such
     Transactions (which amount or percentage shall be agreed to by Buyer and
     Seller prior to entering into any such Transactions).


                                        4



(f)  Seller and Buyer may agree, with respect to any or all Transactions
     hereunder, that the respective rights of Buyer and Seller under
     subparagraphs (a) and (b) of this Paragraph to require the elimination of a
     Margin Deficit or a Margin Excess, as the case may be, may be exercised
     whenever such a Margin Deficit or Margin Excess exists with respect to any
     single Transaction hereunder (calculated without regard to any other
     Transaction outstanding under this Agreement).

5. INCOME PAYMENTS

     Seller shall be entitled to receive an amount equal to all Income paid or
     distributed on or in respect of the Securities that is not otherwise
     received by Seller, to the full extent it would be so entitled if the
     Securities had not been sold to Buyer. Buyer shall, as the parties may
     agree with respect to any Transaction (or, in the absence of any such
     agreement, as Buyer shall reasonably determine in its discretion), on the
     date such Income is paid or distributed either (i) transfer to or credit to
     the account of Seller such Income with respect to any Purchased Securities
     subject to such Transaction or (ii) with respect to Income paid in cash,
     apply the Income payment or payments to reduce the amount, if any, to be
     transferred to Buyer by Seller upon termination of such Transaction. Buyer
     shall not be obligated to take any action pursuant to the preceding
     sentence (A) to the extent that such action would result in the creation of
     a Margin Deficit, unless prior thereto or simultaneously therewith Seller
     transfers to Buyer cash or Additional Purchased Securities sufficient to
     eliminate such Margin Deficit, or (B) if an Event of Default with respect
     to Seller has occurred and is then continuing at the time such Income is
     paid or distributed.

6. SECURITY INTEREST

     Although the parties intend that all Transactions hereunder be sales and
     purchases and not loans, in the event any such Transactions are deemed to
     be loans, Seller shall be deemed to have pledged to Buyer as security for
     the performance by Seller of its obligations under each such Transaction,
     and shall be deemed to have granted to Buyer a security interest in, all of
     the Purchased Securities with respect to all Transactions hereunder and all
     Income thereon and other proceeds thereof.

7. PAYMENT AND TRANSFER

     Unless otherwise mutually agreed, all transfers of funds hereunder shall be
     in immediately available funds. All Securities transferred by one party
     hereto to the other party (i) shall be in suitable form for transfer or
     shall be accompanied by duly executed instruments of transfer or assignment
     in blank and such other documentation as the party receiving possession may
     reasonably request, (ii) shall be transferred on the book-entry system of a
     Federal Reserve Bank, or (iii) shall be transferred by any other method
     mutually acceptable to Seller and Buyer.

8. SEGREGATION OF PURCHASED SECURITIES

     To the extent required by applicable law, all Purchased Securities in the
     possession of Seller shall be segregated from other securities in its
     possession and shall be identified as subject to this Agreement.
     Segregation may be accomplished by appropriate identification on the books
     and records of the holder, including a financial or securities intermediary
     or a clearing corporation. All of Seller's interest in the Purchased
     Securities shall pass to Buyer on the Purchases Date and, unless otherwise
     agreed by Buyer and Seller, nothing in this Agreement shall preclude Buyer
     from engaging in repurchase transactions with the Purchased Securities or
     otherwise selling, transferring, pledging or hypothecating the Purchased
     Securities, but no such transaction shall relieve Buyer of its obligations
     to transfer Purchased Securities to Seller pursuant to Paragraphs 3, 4 or
     11 hereof, or of Buyer's obligation to credit or pay Income to, or apply
     Income to the obligations of, Seller pursuant to Paragraph 5 hereof.


                                        5



--------------------------------------------------------------------------------
REQUIRED DISCLOSURE FOR TRANSACTIONS IN WHICH THE SELLER RETAINS CUSTODY OF THE
PURCHASED SECURITIES

     Seller is not permitted to substitute other securities for those subject to
     this Agreement and therefore must keep Buyer's securities segregated at all
     times, unless in this Agreement Buyer grants Seller the right to substitute
     other securities. If Buyer grants the right to substitute, this means that
     Buyer's securities will likely be commingled with Seller's own securities
     during the trading day. Buyer is advised that, during any trading day that
     Buyer's securities are commingled with Seller's securities, they [will]*
     [may]** be subject to liens granted by Seller to [its clearing bank]*
     [third parties]** and may be used by Seller for deliveries on other
     securities transactions. Whenever the securities are commingled, Seller's
     ability to resegregate substitute securities for Buyer will be subject to
     Seller's ability to satisfy [the clearing]* [any]** lien or to obtain
     substitute securities.
--------------------------------------------------------------------------------

     *Language to be used under 17 C.F.R. Section 403.4(e) if Seller is a
     government securities broker or dealer other than a financial institution.

     **Language to be used under 17 C.F.R. Section 403.5(d) if Seller is a
     financial institution.

9. SUBSTITUTION

(a)  Seller may, subject to agreement with and acceptance by Buyer, substitute
     other Securities for any Purchased Securities. Such substitution shall be
     made by transfer to Buyer of such other Securities and transfer to Seller
     of such Purchased Securities. After substitution, the substituted
     Securities shall be deemed to be Purchased Securities.

(b)  In Transactions in which the Seller retains custody of Purchased
     Securities, the parties expressly agree that Buyer shall be deemed, for
     purposes of subparagraph (a) of this Paragraph, to have agreed to and
     accepted in this Agreement substitution by Seller of other Securities for
     Purchased Securities; provided, however, that such other Securities shall
     have a Market Value at least equal to the Market Value of the Purchased
     Securities for which they are substituted.

10. REPRESENTATIONS

     Each of Buyer and Seller represents and warrants to the other that (i) it
     is duly authorized to execute and deliver this Agreement, to enter into the
     Transactions contemplated hereunder and to perform its obligations
     hereunder and has taken all necessary action to authorize such execution,
     delivery and performance, (ii) it will engage in such Transactions as
     principal (or, if agreed in writing, in the form of an annex hereto or
     otherwise, in advance of any Transaction by the other party hereto, as
     agent for a disclosed principal), (iii) the person signing this Agreement
     on its behalf is duly authorized to do so on its behalf (or on behalf of
     any such disclosed principal), (iv) it has obtained all authorizations of
     any governmental body required in connection with this Agreement and the
     Transactions hereunder and such authorizations are in full force and effect
     and (v) the execution, delivery and performance of this Agreement and the
     Transactions hereunder will not violate any law, ordinance, charter, by-law
     or rule applicable to it or any agreement by which it is bound or by which
     any of its assets are affected. On the Purchase Date for any Transaction
     Buyer and Seller shall each be deemed to repeat all the foregoing
     representations made by it.

11. EVENTS OF DEFAULT

     In the event that (i) Seller fails to transfer or Buyer fails to purchase
     Purchased Securities upon the applicable Purchase Date, (ii) Seller fails
     to repurchase or Buyer fails to transfer Purchased Securities upon the
     applicable Repurchase Date, (iii) Seller or Buyer fails to comply with


                                        6



     Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to
     comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with
     respect to Seller or Buyer, (vi) any representation made by Seller or Buyer
     shall have been incorrect or untrue in any material respect when made or
     repeated or deemed to have been made or repeated, or (vii) Seller or Buyer
     shall admit to the other its inability to, or its intention not to, perform
     any of its obligations hereunder (each an "Event of Default"):

(a)  The nondefaulting party may, at its option (which option shall be deemed to
     have been exercised immediately upon the occurrence of an Act of
     Insolvency), declare an Event of Default to have occurred hereunder and,
     upon the exercise or deemed exercise of such option, the Repurchase Date
     for each Transaction hereunder shall, if it has not already occurred, be
     deemed immediately to occur (except that, in the event that the Purchase
     Date for any Transaction has not yet occurred as of the date of such
     exercise or deemed exercise, such Transaction shall be deemed immediately
     canceled). The nondefaulting party shall (except upon the occurrence of an
     Act of Insolvency) give notice to the defaulting party of the exercise of
     such option as promptly as practicable.

(b)  In all Transactions in which the defaulting party is acting as Seller, if
     the nondefaulting party exercises or is deemed to have exercised the option
     referred to in subparagraph (a) of this Paragraph, (i) the defaulting
     party's obligations in such Transactions to repurchase all Purchased
     Securities, at the Repurchase Price therefor on the Repurchase Date
     determined in accordance with subparagraph (a) of this Paragraph, shall
     thereupon become immediately due and payable, (ii) all Income paid after
     such exercise or deemed exercise shall be retained by the nondefaulting
     party and applied to the aggregate unpaid Repurchase Prices and any other
     amounts owing by the defaulting party hereunder, and (iii) the defaulting
     party shall immediately deliver to the nondefaulting party any Purchased
     Securities subject to such Transactions then in the defaulting party's
     possession or control.

(c)  In all Transactions in which the defaulting party is acting as Buyer, upon
     tender by the nondefaulting party of payment of the aggregate Repurchase
     Prices for all such Transactions, all right, title and interest in and
     entitlement to all Purchased Securities subject to such Transactions shall
     be deemed transferred to the nondefaulting party, and the defaulting party
     shall deliver all such Purchased Securities to the nondefaulting party.

(d)  If the nondefaulting party exercises or is deemed to have exercised the
     option referred to in subparagraph (a) of this paragraph, the nondefaulting
     party, without prior notice to the defaulting party, may:

     (i)  as to Transactions in which the defaulting party is acting as Seller,
          (A) immediately sell, in a recognized market (or otherwise in a
          commercially reasonable manner) at such price or prices as the
          nondefaulting party may reasonably deem satisfactory, any or all
          Purchased Securities subject to such Transactions and apply the
          proceeds thereof to the aggregate unpaid Repurchase Prices and any
          other amounts owing by the defaulting party hereunder or (B) in its
          sole discretion elect, in lieu of selling all or a portion of such
          Purchased Securities, to give the defaulting party credit for such
          Purchased Securities in an amount equal to the price therefor on such
          date, obtained from a generally recognized source or the most recent
          closing (ask/offer) quotation from such a source, against the
          aggregate unpaid Repurchase Prices and any other amounts owing by the
          defaulting party hereunder; and

     (ii) as to Transactions in which the defaulting party is acting as Buyer,
          (A) immediately purchase, in a recognized market (or otherwise in a
          commercially reasonable manner) at such price or prices as the
          nondefaulting party may reasonably deem satisfactory,


                                        7



          securities ("Replacement Securities") of the same class and amount as
          any Purchased Securities that are not delivered by the defaulting
          party to the nondefaulting party as required hereunder or (B) in its
          sole discretion elect, in lieu of purchasing Replacement Securities,
          to be deemed to have purchased Replacement Securities at the price
          therefor on such date, obtained from a generally recognized source or
          the most recent closing bid quotation from such a source.

     Unless otherwise provided in Annex I, the parties acknowledge and agree
     that (1) the Securities subject to any Transaction hereunder are
     instruments traded in a recognized market, (2) in the absence of a
     generally recognized source for prices or bid or offer quotations for any
     Security, the nondefaulting party may establish the source therefor in its
     sole discretion and (3) all prices, bids and offers shall be determined
     together with accrued Income (except to the extent contrary to market
     practice with respect to the relevant Securities).

(e)  As to Transactions in which the defaulting party is acting as Buyer, the
     defaulting party shall be liable to the nondefaulting party for any excess
     of the price paid (or deemed paid) by the nondefaulting party for
     Replacement Securities over the Repurchase Price for such Purchased
     Securities replaced thereby and for any amounts payable by the defaulting
     party under Paragraph 5 hereof or otherwise hereunder.

(f)  For purposes of this Paragraph 11, the Repurchase Price for each
     Transaction hereunder in respect of which the defaulting party is acting as
     Buyer shall not increase above the amount of such Repurchase Price for such
     Transaction determined as of the date of the exercise or deemed exercise by
     the nondefaulting party of its option under subparagraph (a) of this
     Paragraph.

(g)  The defaulting party shall be liable to the nondefaulting party for (i) the
     amount of all reasonable legal or other expenses incurred by the
     nondefaulting party in connection with or as a result of an Event of
     Default, (ii) damages in an amount equal to the cost (including all fees,
     expenses and commissions) of entering into replacement transactions and
     entering into or terminating hedge transactions in connection with or as a
     result of an Event of Default, and (iii) any other loss, dam-age, cost or
     expense directly arising or resulting from the occurrence of an Event of
     Default in respect of a Transaction.

(h)  To the extent permitted by applicable law, the defaulting party shall be
     liable to the nondefaulting party for interest on any amounts owing by the
     defaulting party hereunder, from the date the defaulting party becomes
     liable for such amounts hereunder until such amounts are (i) paid in full
     by the defaulting party or (ii) satisfied in full by the exercise of the
     nondefaulting party's rights hereunder. Interest on any sum payable by the
     defaulting party to the nondefaulting party under this Paragraph 11(h)
     shall be at a rate equal to the greater of the Pricing Rate for the
     relevant Transaction or the Prime Rate.

(i)  The nondefaulting party shall have, in addition to its rights hereunder,
     any rights otherwise available to it under any other agreement or
     applicable law.

12. SINGLE AGREEMENT

     Buyer and Seller acknowledge that, and have entered hereinto and will enter
     into each Transaction hereunder in consideration of and in reliance upon
     the fact that, all Transactions hereunder constitute a single business and
     contractual relationship and have been made in consideration of each other.
     Accordingly, each of Buyer and Seller agrees (i) to perform all of its
     obligations in respect of each Transaction hereunder, and that a default in
     the performance of any such obligations shall constitute a default by it in
     respect of all Transactions hereunder, (ii) that


                                        8



     each of them shall be entitled to set off claims and apply property held by
     them in respect of any Transaction against obligations owing to them in
     respect of any other Transactions hereunder and (iii) that payments,
     deliveries and other transfers made by either of them in respect of any
     Transaction shall be deemed to have been made in consideration of payments,
     deliveries and other transfers in respect of any other Transactions
     hereunder, and the obligations to make any such payments, deliveries and
     other transfers may be applied against each other and netted.

13. NOTICES AND OTHER COMMUNICATIONS

     Any and all notices, statements, demands or other communications hereunder
     may be given by a party to the other by mail, facsimile, telegraph,
     messenger, or otherwise to the address specified in Annex I to hereto, or
     so sent to such party at any other place specified in a notice of change of
     address hereafter received by the other. All notices, demands and requests
     hereunder may be made orally, to be confirmed promptly in writing, or by
     other communication as specified in the preceding sentence.

14. ENTIRE AGREEMENT; SEVERABILITY

     This Agreement shall supersede any existing agreements between the parties
     containing general terms and conditions for repurchase transactions. Each
     provision and agreement herein shall be treated as separate and independent
     from any other provision or agreement herein and shall be enforceable
     notwithstanding the unenforceability of any such other provision or
     agreement.

15. NON-ASSIGNABILITY; TERMINATION

(a)  The rights and obligations of the parties under this Agreement and under
     any Transaction shall not be assigned by either party without the prior
     written consent of the other party, and any such assignment without prior
     written consent of the other party shall be null and void. Subject to the
     foregoing, this Agreement and any Transactions shall be binding upon and
     shall inure to the benefit of the parties and their respective successors
     and assigns. This Agreement may be terminated by either party upon giving
     written notice to the other, except that this Agreement shall,
     notwithstanding such notice, remain applicable to any Transactions then
     outstanding.

(b)  Subparagraph (a) of this Paragraph 15 shall not preclude a party from
     assigning, charging or otherwise dealing with all or any part of its
     interest in any sum payable to it under Paragraph 11 hereof.

16. GOVERNING LAW

     This Agreement shall be governed by the laws of the State of New York
     without giving effect to the conflict of law principles thereof.

17. NO WAIVERS, ETC.

     No express or implied waiver of any Event of Default by either party shall
     constitute a waiver of any other Event of Default and no exercise of any
     remedy hereunder by any party shall constitute a waiver of its right to
     exercise any other remedy hereunder. No modification or waiver of any
     provision of this Agreement and no consent by any party to a departure
     herefrom shall be effective unless and until such shall be in writing and
     duly executed by both of the parties hereto. Without limitation on any of
     the foregoing, the failure to give a notice pursuant to Paragraph 4(a) or
     4(b) hereof will not constitute a waiver of any right to do so at a later
     date.

18. USE OF EMPLOYEE PLAN ASSETS

(a)  If assets of an employee benefit plan subject to any provision of the
     Employee Retirement Income Security Act of 1974 ("ERISA") are intended to
     be used by either party hereto (the "Plan


                                        9



     Party") in a Transaction, the Plan Party shall so notify the other party
     prior to the Transaction. The Plan Party shall represent in writing to the
     other party that the Transaction does not constitute a prohibited
     transaction under ERISA or is otherwise exempt therefrom, and the other
     party may proceed in reliance thereon but shall not be required so to
     proceed.

(b)  Subject to the last sentence of subparagraph (a) of this Paragraph, any
     such Transaction shall proceed only if Seller furnishes or has furnished to
     Buyer its most recent available audited statement of its financial
     condition and its most recent subsequent unaudited statement of its
     financial condition.

(c)  By entering into a Transaction pursuant to this Paragraph, Seller shall be
     deemed (i) to represent to Buyer that since the date of Seller's latest
     such financial statements, there has been no material adverse change in
     Seller's financial condition which Seller has not disclosed to Buyer, and
     (ii) to agree to provide Buyer with future audited and unaudited statements
     of its financial condition as they are issued, so long as it is the Seller
     in any outstanding Transaction involving a Plan Party.

19. INTENT

(a)  The parties recognize that each Transaction is a "repurchase agreement" as
     that term is defined in Section 101 of Title 11 of the United States Code,
     as amended (except insofar as the type of Securities subject to such
     Transaction or the term of such Transaction would render such definition
     inapplicable), and a "securities contract" as that term is defined in
     Section 741 of Title 11 of the United States Code, as amended (except
     insofar as the type of assets subject to such Transaction would render such
     definition inapplicable).

(b)  It is understood that either party's right to liquidate Securities
     delivered to it in connection with Transactions hereunder or to exercise
     any other remedies pursuant to Paragraph 11 hereof, is a contractual right
     to liquidate such Transaction as described in Sections 555 and 559 of Title
     11 of the United States Code, as amended.

(c)  The parties agree and acknowledge that if a party hereto is an "insured
     depository institution," as such term is defined in the Federal Deposit
     Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a
     "qualified financial contract," as that term is defined in the FDIA and any
     rules, orders or policy statements thereunder (except insofar as the type
     of assets subject to such Transaction would render such definition
     inapplicable).

(d)  It is understood that this Agreement constitutes a "netting contract" as
     defined in and subject to Title IV of the Federal Deposit Insurance
     Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement
     and payment obligation under any Transaction hereunder shall constitute a
     "covered contractual payment entitlement" or "covered contractual payment
     obligation", respectively, as defined in and subject to FDICIA except
     insofar as one or both of the parties is not a "financial institution" as
     that term is defined in FDICIA).

20. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS

     The parties acknowledge that they have been advised that:

(a)  in the case of Transactions in which one of the parties is a broker or
     dealer registered with the Securities and Exchange Commission ("SEC") under
     Section 15 of the Securities Exchange Act of 1934 ("1934 Act"), the
     Securities Investor Protection Corporation has taken the position that the
     provisions of the Securities Investor Protection Act of 1970 ("SIPA") do
     not protect the other party with respect to any Transaction hereunder;


                                       10



(b)  in the case of Transactions in which one of the parties is a government
     securities broker or a government securities dealer registered with the SEC
     under Section 15C of the 1934 Act, SIPA will not provide protection to the
     other party with respect to any Transaction hereunder; and

(c)  in the case of Transactions in which one of the parties is a financial
     institution, funds held by the financial institution pursuant to a
     Transaction hereunder are not a deposit and therefore are not insured by
     the Federal Deposit Insurance Corporation or the National Credit Union
     Share Insurance Fund, as applicable.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]


                                       11



     IN WITNESS WHEREOF, the parties have executed this Master Repurchase
Agreement by their duly authorized signatories as of the date hereof.

THE BUYER:                           WACHOVIA BANK, NATIONAL
                                     ASSOCIATION, a national banking association


                                     By: /s/ Joe Cannon
                                         ---------------------------------------
                                     Name: Joe Cannon
                                           -------------------------------------
                                     Title: Associate
                                            ------------------------------------

                                     Wachovia Bank, National Association
                                     One Wachovia Center, Mail Code: NC0166
                                     301 South College Street
                                     Charlotte, North Carolina 28288
                                     Attention:        Marianne Hickman
                                     Facsimile No.:    (704) 715-0066
                                     Confirmation No.: (704) 715-7818

                     [SIGNATURES CONTINUE ON FOLLOWING PAGE]


                                       12



THE SELLER:                          NRFC WA HOLDINGS, LLC,
                                     a Delaware limited liability company


                                     By: /s/ Daniel R. Gilbert
                                         ---------------------------------------
                                     Name: Daniel R. Gilbert
                                           -------------------------------------
                                     Title: Executive VP
                                            ------------------------------------

                                     Address for Notices:

                                     NRFC WA Holdings, LLC
                                     c/o NorthStar Realty Finance Corp.
                                     527 Madison Avenue
                                     New York, New York 10022
                                     Attention:        Mark E. Chertok
                                                       Richard McCready
                                                       Daniel R. Gilbert

                                     Facsimile No.:    (212) 208-2651
                                                       (212) 319-4558
                                     Confirmation No.: (212) 319-2618
                                                       (212) 319-2623
                                                       (212) 319-3679

                                     with a copy to:

                                     Paul Hastings Janofsky & Walker LLP
                                     75 East 55th Street
                                     New York, New York 10022
                                     Attention:        Robert J. Grados, Esq.
                                     Facsimile No.:    (212) 230-7830
                                     Confirmation No.: (212) 318-6923

                     [SIGNATURES CONTINUE ON FOLLOWING PAGE]


                                       13



THE GUARANTOR:                       NORTHSTAR REALTY FINANCE CORP.,
                                     a Maryland corporation


                                     By: /s/ Daniel R. Gilbert
                                         ---------------------------------------
                                     Name: Daniel R. Gilbert
                                           -------------------------------------
                                     Title: Executive VP
                                            ------------------------------------

                                     Address for Notices:

                                     NorthStar Realty Finance Corp.
                                     527 Madison Avenue
                                     New York, New York 10022
                                     Attention:        Mark E. Chertok
                                                       Richard McCready
                                                       Daniel R. Gilbert
                                     Facsimile No.:    (212) 208-2651
                                                       (212) 319-4558
                                     Confirmation No.: (212) 319-2618
                                                       (212) 319-2623
                                                       (212) 319-3679

                                     with a copy to:

                                     Paul Hastings Janofsky & Walker LLP
                                     75 East 55th Street
                                     New York, New York  10022
                                     Attention:        Robert J. Grados, Esq.
                                     Facsimile No.:    (212) 230-7830
                                     Confirmation No.: (212) 318-6923


                                       14



                                     ANNEX I

                        SUPPLEMENTAL TERMS AND CONDITIONS

     This Annex I (as amended, modified, restated, replaced, waived,
substituted, supplemented or extended from time to time, "Annex I") forms a part
of the Master Repurchase Agreement dated as of July 13, 2005 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from
time to time, the "Master Repurchase Agreement", and collectively with this
Annex I, the "Repurchase Agreement"), by and among WACHOVIA BANK, NATIONAL
ASSOCIATION, a national banking association, as the buyer (together with its
successors and assigns, the "Buyer"), NRFC WA HOLDINGS, LLC, a Delaware limited
liability company, as the seller (together with its successors and permitted
assigns, the "Seller"), and NORTHSTAR REALTY FINANCE CORP., a Maryland
corporation, as the guarantor (together with its successors and permitted
assigns, the "Guarantor"). To the extent that the terms of this Annex I conflict
with the terms of the Master Repurchase Agreement, the terms of this Annex I
shall control.

     1. DEFINITIONS.

     (a) Capitalized terms used but not defined herein shall have the meanings
set forth in the Master Repurchase Agreement. Reference to any Paragraph refers
to a paragraph under the Master Repurchase Agreement (as the same may be
modified by this Annex I), and reference to any Section refers to a section of
this Annex I to this Repurchase Agreement. In addition to the terms defined in
the Preamble to this Annex I, the following additional terms shall apply to this
Repurchase Agreement:

"AAA IO": A AAA rated bond that is "interest only," including any such bond
designated "X-C" or "X-P."

"Accepted Servicing Practices": With respect to each Purchased Item, those
mortgage, mezzanine loan and/or secured lending servicing practices, as
applicable, of prudent lending institutions that service Purchased Items of the
same type, size and structure as such Purchased Items in the jurisdiction where
the related Underlying Mortgaged Property is located, as applicable, but in any
event, (i) in accordance with the terms of the Repurchase Documents and
Applicable Law, (ii) without prejudice to the interests of the Buyer, (iii) with
a view to the maximization of the recovery on such Purchased Items on a net
present value basis, and (iv) without regard to (A) any relationship that the
Seller, the Guarantor and any Affiliate of the foregoing may have with the
related Borrower, mortgagor, the Seller, any servicer, any PSA Servicer or any
other party to the Repurchase Documents, the Mortgage Loan Documents or any
Affiliate of any of the foregoing; (B) the right of the Seller, the Guarantor or
any Affiliate of the foregoing to receive compensation or other fees for its
services rendered pursuant to this Repurchase Agreement, the Repurchase
Documents or any other document or agreement; (C) the ownership, servicing or
management by the Seller, the Guarantor or any Affiliate of the foregoing for
others of any other mortgage loans or mortgaged property; (D) any obligation of
the Seller, the Guarantor or any Affiliate of the foregoing to repurchase or
substitute a Purchased Item; (E) any obligation of the Seller, the Guarantor or
any Affiliate of the foregoing to cure a breach of a representation and warranty
with respect to a Purchased Item; and (F) any debt the Seller, the Guarantor or
any Affiliate has extended to any Borrower, mortgagor or any Affiliate of such
Borrower or mortgagor.

"Account Agreement": A letter agreement among the Seller, the Buyer and Wachovia
in the form of Exhibit III attached hereto.


                                    Annex I-1



"Accrual Period": With respect to the first Payment Date, the period from and
including the applicable Purchase Date to but excluding such first Payment Date,
and, with respect to any subsequent Payment Date, the period from and including
the previous Payment Date to but excluding such subsequent Payment Date.

"Act of Insolvency": With respect to a specified Person, (a) the filing of a
decree or order for relief by a court having jurisdiction in respect of such
Person or any substantial part of its Property in an involuntary case under any
applicable Insolvency Law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its Property, or ordering the
winding-up or liquidation of such Person's affairs, and such decree or order
shall remain unstayed and in effect for a period of sixty (60) consecutive days;
or (b) the commencement by such Person of a voluntary case under any applicable
Insolvency Law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due, or the taking
of action by such Person in furtherance of any of the foregoing.

"Additional Amount": Defined in Paragraph 3(j)(i) of this Repurchase Agreement.

"Additional Purchased Asset": An Eligible Asset transferred to the Buyer in a
satisfaction of a Margin Deficit pursuant to Paragraph 4(a) of this Repurchase
Agreement, which Additional Purchased Asset shall satisfy all requirements of,
and be transferred in accordance with the provisions of, this Repurchase
Agreement.

"Adjusted Eurodollar Rate": For any Eurodollar Period, a rate per annum equal to
a fraction, expressed as a percentage and rounded upwards (if necessary) to the
nearest 1/100 of 1%, (i) the numerator of which is equal to the Eurodollar Rate
for such Eurodollar Period and (ii) the denominator of which is equal to 100%
minus the Eurodollar Reserve Percentage for such Eurodollar Period.

"Advance Rate": With respect to a Mortgage Asset of a certain Class and, as
applicable, the applicable Type of Underlying Mortgaged Property, the "Maximum
Advance Rate" set forth in the applicable column on Schedule 1 to the Fee
Letter.

"Affected Party": The Buyer and all assignees, pledgees and participants of the
Buyer.

"Affiliate": With respect to a Person, means any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person, or is a director of such Person. For purposes of this definition,
"control" (including the terms "controlling," "controlled by" and "under common
control with") when used with respect to any specified Person means the
possession, direct or indirect, of the power to vote 20% or more of the voting
securities of such Person or to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.

"Agreement": Means, when referred to in the Master Repurchase Agreement, this
Repurchase Agreement.

"Aggregate Unpaids": At any time, an amount equal to the sum of the aggregate
Purchase Price outstanding for all Transactions, the aggregate Price
Differential outstanding, the aggregate Margin Deficits outstanding, Breakage
Costs (if any), Increased Costs (if any), Taxes (if any), Additional


                                    Annex I-2



Amounts (if any), Late Payment Fees (if any), any fee due under any fee letter
(including, without limitation, the Fee Letter and the Custodial Fee Letter) and
all other amounts owed by the Seller or any other Person to the Buyer, any
Affected Party or any other Person under or with respect to this Repurchase
Agreement, the Repurchase Documents or any Transaction entered into pursuant
thereto (whether due or accrued).

"ALTA": The American Land Title Association.

"Applicable Law": For any Person or Property of such Person, all existing and
future applicable laws, rules, regulations (including temporary and final income
tax regulations), statutes, treaties, codes, ordinances, permits, certificates,
orders and licenses of and interpretations by any Governmental Authority
(including, without limitation, usury laws, the Federal Truth in Lending Act, as
amended from time to time, and Regulation Z and Regulation B of the Board of
Governors of the Federal Reserve System), and applicable judgments, decrees,
injunctions, writs, awards or orders of any court, arbitrator or other
administrative, judicial or quasi-judicial tribunal or agency of competent
jurisdiction.

"Asset File Checklist": Defined in the Custodial Agreement.

"Asset Schedule and Exception Report": Defined in the Custodial Agreement.

"Asset Value": As of any date of determination for each Eligible Asset or
Purchased Asset, as applicable, with respect to a Mortgage Asset of a certain
Class, the lesser of (a) the product of the Book Value of such Eligible Asset
times the Advance Rate applicable thereto and (b) the product of the Market
Value of such Eligible Asset or Purchased Asset, as applicable, times the
Advance Rate, taking into account the LTV percentages applicable to such
Mortgaged Asset (if any) set forth on Schedule 1 to the Fee Letter; provided,
however, the Asset Value may be reduced in the Buyer's discretion by an amount
determined by the Buyer in its discretion (which amount may, in the Buyer's
discretion, be reduced to zero (0)), with respect to each Mortgage Asset or
Purchased Asset, as applicable (A) in respect of which one (1) or more
eligibility requirements set forth in Schedule 1 to this Repurchase Agreement is
not satisfied in any respect (assuming each such criteria is determined as of
the date the Asset Value is determined), in each case without regard to the
Seller's knowledge or lack of knowledge thereof and without regard to the
Seller's representations or warranties with respect to its knowledge or lack of
knowledge thereof, and, in the Buyer's determination in its discretion, the same
impacts, impairs or affects the Market Value or Book Value of such Mortgage
Asset or Purchased Asset, (B) in respect of which the complete Mortgage Asset
File has not been delivered to the Custodian within the time period required by
the Custodial Agreement, (C) which is a Table Funded Purchased Asset in respect
of which the Mortgage Asset File has not been delivered to the Custodian within
three (3) Business Days following the Purchase Date, or (D) which has been
released from the possession of the Custodian under the Custodial Agreement to
the Seller or an Affiliate for a period in excess of twenty (20) calendar days.

"Assignment": The transfer of all of the Seller's rights and interests under an
Eligible Asset pursuant to an assignment agreement among the Seller and the
Buyer, which agreement shall be in the form of Exhibit IX and is otherwise
satisfactory to the Buyer in its discretion.

"Assignment of Leases": With respect to any Mortgage, an assignment of leases
thereunder, notice of transfer or equivalent instrument in recordable form,
sufficient under the laws of the jurisdiction wherein the Underlying Mortgaged
Property is located to reflect the assignment of leases to the Buyer.

"Assignment of Mortgage": With respect to any Mortgage, an assignment of the
Mortgage, notice of transfer or equivalent instrument in recordable form,
sufficient under the laws of the jurisdiction wherein


                                    Annex I-3



the related Underlying Mortgaged Property is located to reflect the assignment
of the Mortgage to the Buyer.

"Availability": At any time, an amount equal to the positive excess (if any) of
(a) the Maximum Amount minus (b) the aggregate Purchase Price outstanding for
all Transactions on such day; provided, however, the Availability shall be zero
(0) (i) on and after the occurrence of the Commitment Expiration Date (including
any extensions thereof), (ii) while a Margin Deficit is outstanding, or (iii)
after an Event of Default has occurred and is continuing.

"Bailee": With respect to each Table Funded Purchased Asset, the related title
company, attorney or settlement agent, in each case, approved in writing by the
Buyer in its discretion.

"Bailee Agreement": The Bailee Agreement among the Seller, the Buyer and the
Bailee in the form of Annex 13 to the Custodial Agreement.

"Bailee's Trust Receipt": A Trust Receipt in the form of Attachment 2 to the
Bailee Agreement.

"Bankruptcy Code": The United States Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.), as amended from time to time.

"Base Rate": On any date, a fluctuating rate per annum equal to the lesser of
(a) the Prime Rate or (b) the Federal Funds Rate, plus 1.0%.

"Basic Mortgage Asset Files": Defined in the Custodial Agreement.

"Book Value": With respect to any Mortgage Asset at any time, an amount, as
certified by the Seller, equal to the lesser of (a) face or par value and (b)
the price that the Seller initially paid or advanced for or in respect of such
Mortgage Asset, as such Book Value may be marked down by the Seller from time to
time, including, as applicable, from any loss/price adjustments, less an amount
equal to the sum of all principal payments, prepayments or paydowns paid and
realized losses recognized relating to such Mortgage Asset; provided, however,
any such markdowns or adjustments must be made in good faith and shall be
disclosed contemporaneously therewith in writing to the Buyer, which mark downs
or adjustments, without a corresponding payment and application of principal,
may result in a Margin Deficit.

"Borrower": Collectively (and individually as the context may expressly provide
or require), the borrowers, obligors or debtors under a Mortgage Asset,
including, but not limited to, any guarantor thereof, the borrowers, obligors or
debtors of any debt, including any guarantor thereof, senior to the Mortgage
Asset, including obligors, debtors and guarantors with respect to the debt
secured by any Underlying Mortgaged Property, and any Person that has not signed
the related Mortgage Note, Junior Interest Note or other note, certificate or
instrument but owns an interest in the related Underlying Mortgaged Property,
which interest has been encumbered to secure such Mortgage Asset.

"Borrower Reserve Payments": Any payments made by a Borrower under the
applicable Mortgage Loan Documents which, pursuant to the terms of such Mortgage
Loan Documents, are required to be deposited into escrow or into a reserve to be
used for a specific purpose (e.g., tax and insurance escrows).

"Breakage Costs": Any amount or amounts as shall compensate the Buyer or any
Affected Party for any loss, cost or expense incurred by the Buyer or any
Affected Party (as determined by the Buyer in its discretion) as a result of a
prepayment by the Seller or the Guarantor of all or any portion of any
Repurchase Price and any losses, costs and/or expenses that the Buyer or any
Affected Party may sustain


                                    Annex I-4



or incur arising from the reemployment of funds obtained by the Buyer or any
Affected Party hereunder or from fees payable to terminate the deposits from
which such funds were obtained.

"Bridge Loan": A performing Whole Loan that is otherwise an Eligible Asset
except that the Underlying Mortgaged Property is not stabilized or is otherwise
considered to be in a transitional state, which exceptions shall be disclosed in
writing to the Buyer and such exceptions must be acceptable to the Buyer in its
discretion, which acceptance may, in the Buyer's discretion, be conditioned on
additional terms, conditions and requirements with respect to such Bridge Loan.

"Business Day": Any day other than a Saturday or a Sunday on which (a) banks are
not required or authorized to be closed in Charlotte, North Carolina, and (b) if
the term "Business Day" is used in connection with the determination of the
Eurodollar Rate, dealings in United States dollar deposits are carried on in the
London interbank market.

"Buyer's Account": The account of the Buyer identified on Schedule 2.

"Capital Lease Obligations": For any Person and its Consolidated Subsidiaries,
all obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Repurchase Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP.

"Capital Stock": With respect to any Person, any share of capital stock of (or
other ownership, equity or profit interests in) such Person, any warrant, option
or other right for the purchase or other acquisition from such Person of any
share of capital stock of (or other ownership, equity or profit interests in)
such Person, any security convertible into or exchangeable for any share of
capital stock of (or other ownership, equity or profit interests in) such Person
or warrant, right or option for the purchase or other acquisition from such
Person of such shares (or such other interests), and any other ownership or
profit interest in such Person (including, without limitation, partnership,
member or trust interests therein), whether voting or nonvoting, and whether or
not such share, warrant, option, right or other interest is authorized or
otherwise existing on any date of determination.

"Cash Collateral": The cash received by the Buyer in satisfaction of a Margin
Deficit or as Income on Purchased Assets.

"Cash Equivalents": As to any Person, (i) securities issued or directly and
fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than one
year from the date of acquisition, (ii) time deposits or certificates of deposit
of any commercial bank incorporated under the laws of the United States or any
state thereof, of recognized standing having capital and unimpaired surplus in
excess of $1,000,000,000 and whose short-term commercial paper rating at the
time of acquisition is at least A-1 or the equivalent thereof by S&P or at least
P-1 or the equivalent thereof by Moody's (any such bank, an "Approved Bank"),
with such deposits or certificates having maturities of not more than one year
from the date of acquisition, (iii) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(i) and (ii) above entered into with any Approved Bank, (iv) commercial paper or
finance company paper issued by any Person incorporated under the laws of the
United States or any state thereof and rated at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody's, and in each
case maturing not more than one year after the date of acquisition, and (v)
investments in money market funds that are registered under the 40 Act, which
have net assets of at least $1,000,000,000 and at least 85% of


                                    Annex I-5



whose assets consist of securities and other obligations of the type described
in clauses (i) through (iv) above. All such Cash Equivalents must be denominated
solely for payment in Dollars.

"Class": With respect to a Mortgage Asset, such Mortgage Asset's classification
as a Whole Loan, a Junior Interest, a Mezzanine Loan, a Bridge Loan, a CMBS
Security, a CTL Loan, a Subordinate CTL Loan or Senior Secured Bank Debt.

"Closing Date": July 13, 2005.

"CMBS Security": A performing fixed or floating rate mortgage-backed
pass-through certificate, representing a beneficial ownership interest in one or
more first lien mortgage loans secured by Commercial Real Estate, rated by at
least two (2) Rating Agencies as AAA (including AAA IO), AA+, AA, AA-, A+, A,
A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B or B-.

"Code": The Internal Revenue Code of 1986, as amended from time to time.

"Collection Account": The deposit account identified on Schedule 2 established
in the name of the Buyer into which all Income and Cash Collateral shall be
deposited, which account shall be subject to the Account Agreement. Funds in the
Collection Account may be invested at the direction and in the discretion of the
Buyer in Permitted Investments for the benefit of the Seller.

"Commercial Real Estate": Any real estate included in the definition of Type.

"Commercial Real Estate Loan": Any loan secured directly or indirectly by
Commercial Real Estate or, as applicable, ownership interests in an entity that
owns directly or indirectly Commercial Real Estate.

"Commitment Expiration Date": The earlier of (a) the date that is 364 days
immediately following the Closing Date, as the same may be extended in
accordance with the terms of Paragraph 3(d) of this Repurchase Agreement, or (b)
the Business Day designated by the Seller to the Buyer as the expiration date at
any time following two (2) Business Days' prior written notice to the Buyer.

"Commitment Fee": The "Commitment Fee" payable under the Fee Letter.

"Commitment Period": The period commencing on the Closing Date and terminating
on the Commitment Expiration Date, as such Commitment Expiration Date may be
extended in accordance with Paragraph 3(d) of this Repurchase Agreement.

"Compliance Certificate": Defined in Section 3(b)(vi) of this Repurchase
Agreement.

"Confirmation": A purchase confirmation in the form attached to this Repurchase
Agreement as Exhibit B duly executed, completed and delivered by the Seller in
accordance with the provisions of Paragraph 3(a)(iii) of this Repurchase
Agreement.

"Consolidated Adjusted EBITDA": For any period, with respect to any Person, the
sum, without duplication, for such period of (a) the Net Income of such Person
and its Consolidated Subsidiaries determined on a consolidated basis for such
period, (b) the sum of the provisions for such period for income taxes, interest
expense, and depreciation and amortization expense used in determining such Net
Income for such Person and its Consolidated Subsidiaries, (c) amounts deducted
in accordance with GAAP in respect of other non-cash expenses in determining
such Net Income for such Person and its Consolidated Subsidiaries and (d) the
amount of any aggregate net loss (or minus the amount of any gain)


                                    Annex I-6



during such period arising from the sale, exchange or other disposition of
capital assets by such Person and its Consolidated Subsidiaries determined on a
consolidated basis.

"Consolidated Subsidiaries": An as of any date and for any Person, any
Subsidiary or other entities that are consolidated with such Person in
accordance with GAAP.

"Contingent Liabilities": Means, with respect to any Person and its Consolidated
Subsidiaries (without duplication): (i) liabilities and obligations (including
any Guarantee Obligations) of such Person, any Subsidiary or any other Person in
respect of "off-balance sheet arrangements" (as defined in the SEC Off-Balance
Sheet Rules), (ii) any obligation, including, without limitation, any Guarantee
Obligation, whether or not required to be disclosed in the footnotes to such
Person's financial statements, guaranteeing partially or in whole any
Non-Recourse Indebtedness, lease, dividend or other obligation, exclusive of
contractual indemnities (including, without limitation, any indemnity or
price-adjustment provision relating to the purchase or sale of securities or
other assets) and guarantees of non-monetary obligations (other than guarantees
of completion, environmental indemnities and guarantees of customary carve-out
matters made in connection with Non-Recourse Indebtedness, such as (but not
limited to) fraud, misappropriation, bankruptcy and misapplication) which have
not yet been called on or quantified, of such Person or of any other Person, and
(iii) any forward commitment or obligation to fund or provide proceeds with
respect to any loan or other financing which is obligatory and non-discretionary
on the part of the lender. The amount of any Contingent Liabilities described in
clause (ii) shall be deemed to be, (a) with respect to a guarantee of interest
or interest and principal, or operating income guarantee, the sum of all
payments required to be made thereunder (which, in the case of an operating
income guarantee, shall be deemed to be equal to the debt service for the note
secured thereby), through, (x) in the case of an interest or interest and
principal guarantee, the stated date of maturity of the obligation (and
commencing on the date interest could first be payable thereunder), or (y) in
the case of an operating income guarantee, the date through which such guarantee
will remain in effect, and (b) with respect to all guarantees not covered by the
preceding clause (a), an amount equal to the stated or determinable amount of
the primary obligation in respect of which such guarantee is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as recorded on
the balance sheet and on the footnotes to the most recent financial statements
of such Person. As used in this definition, the term "SEC Off-Balance Sheet
Rules" means the Disclosure in Management's Discussion and Analysis About
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Securities
Act Release Nos. 33-8182; 34-47264; FR-67 International Series Release No. 1266
File No. S7-42-02, 68 Fed. Reg. 5982 (Feb. 5, 2003) (codified at 17 CFR pts.
228, 229 and 249).

"Contractual Obligation": With respect to any Person, any provision of any
securities issued by such Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which such
Person is a party or by which it or any of its Property is bound or is subject.

"CTL Loan": A performing Whole Loan secured by a first priority perfected
security interest in Commercial Real Estate 100% leased under a Credit Tenant
Lease to, or guaranteed in full by, a Credit Tenant and all payments due under
such Credit Tenant Lease, and such CTL Loan satisfies such additional
underwriting criteria and other terms, conditions and requirements as the Buyer
may require in its discretion.

"Credit Tenant": The tenant or guarantor under a Credit Tenant Lease with a
credit rating of BBB- or better by at least two (2) Rating Agencies.


                                    Annex I-7



"Credit Tenant Lease": A financeable lease of Commercial Real Estate, which
lease is a triple net lease (i.e., the tenant is responsible for all
maintenance, insurance and taxes), a double net lease (i.e., the tenant is
responsible for all taxes and insurance) or is a bondable lease.

"Current Appraisal": An appraisal dated within twelve (12) months of the date of
determination; provided, however, (i) in the case of the valuation of an
Underlying Mortgaged Property, such appraisal shall be a FIRREA Appraisal and
(ii) in the case of the valuation of a Mortgage Asset, such appraisal shall be
from a nationally recognized appraisal firm (other than the Seller, the
Guarantor or any Affiliate of the foregoing) (A) with substantial experience
valuing assets similar in type, size and structure to the Mortgage Asset in
question, (B) having substantial familiarity with the market for such Mortgage
Asset and (C) that is otherwise acceptable to the Buyer in its discretion.

"Custodial Agreement": That Custodial Agreement, dated as of even date herewith,
by and among the Buyer, the Seller and the Custodian, as the same shall be
amended, modified, waived, supplemented, extended, replaced or restated from
time to time.

"Custodial Fee Letter": The Custodial Fee Letter (if any), dated as of even date
herewith, among the Seller and the Custodian, as such letter may be amended,
modified, waived, supplemented, extended, restated or replaced from time to
time.

"Custodial Identification Certificate": Defined in the Custodial Agreement.

"Custodian": Wells Fargo Bank, National Association, and its successor in
interest as the custodian under the Custodial Agreement, and any successor
Custodian under the Custodial Agreement.

"Debt Service Coverage Ratio" or "DSCR": With respect to any Mortgage Asset or
Purchased Asset, as applicable, as of any date of determination, for the period
of time to be determined by the Buyer in its reasonable discretion (it being
understood that it is the Buyer's intent to make the determination based on the
period of twelve (12) consecutive complete calendar months preceding such date
(or, if such Mortgage Asset was originated less than twelve (12) months from the
date of determination, the number of months from the date of origination), the
ratio of (a) the aggregate Net Cash Flow in respect of the Underlying Mortgaged
Properties relating to such Mortgage Asset or Purchased Asset, as applicable,
for such period to (b) the sum of (i) the aggregate amount of all amounts due
for such period in respect of all Indebtedness that was outstanding from time to
time during such period that is secured, directly or indirectly, by such
Underlying Mortgaged Properties (including, without limitation, by way of a
pledge of the equity of the owner(s) of such Underlying Mortgaged Properties) or
that is otherwise owing by the owner(s) of such Underlying Mortgaged Properties,
including, without limitation, all scheduled principal and/or interest payments
due for such period in respect of each Mortgage Asset or Purchased Asset, as
applicable, that is secured or supported by such Underlying Mortgaged Properties
plus (ii) the amount of all Ground Lease payments to be made in respect of such
Underlying Mortgaged Properties during such period, as any of the foregoing
elements of DSCR may be adjusted by the Buyer as determined by the Buyer in its
discretion; provided, however, that, with respect to Junior Interests, Mezzanine
Loans, Bridge Loans and Subordinate CTL Loans that are also Junior Interests or
Mezzanine Loans, all such calculations shall be made taking into account any
senior or pari passu debt or other obligations, including debt or other
obligations secured directly or indirectly by the applicable Underlying
Mortgaged Property; provided, further, however, the DSCR shall not be less than
the Minimum DSCR.

"Default": Any event which, with, as applicable, the giving of notice or the
lapse of time or both, would constitute an Event of Default.


                                    Annex I-8



"Defaulted Mortgage Asset": Any Mortgage Asset (a) that is ninety (90) days or
more delinquent or (b) for which there is a non-monetary default (beyond any
applicable notice and cure period) under the related Mortgage Loan Documents.

"Delinquent Mortgage Asset": A Mortgage Asset that is thirty (30) or more days,
but less than ninety (90) days, delinquent under the related Mortgage Loan
Documents.

"Derivatives Contract": Any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, equity or equity index swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions,
currency options, spot contracts, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of
the foregoing), whether or not any such transaction is governed by or subject to
any master agreement. Not in limitation of the foregoing, the term "Derivatives
Contract" includes any and all transactions of any kind, and the related
confirmations, which are subject to the terms and conditions of, or governed by,
any form of master agreement published by the International Swaps and
Derivatives Association, Inc., any International Foreign Exchange Master
Agreement, or any other master agreement, including any such obligations or
liabilities under any such master agreement.

"Derivatives Termination Value": Means, in respect of any one or more
Derivatives Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Derivatives Contracts, (a) for
any date on or after the date such Derivatives Contracts have been closed out
and termination value(s) determined in accordance therewith, such termination
value(s), and (b) for any date prior to the date referenced in clause (a), the
amount(s) determined as the mark-to-market value(s) for such Derivatives
Contracts, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Derivatives
Contracts (which may include the Buyer).

"Dollars" and "$": Lawful money of the United States.

"Electronic Transmission": The delivery of information and executed documents in
an electronic format acceptable to the applicable recipient thereof.

"Eligible Asset": A Mortgage Asset that, as of any date of determination, (i) is
not a Defaulted Mortgage Asset or Delinquent Mortgage Asset; (ii) satisfies each
of the eligibility criteria set forth on Schedule 1 hereto in all material
respects; (iii) with respect to the portion of such Mortgage Asset to be
acquired by the Buyer, the funding obligations have been satisfied in full and
there is no unfunded commitment with respect thereto (unless otherwise approved
by the Buyer in its discretion); (iv) has been approved in writing by the Buyer
in its discretion; (v) has, to the extent applicable, an LTV not in excess of
the Maximum LTV; (vi) has, to the extent applicable, a DSCR equal to or greater
than the Minimum DSCR; (vii) is not a construction loan; (viii) is not a loan to
an operating business (other than a hotel); (ix) the purchase of such Eligible
Asset will not violate any applicable Sub-Limit; (x) the Underlying Mortgage
Property and the Borrower and its Affiliates are domiciled in the United States;
and (xi) such Mortgage Asset is denominated and payable in Dollars; provided,
however, notwithstanding a Mortgage Asset's failure to conform to the criteria
set forth above (including, without limitation, a Mortgage Asset with a single
or split rating by a Rating Agency), the Buyer may, in its discretion and
subject to such terms, conditions and requirements and Advance Rate and Pricing
Spread adjustments as the Buyer may require in its discretion, designate in
writing any such non-compliant Mortgage Asset as an Eligible Asset, which
designation shall not be deemed a waiver of the requirement that all other
Purchased Assets and all other


                                    Annex I-9



Mortgage Assets submitted for purchase by the Buyer, whether existing or in the
future, must be Eligible Assets.

"Engagement Letter": That certain letter agreement, dated as of June 2, 2005,
among the Buyer and the Seller, as the same may be amended, modified, restated,
replaced, waived, substituted, supplemented or extended from time to time.

"Environmental Laws": Any and all Applicable Laws and all other foreign,
federal, state and local laws, statutes, ordinances, rules, regulations,
permits, licenses, approvals, interpretations and orders of courts or
Governmental Authorities, relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of hazardous materials. Environmental Laws include, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. Section 331 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.), the Safe Drinking Water Act (42 U.S.C. Section 300, et seq.), the
Environmental Protection Agency's regulations relating to underground storage
tanks (40 C.F.R. Parts 280 and 281), and the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.), and the rules and regulations thereunder, each
as amended, modified, waived, supplemented, extended, restated or replaced from
time to time.

"Equity Interests": Defined in the Pledge and Security Agreement.

"ERISA": The Employee Retirement Income Security Act of 1974, as the same are
amended from time to time, and the regulations promulgated and rulings issued
thereunder, as the same are amended from time to time.

"ERISA Affiliate": (a) Any corporation that is a member of the same controlled
group of corporations (within the meaning of Section 414(b) of the Code) as the
Seller or the Guarantor, (b) a trade or business (whether or not incorporated)
under common control (within the meaning of Section 414(c) of the Code) with the
Seller or the Guarantor, or (c) a member of the same affiliated service group
(within the meaning of Section 414(m) of the Code) as the Seller, the Guarantor,
any corporation described in clause (a) above or any trade or business described
in clause (b) above.

"Eurocurrency Liabilities": Defined in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect and amended from time to time.

"Eurodollar Disruption Event": The occurrence of any of the following: (a) the
Buyer or any other Affected Party has determined that it would be contrary to
law or to the directive of any central bank or other Governmental Authority
(whether or not having the force of law) to obtain United States dollars in the
London interbank market to fund any Transaction, (b) the inability, for any
reason, of the Buyer or any other Affected Party to determine the Adjusted
Eurodollar Rate, (c) the Buyer or any other Affected Party shall have determined
that the rate at which deposits of United States dollars are being offered to
the Buyer or any other Affected Party in the London interbank market does not
accurately reflect the cost to the Buyer or such other Affected Party of making,
funding or maintaining any Transaction, or (d) the inability of the Buyer or any
other Affected Party to obtain United States dollars in the London interbank
market to make, fund or maintain any Transaction.

"Eurodollar Period": With respect to any Transaction, (i) initially, the period
commencing on the Purchase Date with respect to such Transaction and ending on
the earlier of (x) the related Repurchase


                                   Annex I-10



Date and (y) one-month from such Purchase Date, and (ii) thereafter, each period
commencing on the day following the last day of the preceding Eurodollar Period
applicable to such Transaction and ending on the earliest of (x) the related
Repurchase Date, (y) the date that is one-month thereafter, or (z) the Facility
Maturity Date.

"Eurodollar Rate": With respect to each Eurodollar Period during which a
Transaction is outstanding, the rate per annum equal to the rate appearing at
page 3750 of the Telerate Screen as one-month LIBOR, at or about 9:00 a.m.,
Charlotte, North Carolina time, three (3) Business Days prior to the beginning
of such Eurodollar Period (and if such date is not a Business Day, the
Eurodollar Rate in effect on the Business Day immediately preceding such date),
or, if no such rate appears on Telerate page 3750 at such time and day, then the
Eurodollar Rate shall be determined by Wachovia at its principal office in
Charlotte, North Carolina as its rate (each such determination, absent manifest
error, to be conclusive and binding on all parties hereto and their assignees)
at which thirty (30) day deposits in United States Dollars are being, have been,
or would be offered or quoted by Wachovia to major banks in the applicable
interbank market for Eurodollar deposits at or about 11:00 a.m. on such day. The
Buyer's determination of Eurodollar Rate shall be conclusive upon the parties
absent manifest error on the part of the Buyer.

"Eurodollar Reserve Percentage": For any period means the percentage, if any,
applicable during such period (or, if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such period
during which any such percentage shall be so applicable) under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any basic, emergency, supplemental, marginal or other
reserve requirements) with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities having a term equal to the applicable
Eurodollar Period.

"Event of Default": Defined in Paragraph 11 of this Repurchase Agreement.

"Exception": Defined in the Custodial Agreement.

"Excepted Persons": Defined in Section 14(a) of this Repurchase Agreement.

"Exchange Act": The Securities Exchange Act of 1934, as amended from time to
time.

"Extension Fee": Defined in the Fee Letter.

"Facility": The facility evidenced by and the Transactions contemplated under
the Repurchase Documents.

"Facility Maturity Date": Subject to Paragraph 11 of the Repurchase Agreement,
the earlier of (a) July 12, 2008, as such original Facility Maturity Date may be
extended pursuant to Paragraph 3(c) of this Repurchase Agreement or (b) the date
on which this Repurchase Agreement shall terminate in accordance with the
provisions hereof or by operation of Applicable Law.

"Federal Funds Rate": For any period, a fluctuating interest rate per annum
equal for each day during such period to the weighted average of the overnight
federal funds rates as in Federal Reserve Board Statistical Release H.15(519) or
any successor or substitute publication selected by the Buyer (or, if such day
is not a Business Day, for the next succeeding Business Day), or, if, for any
reason, such rate is not available on any day, the rate determined, in the sole
opinion of the Buyer, to be the rate at which overnight federal funds are being
offered in the national federal funds market at 9:00 a.m.


                                   Annex I-11



"Fee Letter": The Fee Letter, dated as of even date herewith, between the Buyer
and the Seller, as amended, modified, waived, supplemented, extended, restated
or replaced from time to time.

"Financial Covenants": The covenants contained in Section 5(s).

"FIRREA Appraisal": An appraisal prepared by an independent third party
appraiser approved in writing by the Buyer in its discretion and satisfying the
requirements of Title XI of the Federal Institutions, Reform, Recovery and
Enforcement Act of 1989 and the regulations promulgated thereunder (as the
foregoing are amended, modified, restated, replaced, waived, substituted,
supplemented or extended from time to time), as in effect on the date of such
appraisal.

"Fitch": Fitch Ratings, Inc.

"Foreclosed Loan": A loan the security for which has been foreclosed upon by the
applicable Person.

"40 Act": The Investment Company Act of 1940, as amended from time to time.

"GAAP": Generally accepted accounting principles as in effect from time to time
in the United States, consistently applied.

"Governing Documents": As to any Person, as applicable, the articles or
certificate of incorporation or formation, by-laws, limited liability company
agreement, general partnership agreement, limited partnership agreement, trust
agreement, joint venture agreement, resolutions and other applicable
organizational or governing documents of such Person.

"Governmental Authority": Any nation or government, any state or other political
subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, any body or entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
any court or arbitrator having jurisdiction over such Person, any of its
Subsidiaries or any of its Properties, and any accounting board or authority
(whether or not a part of government) that is responsible for the establishment
or interpretation of national or international accounting principles, in each
case whether foreign or domestic.

"Ground Lease": With respect to any Commercial Real Estate Loan for which the
Borrower has a leasehold interest in the related Underlying Mortgaged Property
or space lease within such Underlying Mortgaged Property, the lease agreement
creating such leasehold interest.

"Guarantee Obligation": Means, as to any Person (the "guaranteeing person"),
without duplication, any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under any letter of
credit) to induce the creation of the obligations for which the guaranteeing
person has issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends, Contractual Obligation, Derivatives Contract or other obligations
(the "primary obligations") of any other third Person (the "primary obligor") in
any manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for the purchase
or payment of any such primary obligation or (2) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; provided, however, that


                                   Annex I-12



the term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be deemed to be the
maximum stated amount of the primary obligation relating to such Guarantee
Obligation (or, if less, the maximum stated liability set forth in the
instrument embodying such Guarantee Obligation); provided, however, that in the
absence of any such stated amount or stated liability, the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as reasonably determined by such Person
in good faith.

"Guarantor": NorthStar Realty Finance Corp., as the guarantor under the
Guaranty, together with its successors and permitted assigns.

"Guaranty": The Limited Guaranty, dated as of the date hereof, executed by the
Guarantor in favor of the Buyer, as such agreement is amended, modified,
restated, replaced, waived, substituted, supplemented or extended from time to
time.

"Income": With respect to each Purchased Item, at any time, all of the
following: collections, prepayments, recoveries, insurance and condemnation
proceeds and all other payments or proceeds on or in respect of the Purchased
Assets to which the Seller or the holder thereof is entitled, including, without
limitation, any principal thereof then payable and all interest, fees,
prepayment fees, premiums, extension fees, exit fees, yield maintenance charges,
defeasance fees, transfer fees, penalties, default interest, late fees, late
charges, dividends, gains, receipts, allocations, profits, payments in kind,
returns or repayment of contributions and all other distributions and payments
of any kind or nature whatsoever payable thereon, in connection therewith, or
with respect thereto and amounts received from any Interest Rate Protection
Agreement, including, without limitation, Net Swap Receipts and Swap Breakage
Receipts, provided, however, Income shall not include any Borrower Reserve
Payments unless the Seller, a Servicer or a PSA Servicer has exercised rights
with respect to such payments under the terms of the related Mortgage Loan
Documents, the Servicing Agreements or the Pooling and Servicing Agreements, as
applicable.

"Increased Costs": Any amounts required to be paid by the Seller to any Affected
Party pursuant to Paragraph 3(i) of this Repurchase Agreement.

"Indebtedness": Means, with respect to any Person and its Consolidated
Subsidiaries determined on a consolidated basis, at the time of computation
thereof, all of the following (without duplication): (a) all obligations of such
Person in respect of money borrowed (including without limitation principal,
interest, assumption fees, prepayment fees, yield maintenance charges,
penalties, contingent interest and all other monetary obligations whether choate
or inchoate); (b) all obligations of such Person, whether or not for money
borrowed (i) represented by notes payable, letters of credit, or drafts
accepted, in each case representing extensions of credit, (ii) evidenced by
bonds, debentures, notes or similar instruments, (iii) constituting purchase
money indebtedness, conditional sales contracts, title retention debt
instruments or other similar instruments, upon which interest charges are
customarily paid or that are issued or assumed as full or partial payment for
property or services rendered or (iv) in connection with the issuance of
preferred equity or trust preferred securities; (c) Capital Lease Obligations of
such Person; (d) all Off-Balance Sheet Obligations of such Person (other than
non-recourse indebtedness incurred in connection with any CDO securitization
transaction); (e) all obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any Mandatory Redeemable
Stock issued by such Person or any other Person (inclusive of forward equity
contracts), valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends; (f) as applicable, all obligations
of such Person (but not the obligation of others) in respect of any keep well
arrangements, credit enhancements, contingent or future funding obligations
under any Eligible Asset or any obligation senior to the Eligible Asset,
unfunded interest reserve amount under any Eligible Asset or any obligation


                                   Annex I-13



that is senior to the Eligible Asset, purchase obligation, repurchase
obligation, takeout commitment or forward equity commitment, in each case
evidenced by a binding agreement (excluding any such obligation to the extent
the obligation can be satisfied by the issuance of Capital Stock (other than
Mandatory Redeemable Stock)); (g) net obligations under any Derivative Contract
not entered into as a hedge against existing Indebtedness, in an amount equal to
the Derivatives Termination Value thereof; (h) all Indebtedness of other Persons
which such Person has guaranteed or is otherwise recourse to such Person (except
for guaranties of customary exceptions for fraud, misapplication of funds,
environmental indemnities and other similar exceptions to recourse liability
(but not exceptions relating to bankruptcy, insolvency, receivership or other
similar events)); (i) all Indebtedness of another Person secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien (other than certain Permitted Liens) on
property or assets owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness or other payment
obligation; provided, however, if such Person has not assumed or become liable
for the payment of such Indebtedness, then for the purposes of this definition
the amount of such Indebtedness shall not exceed the market value of the
property subject to such Lien).

"Indemnified Party": Defined in Section 11(a) of this Repurchase Agreement.

"Indemnified Amounts": Defined in Section 11(a) of this Repurchase Agreement.

"Independent Director": A natural Person who (a) is not at the time of initial
appointment as Independent Director, and may not have been at any time during
the five (5) years preceding such initial appointment or at any time while
serving as Independent Director, (i) a stockholder, partner, member or direct or
indirect legal or beneficial owner of the Seller, the Guarantor or any Affiliate
of the Seller or the Guarantor; (ii) a contractor, creditor, customer, supplier,
director (with the exception of serving as the Independent Director of the
Seller), officer, employee, attorney, manager or other Person who derives any of
its purchases or revenues from its activities with the Seller, the Guarantor or
any Affiliate of the Seller or the Guarantor; (iii) a natural Person who
controls (directly or indirectly or otherwise) the Seller, the Guarantor or any
Affiliate of the Seller or Guarantor or who controls or is under common control
with any Person that would be excluded from serving as an Independent Director
under (i) or (ii), above; or (iv) a member of the immediate family of a natural
Person excluded from servicing as an Independent Director under (i) or (ii)
above and (b) otherwise satisfies the then current requirements of the Rating
Agencies. A Person who is an employee of a nationally recognized organization
that supplies independent directors and who otherwise satisfies the criteria in
clause (a) but for the fact that such organization receives payment from Seller
or Guarantor for providing such independent director shall not be disqualified
from serving as an Independent Director hereunder.

"Insolvency Laws": The Bankruptcy Code and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments or similar debtor relief laws
from time to time in effect affecting the rights of creditors generally.

"Insolvency Proceeding": Any case, action or proceeding before any court or
other Governmental Authority relating to any Act of Insolvency.

"Interest Expense": Means for any period, total interest expense, both expensed
and capitalized, of the Seller for such period with respect to all outstanding
Indebtedness of the Seller (including, without limitation, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under interest rate protection
agreements), determined in accordance with GAAP, net of interest income of the
Seller for such period (determined in accordance with GAAP).


                                   Annex I-14



"Interest Rate Protection Agreement": With respect to any or all of the Mortgage
Assets and Purchased Assets, as applicable, (i) any Derivatives Contract
required under the terms of the related Mortgage Loan Documents providing for
protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies, and
acceptable to the Buyer in its reasonable discretion, which Interest Rate
Protection Agreement shall be performed, maintained and in place in accordance
with the terms of the Mortgage Loan Documents, and (ii) any Derivatives Contract
put in place by the Seller, the Guarantor or any Affiliate of the foregoing with
respect to any Mortgage Asset or Purchased Asset, as applicable, including,
without limitation, the Swap Documents, which Interest Rate Protection Agreement
shall be performed, maintained and in place during the time the related
Purchased Asset is subject to a Transaction under this Repurchase Agreement.

"Junior Interest": (a) A senior, pari passu or junior participation interest in
a performing Commercial Real Estate Loan or (b) a "subordinate note or
certificate" in an "A/B" or similar structure in a performing Commercial Real
Estate Loan.

"Junior Interest Note": The original executed promissory note, Participation
Certificate, Participation Agreement and any other evidence of a Junior
Interest, as applicable.

"Late Payment Fee": Defined in Paragraph 3(e)(i) of this Repurchase Agreement.

"Lien": Any mortgage, lien, pledge, charge, right, claim, security interest or
encumbrance of any kind of or on any Person's assets or properties in favor of
any other Person (including any UCC financing statement or any similar
instrument filed against such Person's assets or properties).

"Liquidity": An amount equal to the (a) sum of (without duplication) the amount
of unrestricted cash and unrestricted Cash Equivalents, solely to the extent
that such amounts exceed the amounts necessary to satisfy at such time all of
the Financial Covenants hereunder and to the extent the Seller continues to be
in compliance thereof, less, (b) amounts necessary to satisfy Margin Deficits
under this Repurchase Agreement.

"Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Asset or Purchased
Asset (other than any CMBS Security), as applicable, as of any date of
determination, the ratio of the outstanding principal amount of such Mortgage
Asset or Purchased Asset, as applicable, to the market value of the related
Underlying Mortgaged Property at such time, as determined by the Buyer, (i) in
connection with the initial purchase of a Mortgage Asset only and to the extent
a Current Appraisal is available, based on the Current Appraisal, as the LTV may
be adjusted by the Buyer as the Buyer determines in its discretion, and, (ii) in
all other cases, as the Buyer may determine in its discretion based on such
sources of information as the Buyer may determine to rely on in its discretion;
provided, however, that, with respect to Junior Interests, Mezzanine Loans,
Bridge Loans and Subordinate CTL Loans that are also Junior Interests or
Mezzanine Loans, all such calculations shall be made taking into account any
senior or pari passu debt or other obligations, including debt or other
obligations secured directly or indirectly by the applicable Underlying
Mortgaged Property; provided, further, however, the LTV shall not exceed the
Maximum LTV.

"Mandatory Redeemable Stock": Means, with respect to any Person and any
Subsidiary thereof, any Capital Stock of such Person which by the terms of such
Capital Stock (or by the terms of any security into which it is convertible or
for which it is exchangeable or exercisable), upon the happening of any event or
otherwise (a) matures or is required to be redeemed, pursuant to a sinking fund
obligation or otherwise (other than an Capital Stock to the extent redeemable in
exchange for common stock or other equivalent common Capital Stock), (b) is
convertible into or exchangeable or exercisable for Indebtedness or Mandatory
Redeemable Stock, or (c) is redeemable at the option of the holder thereof, in
whole or in


                                   Annex I-15



part (other than any Capital Stock which is redeemable solely in exchange for
common stock or other equivalent common Capital Stock); in each case, on or
prior to the Facility Maturity Date.

"Margin Amount": With respect to any CMBS Security, the amount obtained by
application of the applicable Margin Percentage to the Repurchase Price for such
CMBS Security as of any date of determination.

"Margin Base": On any day, the aggregate Asset Value of all Purchased Assets or
certain specified Purchased Assets, as applicable.

"Margin Correction Deadline": 3 p.m. on the second Business Day after any Margin
Deficit Notice is delivered by the Buyer.

"Margin Deficit": Defined in Paragraph 4(a) of this Repurchase Agreement.

"Margin Deficit Notice": Defined in Paragraph 4 (a) of this Repurchase
Agreement.

"Margin Percentage": With respect to any CMBS Security, the percentage obtained
by dividing the Asset Value of such CMBS Security on the Purchase Date by the
Purchase Price on the Purchase Date for such Transaction.

"Market Value": As of any date in respect of any Mortgage Asset or Purchased
Asset, as applicable, the price at which such Mortgage Asset or Purchased Asset,
as applicable, could readily be sold, as determined by the Buyer (i) in
connection with the initial purchase of a Mortgage Asset only and to the extent
a Current Appraisal is available, based on the Current Appraisal value, and,
(ii) in all other cases, as the Buyer may determine in its discretion and in
good faith based on such sources and information as the Buyer may determine to
rely on in its discretion (which value may be determined to be zero), as such
Market Value may be adjusted by the Buyer as the Buyer determines in its
discretion.

"Material Adverse Effect": A material adverse effect on (a) the financial
condition or credit quality of the Seller or the Guarantor, (b) the ability of
the Seller, the Guarantor or the Pledgor to perform its obligations under any of
the Repurchase Documents or Mortgage Loan Documents to which it is a party, (c)
the validity or enforceability of any of the Repurchase Documents, (d) the
rights and remedies of the Buyer or the Swap Counterparty under any of the
Repurchase Documents, (e) the timely payment of any amounts payable under the
Repurchase Documents or Mortgage Loan Documents, or (f) the Asset Value of the
Purchased Assets; provided, however, the occurrence of an event under clause (e)
or (f) of this definition of Material Adverse Effect shall not, in and of
itself, constitute an Event of Default under Paragraph 11(v), but such
occurrence may be or form the basis for an Event of Default under other
provisions of Paragraph 11 other than Paragraph 11(v).

"Materials of Environmental Concern": Any mold, petroleum (including, without
limitation, crude oil or any fraction thereof) or petroleum products (including,
without limitation, gasoline), or any hazardous or toxic substances, materials
or wastes, defined as such in or regulated under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.

"Maximum Amount": Means $150,000,000, as such amount may, pursuant to a written
request of the Seller during the Commitment Period, be increased in the Buyer's
discretion (but in all events subject to the Buyer obtaining internal credit
approval) up to but not in excess of $300,000,000; provided, however, on and
after the Facility Maturity Date, the Maximum Amount shall mean the aggregate
Purchase Price outstanding for all Transactions.


                                   Annex I-16



"Maximum LTV": With respect to any Eligible Asset (other than any CMBS Security)
at any time, the Loan-to-Value Ratio for the related Underlying Mortgaged
Property set forth on Schedule 1 to the Fee Letter under the heading "End LTV"
for the applicable Class of such Mortgage Asset and, as applicable, the
applicable Type of Underlying Mortgaged Property; provided, however, with
respect to Junior Interests, Mezzanine Loans, Bridge Loans and Subordinate CTL
Loans that are Junior Interests or Mezzanine Loans, the Maximum LTV shall take
into account any senior or pari passu debt or other obligations, including debt
or other obligations secured directly or indirectly by the applicable Underlying
Mortgaged Property.

"Mezzanine Loan": A performing mezzanine loan secured by a first priority
perfected lien and pledge of the Capital Stock of the Person that owns directly
or indirectly income producing Commercial Real Estate that is performing;
provided, however, on a case by case basis, and in the Buyer's discretion and
subject to such terms, conditions and requirements and Advance Rate and Pricing
Spread adjustments as the Buyer may require in its discretion, the Buyer may
(but is not required to) consider purchasing a Mezzanine Loan that is secured by
less than all of the Capital Stock of the Person that owns directly or
indirectly income producing Commercial Real Estate.

"Mezzanine Note": The original executed promissory note or other evidence of
Mezzanine Loan indebtedness.

"Minimum DSCR": With respect to any Mortgage Asset or Purchased Asset (other
than any CMBS Security), as applicable, at any time, the DSCR for the related
Underlying Mortgaged Property set forth on Schedule 1 to the Fee Letter under
the heading "In-Place DSCR" for the applicable Class of such Mortgage Asset and,
as applicable, the applicable Type of Underlying Mortgaged Property; provided,
however, with respect to Junior Interests, Mezzanine Loans, Bridge Loans and
Subordinate CTL Loans that are Junior Interests or Mezzanine Loans, the Minimum
DSCR shall take into account any senior or pari passu debt or other obligations,
including debt or other obligations secured directly or indirectly by the
applicable Underlying Property.

"Moody's": Moody's Investors Service, Inc., and any successor thereto.

"Mortgage": Each mortgage, assignment of rents, security agreement and fixture
filing, or deed of trust, assignment of rents, security agreement and fixture
filing, or similar instrument creating and evidencing a Lien on real property,
fixtures and other property and rights incidental thereto.

"Mortgage Asset": A Whole Loan, a Junior Interest, a Mezzanine Loan, a Bridge
Loan, a CMBS Security, a CTL Loan, a Subordinate CTL Loan or Senior Secured Bank
Debt, (i) the Underlying Mortgaged Property for which is included in the
categories for Types of Mortgage Assets, (ii) that is listed on a Confirmation
and (iii) for which the Custodian has been instructed by the Seller to hold the
related Mortgage Asset File for the Buyer pursuant to the Custodial Agreement;
provided, however, Mortgage Assets shall not include any Retained Interest (if
any) (unless approved by the Buyer in its discretion).

"Mortgage Asset File": Defined in the Custodial Agreement.

"Mortgage Loan Documents": Defined in the Custodial Agreement.

"Mortgage Note": The original executed promissory note or other evidence of the
Indebtedness of a Borrower with respect to a Mortgage Asset.


                                   Annex I-17



"Mortgaged Property": The Commercial Real Estate (including all improvements,
buildings, fixtures, building equipment and personal property thereon and all
additions, alterations and replacements made at any time with respect to the
foregoing and any Credit Tenant Lease to which such real property is subject)
and all other collateral securing repayment of the related debt evidenced by a
Mortgage Note, a Junior Interest Note or other note, certificate or debt
instrument.

"Net Cash Flow": With respect to any Underlying Mortgaged Property, for any
period, the net income (or deficit) attributable to such Underlying Mortgaged
Property for such period, determined in accordance with GAAP (and if such
Property is subject to a Credit Tenant Lease, the net rents paid during such
period under such lease), less the amount of all (a) capital expenditures
incurred, (b) reserves established, (c) leasing commissions paid (other than
commissions paid from reserves held under the Mortgage Loan Documents) and (d)
tenant improvements paid during such period (other than tenant improvements paid
from reserves held under the Mortgage Loan Documents) in each case attributable
to such Underlying Mortgaged Property, plus all non-cash charges deducted in the
calculation of such net income.

"Net Income": With respect to any Person and its Consolidated Subsidiaries for
any period, the net income of such Person and its Consolidated Subsidiaries
determined on a consolidated basis for such period as determined in accordance
with GAAP.

"Net Swap Payments": With respect to each Payment Date, the excess, if any, of
(a) the monthly payments by the Seller to the Swap Counterparty under the Swap
Documents and any interest accrued thereon over (b) the monthly payments by the
Swap Counterparty to the Seller under the Swap Documents and any interest
accrued thereon.

"Net Swap Receipts": With respect to each Payment Date, the excess, if any, of
(a) the monthly payments by the Swap Counterparty to the Seller under the Swap
Documents and any interest accrued thereon over (b) the monthly payments by the
Seller to the Swap Counterparty under the Swap Documents and any interest
accrued thereon.

"Non-Recourse Indebtedness": Means, with respect to any Person, Indebtedness for
borrowed money in respect of which recourse for payment (except for customary
exceptions for fraud, misapplication of funds, environmental indemnities, and
other similar exceptions to non-recourse provisions (but not exceptions relating
to bankruptcy, insolvency, receivership or other similar events)) is
contractually limited to specific assets of such Person encumbered by a Lien
securing such Indebtedness.

"Non-Table Funded Purchased Asset": A Purchased Asset that is not a Table Funded
Purchased Asset.

"Non-Wachovia Assets": Any Mortgage Asset issued or extended by a Person other
than Wachovia Corporation or an Affiliate of Wachovia Corporation.

"Obligations": Defined in Paragraph 6(a)(ii) of this Repurchase Agreement.

"Off-Balance Sheet Obligations": With respect to any Person and its Consolidated
Subsidiaries determined on a consolidated basis as of any date of determination
thereof, without duplication and to the extent not included as a liability on
the consolidated balance sheet of such Person and its Consolidated Subsidiaries
in accordance with GAAP: (a) the monetary obligations under any financing lease
or so-called "synthetic," tax retention or off-balance sheet lease transaction
which, upon the application of any Insolvency Laws to such Person or any of its
Consolidated Subsidiaries, would be characterized as indebtedness; (b) the
monetary obligations under any sale and leaseback transaction which does not
create a liability on the consolidated balance sheet of such Person and its
Consolidated Subsidiaries; or (c) any other monetary obligation arising with
respect to any other transaction which (i) is characterized as


                                   Annex I-18



indebtedness for tax purposes but not for accounting purposes in accordance with
GAAP or (ii) is the functional equivalent of or takes the place of borrowing but
which does not constitute a liability on the consolidated balance sheet of such
Person and its Consolidated Subsidiaries (for purposes of this clause (c), any
transaction structured to provide tax deductibility as interest expense of any
dividend, coupon or other periodic payment will be deemed to be the functional
equivalent of a borrowing).

"Officer's Certificate": A certificate signed by a Responsible Officer of the
Seller, the Guarantor or the Pledgor, as applicable.

"Operating Company": An "operating company" within the meaning of 29 C.F.R.
2510.3-101(c) of the regulations of the U.S. Department of Labor.

"Opinion of Counsel": A written opinion of counsel, which opinion and counsel
are acceptable to the Buyer in its reasonable discretion.

"Originator": With respect to each Mortgage Asset, the Person who originated
such Mortgage Asset.

"Participation Agreement": With respect to any Junior Interest, any executed
participation agreement, sub-participation agreement or similar agreement under
which the Junior Interest is created, evidenced, issued and/or guaranteed.

"Participation Certificate": With respect to any Junior Interest, an executed
certificate, note, instrument or other document representing the participation
interest or sub-participation interest granted under a Participation Agreement.

"Payment Date": The 15th day of each calendar month, or, if such day is not a
Business Day, the next Business Day.

"Periodic Advance Repurchase Payment": Defined in Paragraph 3(e)(i) of this
Repurchase Agreement.

"Permitted Investments": Investments of any one or more of the following types:

     (a) marketable obligations of the United States, the full and timely
payment of which are backed by the full faith and credit of the United States of
America and that have a maturity of not more than 270 days from the date of
acquisition; (b) marketable obligations, the full and timely payment of which
are directly and fully guaranteed by the full faith and credit of the United
States and that have a maturity of not more than 270 days from the date of
acquisition; (c) bankers' acceptances and certificates of deposit and other
interest-bearing obligations (in each case having a maturity of not more than
270 days from the date of acquisition) denominated in Dollars and issued by any
bank with capital, surplus and undivided profits aggregating at least
$100,000,000, the short-term obligations of which are rated of least A-1 by S&P
and P-1 by Moody's; (d) repurchase obligations with a term of not more than ten
(10) days for underlying securities of the types described in clauses (a), (b)
and (c) above entered into with any bank of the type described in clause (c)
above; (e) commercial paper rated at least A-1 by S&P and P-1 by Moody's; (f)
demand deposits, time deposits or certificates of deposit (having original
maturities of no more than 365 days) of depository institutions or trust
companies incorporated under the laws of the United States of America or any
state thereof (or domestic branches of any foreign bank) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided, however, that at the time such investment, or
the commitment to make such investment, is entered into, the short-term debt
rating of such depository institution or trust company shall be at least A-1 by
S&P and P-1 by Moody's; and (g) money market mutual funds possessing the highest
available rating from S&P and Moody's.


                                   Annex I-19



"Permitted Liens": Any of the following as to which no enforcement, collection,
execution, levy or foreclosure proceeding shall have been commenced or
threatened: (a) Liens for federal, state, municipal or other local or other
Governmental Authority taxes if such taxes shall not at the time be due and
payable, (b) Liens imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's Liens and other similar Liens, arising in the ordinary
course of business securing obligations that are not overdue for a period of
more than thirty (30) days, and (c) Liens granted pursuant to or by the
Repurchase Documents.

"Person": An individual, partnership, corporation (including a business trust),
limited liability company, joint stock company, trust, unincorporated
association, sole proprietorship, joint venture, government (or any agency or
political subdivision thereof) or other entity.

"Plan": Any plan, including single employer and multi-employer plans, to which
section 4021(a) of ERISA applies or any retirement medical plan, each as
established or maintained for employees of Seller, the Guarantor or any ERISA
Affiliate of the Seller or the Guarantor to which Section 4021(a) of ERISA
applies.

"Plan Asset Regulations": 29 C.F.R. 2510.3-101, et. seq.

"Plan Assets": "Plan assets" within the meaning of the Plan Asset Regulations.

"Pledge and Security Agreement": The Pledge and Security Agreement, dated as of
even date herewith, between the Buyer and NRFC Sub-REIT Corp., a Maryland
corporation, as such agreement is amended, modified, restated, replaced, waived,
substituted, supplemented or extended from time to time.

"Pledgor": NRFC Sub-REIT Corp., a Maryland corporation, as the Pledgor under the
Pledge and Security Agreement, together with its successors and permitted
assigns.

"Pooling and Servicing Agreements": Any and all pooling and servicing
agreements, trust agreements or indentures governing servicing and other matters
entered into in connection with a (i) CMBS Security or (ii) a securitization of
a senior interest in a Mortgage Asset, where such securitization transaction is
rated by one (1) or more Rating Agencies.

"Post-Default Rate": In respect of any day a Transaction is outstanding or any
other amount under this Repurchase Agreement or any other Repurchase Document is
not paid when due to the Buyer at the stated Repurchase Date or otherwise when
due, a rate per annum determined on a 360 day per year basis during the period
from and including the due date to but excluding the date on which such amount
is paid in full equal to the applicable Rate plus 500 basis points.

"Pre-Approved Buyer": A bank, financial institution or similar Person having a
rating assigned by S&P of BBB or better (or an equivalent rating assigned by
another Rating Agency), Variable Funding Capital Corporation, Atlas Capital
Funding, Ltd., Blue Ridge Asset Funding Corporation or any other off-balance
sheet vehicle.

"Price Differential": For each Accrual Period or portion thereof and each
Transaction outstanding, the sum of the products (for each day during such
Accrual Period or portion thereof) of:


                                   Annex I-20



               PR x PP x  1
                         ---
                          D

          where:

          PR = the Pricing Rate applicable on such day;
          PP = the Purchase Price for such Transaction on such day; and
          D  = 360,

provided, however, that (i) no provision of this Repurchase Agreement shall
require the payment or permit the collection of any Price Differential in excess
of the maximum permitted by Applicable Law and (ii) the Price Differential shall
not be considered paid by any distribution if at any time such distribution is
rescinded or must otherwise be returned for any reason.

"Pricing Rate": With respect to any Transaction, at any date of determination a
rate per annum equal to the sum of (a) the applicable Rate on such date plus (b)
the applicable Pricing Spread for such Eligible Asset on such date, as such
Pricing Spreads are set forth in the Fee Letter.

"Pricing Spread": The financing spreads set forth on Schedule 1 to the Fee
Letter corresponding to the Classes and, as applicable, Types of Mortgage Assets
set forth therein; provided, however, from and after an Event of Default, the
Pricing Spread for each Transaction shall automatically be increased by an
additional 500 basis points.

"Prime Rate": The rate announced by Wachovia from time to time as its prime rate
in the United States, such rate to change as and when such designated rate
changes. The Prime Rate is not intended to be the lowest rate of interest
charged by Wachovia in connection with extensions of credit to debtors.

"Property": Any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed, and whether tangible or intangible.

"PSA Servicer": A third party servicer (other than the Seller, the Guarantor or
any Affiliates of the foregoing) servicing all or a portion of the Purchased
Assets under a Pooling and Servicing Agreement.

"Purchase Agreement": Any purchase agreement by and between the Seller and any
third party, including, without limitation, any Affiliate of the Seller,
pursuant to which the Seller has purchased Mortgage Assets subsequently sold to
the Buyer hereunder.

"Purchase Date": The date on which Eligible Assets are transferred by the Seller
to the Buyer or, as applicable, the date on which additional advances (if any)
are made to the Seller in connection with an existing Purchased Asset in
accordance with Paragraph 3(a)(x) of the Repurchase Agreement.

"Purchase Price": On each Purchase Date, the price at which Purchased Assets are
transferred by the Seller to the Buyer, which amount shall be equal (unless the
Seller requests a lesser amount) to the Asset Value for each such Eligible Asset
on the Purchase Date, (i) decreased by the amount of any cash transferred by the
Seller to the Buyer pursuant to Paragraph 3(b) or 4(a) of this Repurchase
Agreement or applied to reduce the Seller's obligations in respect of principal
under Paragraph 5 of, or otherwise in accordance with, this Repurchase Agreement
and (ii) increased by the amount of any additional advances (if any) under
Paragraph 3(a)(x) of the Repurchase Agreement.

"Purchased Asset Data Summary": Defined in Section 5(i)(iii) of this Repurchase
Agreement.


                                   Annex I-21



"Purchased Assets": The Eligible Assets transferred by the Seller to the Buyer
pursuant to a Transaction in accordance with the terms of this Repurchase
Agreement, including Additional Purchased Assets.

"Purchased Items": Defined in Paragraph 6(a)(i) of this Repurchase Agreement.

"Rate": For any Accrual Period and for each Transaction outstanding and for each
day during such Accrual Period, the rate per annum equal to the Adjusted
Eurodollar Rate; provided, however, the Rate for any Accrual Period shall be the
Base Rate if a Eurodollar Disruption Event occurs.

"Rating Agency": Each of S&P, Moody's, Fitch and any other nationally recognized
statistical rating agency that has been requested to issue a rating in
connection with the matter at issue, including successors of the foregoing.

"Regulations T, U and X": Regulations T, U and X of the Board of Governors of
the Federal Reserve System (or any successor), as the same may be amended from
time to time.

"Related Party Loan": Any loan, Indebtedness or preferred equity investment
identified or presented as a related party loan in such Person's and its
Consolidated Subsidiaries' consolidated financial statements or in the notes to
the consolidated financial statements, in accordance with GAAP.

"REIT": A Person qualifying for treatment as a "real estate investment trust"
under the Code.

"REMIC": A real estate mortgage investment conduit.

"Reportable Event": Any of the events set forth in Section 4043(c) of ERISA or a
successor provision thereof, other than those events as to which the notice
requirement has been waived by regulation.

"Repurchase Date": The earlier of (i) the Facility Maturity Date or (ii) the
Business Day on which the Seller is to repurchase the Purchased Assets from the
Buyer (a) as specified by the Seller and agreed to by the Buyer in the related
Confirmation or, (b) if a Transaction is terminable by the Seller on demand, the
date determined in accordance with Paragraph 3(a)(ix) of this Repurchase
Agreement, as such date in clauses (ii)(a) and (b) above may be modified by
application of the provisions of Paragraph 3 or 11 of this Repurchase Agreement.

"Repurchase Documents": This Repurchase Agreement, the Custodial Agreement, the
Pledge and Security Agreement, the Account Agreement, the Security Account
Control Agreement, the Fee Letter, the Guaranty, the Assignments, the
Confirmations, the Custodial Fee Letter, all UCC financing statements (and
amendments thereto) filed pursuant to the terms of this Repurchase Agreement or
any other Repurchase Document and any additional document, certificate or
agreement, the execution of which is necessary or incidental to or desirable for
performing or carrying out the terms of the foregoing documents.

"Repurchase Obligations": Defined in Paragraph 6(a)(ii) of this Repurchase
Agreement.

"Repurchase Price": The price at which Purchased Assets are to be transferred
from the Buyer or its designee (including the Custodian) to the Seller upon
termination of a Transaction, which will be determined in each case (including
Transactions terminable upon demand) as the sum of the Purchase Price, the
accrued and unpaid Price Differential applicable to each such Transaction as of
the date of such determination plus any related Breakage Costs and other amounts
owed with respect thereto.


                                   Annex I-22



"Responsible Officer": With respect to any Person, any duly authorized officer
of such Person with direct responsibility for the administration of the
Repurchase Documents and also, with respect to a particular matter, any other
duly authorized officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.

"Retained Interest": (a) With respect to any Mortgage Asset with an unfunded
commitment on the part of the Seller, all of the obligations, if any, to provide
additional funding, contributions, payments or credits with respect to such
Mortgage Asset, (b) all duties, obligations and liabilities of the Seller under
any Mortgage Asset or any related Interest Rate Protection Agreement, including
but not limited to any payment or indemnity obligations, and, (c) with respect
to any Mortgage Asset that is transferred by the Seller to the Buyer, (i) all of
the obligations, if any, of the agent(s), trustee(s), servicer(s) or other
similar persons under the documentation evidencing such Mortgage Asset and (ii)
the applicable portion of the interests, rights and obligations under the
documentation evidencing such Mortgage Asset that relate to such portion(s) of
the Indebtedness that is owned by another lender or is being retained by the
Seller pursuant to clause (a) of this definition.

"S&P": Standard & Poor's, a division of The McGraw Hill Companies, Inc., and any
successor thereto.

"Security Agreement": With respect to any Mortgage Asset, any contract,
instrument or other document related to security for repayment thereof (other
than the related Mortgage, Mortgage Note, Mezzanine Note or any other note,
certificate or instrument) executed by the Borrower and/or others in connection
with such Mortgage Asset, including, without limitation, any security agreement,
UCC financing statement, Liens, warranties, guaranty, title insurance policy,
hazard insurance policy, chattel mortgage, letter of credit, accounts, bank
accounts or certificates of deposit or other pledged accounts, and any other
documents and records relating to any of the foregoing.

"Securities Account": The securities account set forth on Schedule 2 established
in the name of the Buyer into which all CMBS Securities that are Purchased
Assets and other Purchased Items related thereto shall be deposited (except
those CMBS Securities that are certificated securities within the meaning of
Article 8 of the UCC), which Securities Account shall be subject to the
Securities Account Control Agreement. Any Income on deposit or credited to the
Securities Account shall be transferred by the Buyer from the Securities Account
to the Collection Account on or prior to each Payment Date.

"Securities Account Control Agreement": A letter agreement among the Seller, the
Buyer and Wachovia in the form of Exhibit IV attached hereto.

"Seller Asset Schedule": Defined in the Custodial Agreement.

"Seller-Related Obligations": Any obligations, liabilities and/or Indebtedness
of the Seller and/or any Indebtedness of the Guarantor or the Pledgor under any
other arrangement between the Seller, the Guarantor and/or the Pledgor on the
one hand and the Buyer, an Affiliate of the Buyer (including, without limitation
the obligations, liabilities and Indebtedness under the Swap Documents) and/or
any commercial paper conduit for which the Buyer or an Affiliate of the Buyer
acts as a liquidity provider, administrator or agent on the other hand.

"Seller's Release Letter": Defined in Section 3(b)(xi) of this Repurchase
Agreement.

"Senior Secured Bank Debt": An assignment of or participation in all or a
portion of a secured senior term loan to a Borrower, which loan (a) is rated B-
or better by at least two (2) Rating Agencies, (b) is senior or pari passu with
other secured obligations of such Borrower and (c) is secured by (i) 100% of the
Capital Stock of each existing and subsequently acquired or organized direct or
indirect domestic


                                   Annex I-23



Subsidiary of the Borrower and (ii) substantially all tangible and intangible
assets (including, but not limited to, inventory, accounts receivable, plant,
machinery, equipment, fixtures, Commercial Real Estate, leasehold interests,
intellectual property, contracts, license rights and other general intangibles
and investment property) of the Borrower. Each Senior Secured Bank Debt is
subject to such additional underwriting criteria and other terms, conditions and
requirements as the Buyer may require in its discretion.

"Servicer": A Person (other than the Seller) servicing all or a portion of the
Purchased Assets under a Servicing Agreement, which Servicer shall be acceptable
to the Buyer in its discretion.

"Servicer Account": Any account established by a Servicer or a PSA Servicer in
connection with the servicing of the Purchased Assets.

"Servicer Notice": The notice from the Seller to a Servicer or PSA Servicer, as
applicable, substantially in the form of Exhibit V attached hereto.

"Servicing Agreement": An agreement entered into by the Seller and a third party
for the servicing of the Purchased Assets, the form and substance of which has
been approved in writing by the Buyer in its reasonable discretion.

"Servicing File": With respect to each Purchased Asset, the file retained by the
Seller consisting of the originals of all documents that are not required to be
delivered to the Custodian and copies of all documents in the Mortgage Asset
File set forth in Section 3.1 of the Custodial Agreement, which Servicing File
shall be held by the Seller or Servicer on behalf of the Buyer.

"Servicing Records": Defined in Section 6(b) of this Repurchase Agreement.

"Solvent": As to any Person at any time, having a state of affairs such that all
of the following conditions are met: (a) the fair value of the Property of such
Person is greater than the amount of such Person's liabilities (including
disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy
Code; (b) the present fair salable value of the Property of such Person in an
orderly liquidation of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (c) such Person is able to realize upon its
Property and pay its debts and other liabilities (including disputed, contingent
and unliquidated liabilities) as they mature in the normal course of business;
(d) such Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute unreasonably small capital.

"Sub-Limit": With respect to the characteristics of the Mortgage Assets or
Purchased Assets, as applicable:

     (a) the aggregate Purchase Price for all outstanding Transactions involving
Mezzanine Loans shall not exceed 75% of the Maximum Amount;

     (b) the aggregate Purchase Price for all outstanding Transactions involving
CTL Loans and/or Subordinate CTL Loans shall not exceed 50% of the Maximum
Amount;

     (c) the aggregate Purchase Price for all outstanding Transactions involving
Ground Leases shall not exceed 35% of the Maximum Amount;


                                   Annex I-24



     (d) the aggregate Purchase Price for all outstanding Transactions involving
hotels shall not exceed 40% of the Maximum Amount;

     (e) the aggregate Purchase Price for all outstanding Transactions involving
Bridge Loans shall not exceed 35% of the Maximum Amount;

     (f) the aggregate Purchase Price for all outstanding Transactions involving
Underlying Mortgage Properties located in the same metropolitan statistical area
shall not exceed 50% of the Maximum Amount;

     (g) the aggregate Purchase Price for any single outstanding Transaction or
for multiple Transactions to a single Borrower (including any Affiliate of a
Borrower) shall not exceed 40% of the Maximum Amount; and

     (h) the aggregate Purchase Price for all outstanding Transactions involving
CMBS Securities or Senior Secured Bank Debt rated BB- or below by any Rating
Agency shall not exceed 25% of the Maximum Amount.

"Subordinate CTL Loan": (i) A loan that is a CTL Loan in all respects except for
the failure to satisfy the ratings requirements for a Credit Tenant or (ii) a
performing Junior Interest or Mezzanine Loan in which the related senior loan is
secured by a first priority perfected security interest in Commercial Real
Estate 100% leased to, or guaranteed in full by, a Credit Tenant, and such
Junior Interest or Mezzanine Loan, as applicable, itself is secured by a first
priority perfected security interest in and to the payments under the Credit
Tenant Lease; provided, however, in the case of both clauses (i) and (ii), such
Subordinate CTL Loan satisfies such additional underwriting criteria and other
terms, conditions and requirements as the Buyer may require in its discretion.

"Subsidiary": With respect to any Person, any corporation, partnership, limited
liability company or other entity of which at least a majority of the securities
or other ownership interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors or other Persons performing
similar functions of such corporation, partnership, limited liability company or
other entity (irrespective of whether or not at the time securities or other
ownership interests of any other class or classes of such corporation,
partnership or other entity shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person.

"Swap Breakage Costs": For any Swap Transaction, any amount (other than Net Swap
Payments) payable by the Seller to the Swap Counterparty for the early
termination of that Swap Transaction or any portion thereof.

"Swap Breakage Receipts": For any Swap Transaction, any amount (other than Net
Swap Receipts) payable by the Swap Counterparty to the Seller for the early
termination of that Swap Transaction or any portion thereof.

"Swap Counterparty": Wachovia Bank, National Association and/or any Affiliate
thereof, together with its successors and assigns.

"Swap Documents": The Interest Rate Protection Agreements entered into by the
Seller and the Swap Counterparty with respect to the Facility or any Purchased
Asset, including all obligations, liabilities and


                                   Annex I-25



Indebtedness thereunder, as such Swap Documents are amended, modified, restated,
replaced, waived, substituted, supplemented or extended from time to time.

"Swap Transaction": Any interest rate swap transaction between the Seller and
the Swap Counterparty that is governed by the Swap Documents.

"Table Funded Purchased Asset": A Purchased Asset which is sold to the Buyer
simultaneously with the origination or acquisition thereof, which origination or
acquisition, pursuant to the Seller's request, is financed with the Purchase
Price and paid directly to a title company, settlement agent or other Person
(including the Seller if the Buyer determines to fund to the Seller in Buyer's
discretion) in trust for the current holder of the Mortgage Asset, in each case,
approved in writing by the Buyer in its reasonable discretion, for disbursement
to the parties entitled thereto in connection with such origination or
acquisition. A Purchased Asset shall cease to be a Table Funded Purchased Asset
after the Custodian has delivered a Trust Receipt (along with a completed
Mortgage Asset File Checklist attached thereto) to the Buyer certifying its
receipt of the Mortgage Asset File therefor.

"Tangible Net Worth": As of a particular date and as to any Person:

     (a) all amounts that would be included under stockholder equity (or the
equivalent) on a balance sheet of such Person and its Consolidated Subsidiaries
determined on a consolidated basis at such date determined in accordance with
GAAP, less

     (b) in each case with respect to such Person and its Consolidated
Subsidiaries determined on a consolidated basis (i) amounts owing to such Person
from Affiliates, or from officers, employees, partners, members, directors,
shareholders or other Persons similarly affiliated with such Person or its
respective Affiliates, (ii) intangible assets of such Person, as determined in
accordance with GAAP, (iii) the value of REO Property and Foreclosed Loans of
such Person, (iv) prepaid taxes and expenses, (v) unamortized hedging positions
under Derivatives Contracts, and (vi) (without duplication) Related Party Loans.

"Taxes": Any present or future taxes, levies, imposts, duties, charges,
assessments or fees of any nature (including interest, penalties, and additions
thereto) that are imposed by any Governmental Authority.

"Test Period": The most recent calendar quarter.

"Title Exception": Defined in Schedule 1, Part 1.

"Transaction": Defined in Paragraph 1 of this Repurchase Agreement.

"Transaction Request": A request in the form of Exhibit A to this Repurchase
Agreement duly completed and executed by the Seller.

"Transferor": The seller of mortgage assets under a Purchase Agreement.

"True Sale Opinion": An Opinion of Counsel to the Seller opining that the
subject transaction constitutes a "true sale".

"Trust Receipt": Defined in the Custodial Agreement.


                                   Annex I-26



"Type": With respect to a Mortgage Asset, the classification of the Underlying
Mortgaged Property as one of the following: multifamily, mobile home park,
retail, office, industrial, hotel or self-storage Facility.

"UCC-9 Policy": Defined in Part II, Paragraph 6 of Schedule 1 to this Repurchase
Agreement.

"Underlying Mortgaged Property": (a) In the case of a Whole Loan, the Mortgaged
Property securing the Whole Loan, (b) in the case of a Junior Interest, the
Mortgaged Property securing such Junior Interest (if the Junior Interest is of
the type described in clause (b) of the definition thereof), or the Mortgaged
Property securing the mortgage loan in which such Junior Interest represents a
junior participation (if the Junior Interest is of the type described in clause
(a) of the definition thereof), (c) in the case of a Mezzanine Loan or a Junior
Interest in a Mezzanine Loan, the Mortgaged Property that secures the senior
mortgage loan, (d) in the case of a Bridge Loan, CTL Loan or Subordinate CTL
Loan, the Mortgaged Property securing the Whole Loan, Junior Interest or
Mezzanine Loan, as applicable, (e) in the case of a CMBS Security, the Mortgaged
Properties backing such CMBS Securities and (f) in the case of Senior Secured
Bank Debt, the Mortgaged Property, if any, securing such Senior Secured Bank
Debt.

"Underwriting Package": With respect to any Mortgage Asset (other than a CMBS
Security), the Underwriting Package shall include, to the extent applicable, (i)
a copy of the Current Appraisal or, if unavailable, any other recent appraisal,
(ii) the current rent roll, (iii) a minimum of two (2) years of property level
financial statements to the extent available, (iv) the current financial
statements of the Borrowers under the Mortgage Asset, and, if such Mortgage
Asset is not a Whole Loan, the Borrower under the Commercial Real Estate Loan to
the extent provided to or reasonably available to the Seller upon request, (v)
the loan documents and title commitment/policy to be included in the Mortgage
Asset File, together with copies of any appraisals, environmental reports,
studies or assessments (to include, at a minimum, a phase I report), evidence of
zoning compliance, property management agreements, assignments of property
management agreements, contracts, licenses and permits, in each case to the
extent in the Seller's possession or reasonably available to the Seller and, if
the Mortgage Asset is purchased by the Buyer, assignments of such documents by
the Seller in blank to the extent covered by assignments in blank delivered to
the Custodian, (vi) any financial analysis, site inspection, market studies,
environmental reports and any other diligence conducted by or provided to the
Seller and (vii) such further documents or information as the Buyer may
reasonably request. With respect to any CMBS Security, the Underwriting Package
shall consist of, to the extent applicable, (i) the related prospectus or
offering circular, (ii) all structural and collateral term sheets and all other
computational or other similar materials provided to Seller in connection with
its acquisition of such CMBS Security, (iii) all distribution date statements
issued in respect thereof during the immediately preceding twelve (12) months
(or, if less, since the date such CMBS Security was issued), (iv) all monthly
reporting packages issued in respect of such CMBS Security during the
immediately preceding twelve (12) months (or, if less, since the date such CMBS
Security was issued), (v) all Rating Agency pre-sale reports, (vi) all asset
summaries and any other due diligence materials, including, without limitation,
reports prepared by third parties, provided to Seller in connection with its
acquisition of such CMBS Security, and (vii) such further documents or
information as the Buyer may reasonably request.

"Uniform Commercial Code" or "UCC": The Uniform Commercial Code as in effect on
the date hereof in the State of New York; provided that if by reason of
mandatory provisions of Applicable Law, the perfection or the effect of
perfection or non-perfection of the security interest in any Purchased Asset is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.

"United States": The United States of America.


                                   Annex I-27



"Unused Fee": The "Unused Fee" payable under the Fee Letter.

"Wachovia": Wachovia Bank, National Association, a national banking association
in its individual capacity, and its successors and assigns.

"Wachovia Assets": Any Mortgage Asset issued or extended by Wachovia Corporation
or an Affiliate of Wachovia Corporation.

"Warehouse Lender's Release Letter": Defined in Section 3(b)(xi) of this
Repurchase Agreement.

"Whole Loan": A performing Commercial Real Estate whole loan secured by a first
priority perfected security interest in the Underlying Mortgaged Property.

     (b) In each Repurchase Document, unless a contrary intention appears:

          (i) the singular number includes the plural number and vice versa;

          (ii) reference to any Person includes such Person's successors and
     assigns but, if applicable, only if such successors and assigns are
     permitted by the Repurchase Documents;

          (iii) reference to any gender includes each other gender;

          (iv) reference to day or days without further qualification means
     calendar days;

          (v) reference to any time means Charlotte, North Carolina time;

          (vi) reference to any agreement (including any Repurchase Document),
     document or instrument means such agreement, document or instrument as
     amended, modified, restated, replaced, waived, substituted, supplemented or
     extended from time to time in accordance with the terms thereof and, if
     applicable, the terms of the other Repurchase Documents, and reference to
     any promissory note, certificate, instrument or trust receipt includes any
     promissory note, certificate, instrument or trust receipt that is an
     extension or renewal thereof or a substitute or replacement therefor;

          (vii) reference to any Applicable Law means such Applicable Law as
     amended, modified, codified, replaced or reenacted, in whole or in part,
     and in effect from time to time, including rules and regulations
     promulgated thereunder and reference to any Section or other provision of
     any Applicable Law means that provision of such Applicable Law from time to
     time in effect and constituting the substantive amendment, modification,
     codification, replacement or reenactment of such Section or other
     provision;

          (viii) unless otherwise expressly provided in this Repurchase
     Agreement, reference to any notice, request, approval, consent or
     determination provided for, permitted or required under the terms of the
     Repurchase Documents with respect to the Seller, the Guarantor or the Buyer
     means, in order for such notice, request, approval, consent or
     determination to be effective hereunder, such notice, request, approval or
     consent must be in writing and, with respect to notice to the Swap
     Counterparty only, such notice shall contain an acknowledgement of receipt
     signed by the Swap Counterparty; and


                                   Annex I-28



          (ix) reference herein or in any Repurchase Document to the Buyer's
     discretion shall mean, unless otherwise stated herein or therein, the
     Buyer's sole and absolute discretion, and the exercise of such discretion
     shall be final and conclusive. In addition, whenever the Buyer has a
     decision or right of determination or request, exercises any right given to
     it to agree, disagree, accept, consent, grant waivers, take action or no
     action or to approve or disapprove, or any arrangement or term is to be
     satisfactory or acceptable (or any similar language or terms) to the Buyer,
     the decision of the Buyer with respect thereto shall be in the sole and
     absolute discretion of the Buyer, and such decision shall be final and
     conclusive, except as may be otherwise specifically provided herein.

     2. MODIFICATIONS TO MASTER REPURCHASE AGREEMENT.

     (a) (i) The Master Repurchase Agreement is hereby modified by replacing
every reference to a "Purchased Security" or "Purchased Securities" with a
reference to "Purchased Asset" or "Purchased Assets," and the definition of
"Purchased Security" as set forth in the Master Repurchase Agreement shall be
deleted.

          (ii) The Master Repurchase Agreement is hereby modified by replacing
every reference to an "Additional Purchased Security" or "Additional Purchased
Securities," as applicable, with a reference to "Additional Purchased Asset" or
"Additional Purchased Assets," as applicable, and the definition of "Additional
Purchased Security" as set forth in the Master Repurchase Agreement shall be
deleted.

          (iii) The Master Repurchase Agreement is hereby modified by replacing
every reference to "Security" or "Securities" with a reference to a "Mortgage
Asset" or "Mortgage Assets."

     (b) Paragraph 1 of the Master Repurchase Agreement is hereby deleted and
the following is substituted therefor:

          "Subject to the terms and conditions hereof, from time to time during
          the Commitment Period (but at no time thereafter) and at the written
          request of the Seller, the parties hereto may enter into transactions
          in which the Seller transfers Eligible Assets to the Buyer in a sales
          transaction against the transfer of funds by the Buyer representing
          the Purchase Price for such Purchased Assets, with a simultaneous
          agreement by the Buyer to transfer to the Seller and the Seller to
          repurchase such Purchased Assets in a repurchase transaction at a date
          certain not later than the Facility Maturity Date, against the
          transfer of funds by the Seller representing the Repurchase Price for
          such Purchased Assets. Each such transaction, including transfers of
          Additional Purchased Assets, shall be referred to herein as a
          "Transaction" and shall be governed by this Repurchase Agreement
          (including Annex I hereto), unless otherwise agreed in writing."

     (c) The definitions contained Paragraphs 2(a), 2(b), 2(e), 2(f), 2(g),
2(j), 2(k), 2(l), 2(m), 2(n), 2(o), 2(p), 2(q) and 2(r) of the Master Repurchase
Agreement are hereby deleted and the corresponding definitions contained in
Section 1(a) of this Annex I shall be substituted therefor in all respects.

     (d) Paragraph 2(c) and 2(d) of the Master Repurchase Agreement are hereby
deleted in their entirety and the terms "Buyer's Margin Amount" and "Buyer's
Margin Percentage" shall be disregarded entirely and be of no effect wherever
they appear in the Master Repurchase Agreement.


                                   Annex I-29



     (e) Paragraph 2(h) of the Master Repurchase Agreement is hereby deleted in
its entirety and the term "Margin Excess" shall be disregarded entirely and be
of no effect wherever it appears in the Master Repurchase Agreement.

     (f) Paragraph 2(i) of the Master Repurchase Agreement is hereby deleted in
its entirety and the term "Margin Notice Deadline" shall be disregarded entirely
and be of no effect wherever it appears in the Master Repurchase Agreement.

     (g) Paragraph 2(s) and 2(t) of the Master Repurchase Agreement are hereby
deleted in their entirety and the terms "Seller's Margin Amount" and "Seller's
Margin Percentage" shall be disregarded entirely and be of no effect wherever
they appear in the Master Repurchase Agreement.

     (h) Paragraph 3 of the Master Repurchase Agreement is hereby deleted in its
entirety and the following is substituted therefor:

          "(a) Transaction Mechanics; Related Matters.

          (i) From time to time during the Commitment Period but no more
          frequently than once per week, the Buyer may in its discretion
          purchase from the Seller the Seller's rights and interests (but none
          of its obligations) under certain Eligible Assets; provided, however,
          (A) at no time shall the aggregate Purchase Price of the outstanding
          Transactions and any proposed Transactions exceed the Maximum Amount
          and (B) at no time shall the Buyer enter into Transactions after the
          Commitment Period. The Seller shall request a Transaction by
          delivering to the Buyer, via Electronic Transmission, a written
          Transaction Request, together with, via Electronic Transmission (to
          the extent available in such form and otherwise by overnight
          delivery), a Seller Asset Schedule, a draft Confirmation and an
          Underwriting Package. The Transaction Request shall set forth, among
          other things, (i) the proposed Purchase Date, that, except with
          respect to the initial Transaction, shall be at least ten (10)
          Business Days (or such additional reasonable time as the Buyer may
          reasonably request) after the delivery of the Transaction Request, the
          Seller Asset Schedule, the draft Confirmation, the complete
          Underwriting Package and any supplemental requests (requested orally
          or in writing) relating to the proposed Mortgage Assets, (ii) the
          proposed Purchase Price, which shall be in a minimum amount of
          $1,000,000, (iii) the proposed Repurchase Date, (iv) the applicable
          Class and Type for each such Mortgage Asset, and (v) such other
          additional terms and conditions requested by the Buyer in its
          reasonable discretion. The Buyer shall have ten (10) Business Days (or
          such additional reasonable time as the Buyer may reasonably request)
          from the receipt thereof to review the Transaction Request, the Seller
          Asset Schedule, the draft Confirmation, the Underwriting Package and
          any supplemental requests (requested orally or in writing) relating to
          the proposed Mortgage Assets.

          (ii) The Buyer shall notify the Seller in writing of the Buyer's
          tentative approval (and the proposed Purchase Price for each Mortgage
          Asset) or final disapproval of each proposed Mortgage Asset within ten
          (10) Business Days (or such additional reasonable time as the Buyer
          may reasonably request) after its receipt of the Transaction Request,
          the Seller Asset Schedule, the draft Confirmation, the complete
          Underwriting Package and any supplemental requests (requested orally
          or in writing) relating to such proposed Mortgage Asset. Unless the
          Buyer notifies the Seller in writing of the Buyer's approval of such
          proposed Mortgage Asset within the applicable period, the Buyer shall
          be deemed not to have approved the purchase of such proposed Mortgage
          Asset.


                                   Annex I-30



          (iii) Provided that the Buyer has tentatively agreed to purchase the
          Mortgage Assets described in the Transaction Request and the proposed
          Purchase Price is acceptable to the Seller, the Seller shall forward
          to the Buyer, via Electronic Transmission, on the requested Purchase
          Date a completed and executed Confirmation with respect to each
          Transaction, and a copy of the executed Assignment. The Confirmation
          delivered by the Seller to the Buyer may specify any additional terms
          or conditions of the Transaction not inconsistent with this Repurchase
          Agreement. Delivery of a Confirmation to the Buyer shall be deemed to
          be a certification by the Seller, among other things, that all
          conditions precedent to such Transaction set forth in Section 3 of
          this Repurchase Agreement have been satisfied (except the Buyer's
          consent). Unless otherwise agreed in writing, upon receipt of the
          Confirmation and Assignment, the Buyer may, in its discretion, agree
          to enter into the requested Transaction with respect to a Mortgage
          Asset, with such additional terms, conditions and requirements
          contained in the Confirmation as the Buyer may require in its
          discretion (if additional terms, conditions or requirements are
          required by the Buyer, the Seller shall include such terms, conditions
          and/or requirements in the Confirmation to the extent it approves of
          same, and provide a re-executed Confirmation to the Buyer), and the
          Buyer's agreement to purchase the Mortgage Asset on the terms,
          conditions and requirements as the Buyer may require in its discretion
          shall be evidenced by the Buyer's signature on the Confirmation. Any
          Confirmation executed by the Buyer shall be deemed to have been
          received by the Seller on the date actually received by the Seller.

          (iv) (A) the Seller shall release or cause to be released to the
          Custodian in accordance with the Custodial Agreement (1) in the case
          of a single Non-Table Funded Purchased Asset, no later than 1:00 p.m.
          one (1) Business Day (for more than one (1) Non-Table Funded Purchased
          Asset, two (2) Business Days) prior to the requested Purchase Date,
          and, (2) in the case of a Table Funded Purchased Asset, no later than
          1:00 p.m. three (3) Business Days following the applicable Purchase
          Date, the Mortgage Asset File pertaining to each Eligible Asset to be
          purchased by the Buyer, and (B) the Seller shall deliver to the
          Custodian, in connection with the applicable delivery under clause (A)
          above, a Custodial Identification Certificate and a completed Mortgage
          Asset File Checklist required under Section 3.2 of the Custodial
          Agreement.

          (v) Pursuant to the Custodial Agreement, the Custodian shall deliver
          to the Buyer and the Seller by 1:00 p.m. on the Purchase Date for each
          Non-Table Funded Purchased Asset a Trust Receipt (along with a
          completed Mortgage Asset File Checklist attached thereto) and an Asset
          Schedule and Exception Report with respect to the Eligible Assets that
          the Seller has requested the Buyer purchase on such Purchase Date.
          With respect to each Table Funded Purchased Asset, the Seller shall
          cause the Bailee to deliver to the Custodian, with a copy to the
          Buyer, no later than 1:00 p.m. on the Purchase Date, by Electronic
          Transmission, copies of the related Basic Mortgage Asset Documents, a
          fully executed Bailee Agreement, a Bailee's Trust Receipt issued by
          the Bailee thereunder and such other evidence satisfactory to the
          Buyer in its reasonable discretion that all documents necessary to
          effect a transfer of the Eligible Assets to the Buyer have been
          delivered to Bailee. With respect to each Table Funded Purchased
          Asset, the Custodian shall deliver to the Buyer with a copy to the
          Seller a Table Funded Trust Receipt no later than 3:00 p.m. on the
          Purchase Date, which receipt and all other documents delivered to the
          Bailee shall be acceptable to the Buyer in its reasonable discretion.
          In the case of a Table Funded Purchased Asset, no later than 3:00 p.m.
          on the second (2nd) Business Day following the Custodian's receipt of
          the related Mortgage Loan Documents comprising the Mortgage Asset
          File, the Custodian shall deliver to the Buyer a Trust Receipt (along


                                   Annex I-31



          with a completed Mortgage Asset File Checklist attached thereto)
          certifying its receipt of the documents required to be delivered
          pursuant to the Custodial Agreement, together with an Asset Schedule
          and Exception Report relating to the Basic Mortgage Asset Documents,
          with any Exceptions identified by the Custodian as of the date and
          time of delivery of such Asset Schedule and Exception Report. The
          Custodian shall deliver to the Buyer an Asset Schedule and Exception
          Report relating to all of the Mortgage Loan Documents within five (5)
          Business Days of its receipt of the Mortgage Asset Files.

          (vi) On the Purchase Date for each Eligible Asset to be purchased on
          such date, and provided the requirements set forth in this Repurchase
          Agreement and the other Repurchase Documents are satisfied, including,
          without limitation, the delivery to the Buyer of a Trust Receipt
          pursuant to Paragraph 3(a)(v) of this Repurchase Agreement, ownership
          of the Purchased Assets shall be transferred to the Buyer (subject to
          the terms of this Agreement) against the simultaneous transfer of the
          lesser of (A) Purchase Price and (B) the Availability to the Seller
          not later than 5:00 p.m. on such date. The Seller hereby sells,
          transfers, conveys and assigns to the Buyer all the right, title and
          interest (but none of the obligations) of the Seller in and to the
          Purchased Assets together with all right, title and interest in and to
          the proceeds of any related Purchased Assets (subject to the terms of
          this Agreement).

          (vii) Each Confirmation, together with this Repurchase Agreement,
          shall constitute conclusive evidence of the terms agreed between the
          Buyer and the Seller with respect to the Transaction to which the
          Confirmation relates. The Seller's acceptance of the related proceeds
          shall, to the extent the Confirmation is not for any reason executed
          by the Seller, constitute the Seller's agreement to the terms of such
          Confirmation. It is the intention of the parties that each
          Confirmation shall not be separate from this Repurchase Agreement but
          shall be made a part of this Repurchase Agreement.

          (viii) In no event shall a Transaction be entered into when any
          Default or Event of Default has occurred and is continuing or when the
          Repurchase Date for such Transaction would be later than the Facility
          Maturity Date.

          (ix) In the case of individual Transactions terminable upon demand (if
          any), such demand shall be made by the Buyer or the Seller no later
          than such time as is customary in accordance with market practice, by
          telephone or otherwise, on or prior to the Business Day on which such
          termination will be effective. The Seller shall repurchase the
          Purchased Assets by no later than 3:00 p.m. on the Repurchase Date. On
          a Repurchase Date, termination of a Transaction will be effected by
          transfer to the Seller or its designee of the Purchased Assets after
          the Buyer receives the Repurchase Price for the Purchased Asset. In
          connection with the termination of a Transaction, any Income in
          respect of any Purchased Assets received by the Buyer and not
          previously credited or transferred to, or applied to the obligations
          of, the Seller pursuant to Paragraph 5 of this Repurchase Agreement
          shall be netted against the Repurchase Price by the Buyer. To the
          extent a net amount is owed to one party, the other party shall pay
          such amount to such party.

          (x) Subject to the terms and conditions of this Repurchase Agreement,
          during the term of this Repurchase Agreement, the Seller may sell to
          the Buyer, repurchase from the Buyer and resell to the Buyer, Eligible
          Assets hereunder; provided, however, the Seller shall have no right to
          substitute an Eligible Asset for a Purchased Asset. To the extent the
          Seller requests less than the Purchase Price that it would otherwise
          be entitled to receive under the terms of this Repurchase Agreement in
          connection with the purchase of


                                   Annex I-32



          any Eligible Asset, and provided (A) no Default or Event of Default
          exists, (B) the Purchased Asset continues to be a Purchased Asset, (C)
          such Purchased Asset is not a Defaulted Mortgage Asset or Delinquent
          Mortgage Asset and (D) each applicable eligibility criteria set forth
          in Schedule 1 to this Repurchase Agreement is satisfied in all
          material respects, the Seller may request an additional advance of the
          Purchase Price against such Purchased Asset in an amount not to exceed
          the positive difference (if any) between the current Purchase Price
          (calculated as if such Purchased Asset were purchased on such day) and
          the Purchase Price originally advanced by the Buyer with respect
          thereto; provided, however, in no event shall the aggregate amounts
          advanced against such Purchased Asset exceed the Maximum Purchase
          Price that the Buyer was prepared to advance on the date the Purchased
          Asset was acquired by the Buyer under this Repurchase Agreement. If
          the Buyer has advanced the full amount of the Purchase Price that is
          then available to the Seller on the Purchase Date for the purchase of
          the Purchased Asset, the Seller may request in writing that the Buyer
          reunderwrite the Purchased Asset and/or redetermine the Asset Value of
          such Purchased Asset (in each case in accordance with the same
          standards used by the Buyer with respect thereto at the time the
          Purchased Asset was originally purchased on the Purchase Date) for the
          purposes of obtaining additional advances of the Purchase Price with
          respect to such Purchased Asset, and, provided (A) no Default or Event
          of Default exists, (B) the Purchased Asset continues to be a Purchased
          Asset, (C) such Purchased Asset is not a Defaulted Mortgage Asset or
          Delinquent Mortgage Asset and (D) each applicable eligibility criteria
          set forth in Schedule 1 to this Repurchase Agreement is satisfied in
          all material respects, the Buyer may, in its discretion, consider such
          request and may take such action (or no action) in response thereto as
          the Buyer may determine in its discretion.

          (b) Optional Repurchase. The Seller may, upon two (2) Business Days'
          prior written notice or such shorter period as the Buyer may agree in
          its discretion (such notice to be received by the Buyer no later than
          5:00 p.m. (Charlotte, North Carolina time) on such day) to the Buyer
          and the Swap Counterparty, reduce the aggregate Repurchase Price of
          all Purchased Assets (or, prior to an Event of Default, any portion of
          all Purchased Assets or any individual Purchased Asset) currently
          outstanding by remitting to the Collection Account (1) cash in the
          amount of the principal reduction plus accrued and unpaid Price
          Differential and any related Breakage Costs owed in connection
          therewith and (2) instructions to reduce such Repurchase Price,
          provided that (A) in connection with such reduction the Seller shall
          comply with the terms of any related Interest Rate Protection
          Agreement requiring that the Interest Rate Protection Agreement be
          terminated in whole or in part as the result of any such reduction of
          the Repurchase Price and the Seller has paid all amounts due to the
          applicable parties in connection with any such termination and (B)
          after giving effect to such reduction, the Seller shall be in
          compliance with all Sub-Limits and all other terms, conditions and
          requirements contained in the Repurchase Documents.

          (c) Extension of Facility Maturity Date. At the written request of the
          Seller delivered to the Buyer no earlier than ninety (90) days and no
          later than thirty (30) days prior to the Facility Maturity Date, the
          Buyer may in its discretion grant one extension of the Facility
          Maturity Date for a period not to exceed one (1) year by giving
          written notice of such extension to the Seller no later than fifteen
          (15) days before the expiration of the Facility Maturity Date. Any
          failure by the Buyer to deliver such notice of extension on a timely
          basis shall be deemed to be the Buyer's determination not to extend
          the original Facility Maturity Date. An extension of the Facility
          Maturity Date is subject to the


                                   Annex I-33



          following requirements: (i) no Default or Event of Default shall have
          occurred and is continuing, (ii) the Seller shall pay to the Buyer an
          Extension Fee as set forth in the Fee Letter, (iii) no additional
          Transactions shall be permitted to be entered into after the original
          Facility Maturity Date, (iv) the Seller must, in addition to other
          amounts owed by the Seller hereunder, amortize and pay to the Buyer
          the aggregate Repurchase Price for all Transactions then outstanding
          in equal quarterly installments over the term of the extension
          commencing with the original Facility Maturity Date and on the Payment
          Date for each quarter thereafter, (v) not later than the Facility
          Maturity Date (as extended in accordance with the terms of this
          Repurchase Agreement), the Seller shall pay to Buyer an amount equal
          to the aggregate Repurchase Price then outstanding, together with all
          other Aggregate Unpaids and any other amounts then owing to the Buyer
          by the Seller pursuant to this Repurchase Agreement or any other
          Repurchase Document, and (vi) if for any reason the Facility Maturity
          Date were extended beyond four (4) years from the Closing Date (by
          extensions of the Facility Maturity Date, amendments to the Facility
          or otherwise), to which the Buyer makes no promise or commitment
          whatsoever, continuation statements have been filed with respect to
          any outstanding UCC financing statement in favor of the Buyer with
          respect to this Facility. The Seller confirms that the Buyer, in its
          discretion, without regard to the value or performance of the
          Purchased Assets or any other factor, may elect not to extend the
          Facility Maturity Date.

          (d) Extension of Commitment Expiration Date. The Seller may, by
          written notice to the Buyer at any time prior to the Commitment
          Expiration Date then in effect, make written request for the Buyer to
          extend the Commitment Expiration Date for a period not to exceed 364
          days from the then current Commitment Expiration Date. Provided no
          Event of Default has occurred and is continuing on the date of the
          Commitment Expiration Date then in effect, the Commitment Expiration
          Date shall be extended to the date that is not greater than 364 days
          immediately following the Commitment Expiration Date then in effect;
          provided, that the Commitment Expiration Date shall in no event be
          extended beyond the third one-year anniversary of the Closing Date or
          beyond the Facility Maturity Date.

          (e) Payment of Price Differential.

          (i) Notwithstanding that the Buyer and the Seller intend that the
          Transactions hereunder be sales to the Buyer of the Purchased Assets,
          the Seller shall pay to the Buyer an amount equal to the accrued value
          of the Price Differential of each Transaction for the most recently
          ended Accrual Period (each such payment, a "Periodic Advance
          Repurchase Payment") on each Payment Date less any portion thereof
          previously paid, if any. The Buyer shall deliver to the Seller, via
          Electronic Transmission, notice of the required Periodic Advance
          Repurchase Payment on or prior to the Business Day preceding each
          Payment Date; provided, however, the Buyer's failure to timely deliver
          such notice shall not affect the Seller's obligations to pay the
          Periodic Advance Repurchase Payment due. If the Seller fails to make
          all or part of the Periodic Advance Repurchase Payment by 11:00 a.m.,
          Charlotte, North Carolina time, on the Payment Date, the Seller shall
          be obligated to pay to the Buyer (in addition to, and together with,
          the Periodic Advance Repurchase Payment) interest on the unpaid amount
          of the Periodic Advance Repurchase Payment at a rate per annum equal
          to the Post-Default Rate (the "Late Payment Fee") until the overdue
          Periodic Advance Repurchase Payment is received in full by the Buyer.


                                   Annex I-34



          (ii) If the Seller repurchases Purchased Assets on any day prior to
          the last day of a Eurodollar Period or if the Seller repurchases
          Purchased Assets on any day that is not a Repurchase Date for such
          Purchased Assets, the Seller shall indemnify the Buyer and hold the
          Buyer harmless from any Breakage Costs actually incurred by the Buyer
          for the remainder of the Eurodollar Period. The Buyer shall deliver to
          the Seller a statement setting forth the amount and basis of
          determination of any Breakage Costs, it being agreed that such
          statement and the method of its calculation shall be conclusive and
          binding upon the Seller, absent manifest error. This Paragraph
          3(e)(ii) shall survive termination of this Repurchase Agreement and
          the repurchase of all Purchased Assets subject to Transactions
          hereunder until the expiration of the applicable statute of
          limitations.

          (f) Payment, Transfer and Custody.

          (i) Unless otherwise expressly provided herein, all amounts to be paid
          or deposited by the Seller hereunder shall be paid or deposited in
          accordance with the terms of this Repurchase Agreement no later than
          3:00 p.m. on the day when due in lawful money of the United States, in
          immediately available funds and without deduction, set-off or
          counterclaim to the Buyer's Account and if not received before such
          time shall be deemed to be received on the next Business Day. The
          Seller shall, to the extent permitted by Applicable Law, pay to the
          Buyer interest on any amounts not paid when due hereunder or under the
          Repurchase Documents at the Post-Default Rate, payable on demand;
          provided, however, that such interest rate shall not at any time
          exceed the maximum rate permitted by Applicable Law. Such interest
          shall be for the account of, and distributed to, the Buyer. All
          computations of interest, Price Differential and fees hereunder or
          under the Fee Letter shall be made on the basis of a year consisting
          of 360 days for the actual number of days (including the first but
          excluding the last day) elapsed. The Seller acknowledges that it has
          no rights of withdrawal from the foregoing Buyer's Account or from the
          Collection Account or the Securities Account.

          (ii) Whenever any payment hereunder shall be stated to be due on a day
          other than a Business Day, such payment shall be made on the next
          succeeding Business Day, and such extension of time shall in such case
          be included in the computation of the payment of the Price
          Differential or any fee payable hereunder or under the Fee Letter, as
          the case may be.

          (iii) Any Mortgage Asset Files not delivered to the Buyer or its
          designee (including the Custodian) are and shall be held in trust by
          the Seller or its agent for the benefit of the Buyer as the owner
          thereof. The Seller or its agent shall maintain a copy of the Mortgage
          Asset File and the originals of the Mortgage Asset File not delivered
          to the Buyer or its designee (including the Custodian). The possession
          of the Mortgage Asset File by the Seller or its agent is at the will
          of the Buyer for the sole purpose of servicing the related Purchased
          Asset, and such retention and possession by the Seller or its agent is
          in a custodial capacity only. Each Mortgage Asset File retained or
          held by the Seller or its agent shall be segregated on the Seller's
          books and records from the other assets of the Seller or its agent,
          and the books and records of the Seller or its agent shall be marked
          appropriately to reflect clearly the sale of the related Purchased
          Asset to the Buyer. The Seller or its agent shall release custody of
          the Mortgage Asset File only in accordance with written instructions
          from the Buyer, unless such release is required as incidental to the
          servicing of the Purchased Assets or is in connection with a
          repurchase of any


                                   Annex I-35



          Purchased Asset by the Seller, in each case in accordance with the
          terms of the Custodial Agreement.

          (g) Notwithstanding anything contained in this Agreement to the
          contrary, all Repurchase Price and all other Obligations shall be paid
          in full on or before the Facility Maturity Date.

          (h) Fees.

          (i) On or prior to the Closing Date, the Seller shall pay to the Buyer
          the Commitment Fee agreed to by the Seller and the Buyer in the Fee
          Letter.

          (ii) To the extent not separately paid by the Seller under the Fee
          Letter, the Price Differential, the Unused Fee and all other fees and
          amounts payable under the Fee Letter shall be paid to the Buyer from
          the Collection Account to the extent funds are available on each
          Payment Date pursuant to Paragraph 5 of this Repurchase Agreement.

          (iii) To the extent not separately paid by the Seller, the Custodian's
          fees and expenses shall be paid to the Custodian from the Collection
          Account to the extent funds are available on each Payment Date
          pursuant to Paragraph 5 of this Repurchase Agreement.

          (iv) The Seller shall pay to Moore & Van Allen PLLC, as counsel to the
          Buyer, on the Closing Date, its estimated, but reasonable, fees and
          out-of-pocket expenses in immediately available funds and shall pay
          all additional fees and out-of-pocket expenses of Moore & Van Allen
          PLLC (including reasonable fees and expenses incurred in reviewing
          proposed Mortgage Assets for purchase by the Buyer, which fees for the
          review of the proposed Mortgage Assets shall be limited to $2,500 per
          Mortgage Asset) within ten (10) days after receiving an invoice for
          such amounts.

          (i) Increased Costs; Capital Adequacy; Illegality.

          (i) If either (A) the introduction of or any change (including,
          without limitation, any change by way of imposition or increase of
          reserve requirements) in or in the interpretation of any law or
          regulation, or (B) the compliance by the Buyer and/or any other
          Affected Party with any guideline or request from any central bank or
          other Governmental Authority (whether or not having the force of law)
          shall (1) subject the Buyer and/or any other Affected Party to any Tax
          (except for Taxes on the overall net income or franchise of the Buyer
          and/or any other Affected Party), duty or other charge with respect to
          any ownership interest in the Purchased Items, or any right to enter
          into Transactions hereunder, or on any payment made hereunder, (2)
          impose, modify or deem applicable any reserve requirement (including,
          without limitation, any reserve requirement imposed by the Board of
          Governors of the Federal Reserve System, but excluding any reserve
          requirement, if any, included in the determination of the Price
          Differential), special deposit or similar requirement against assets
          of, deposits with or for the amount of, or credit extended by, the
          Buyer and/or any other Affected Party or (3) impose any other
          condition affecting the ownership interest in the Purchased Items
          conveyed to the Buyer hereunder or the Buyer's and/or any other
          Affected Party's rights hereunder, the result of which is to increase
          the cost to the Buyer and/or any other Affected Party or to reduce the
          amount of any sum received or receivable by the Buyer and/or any other
          Affected Party under this Repurchase Agreement, then within ten (10)
          days after demand by the Buyer and/or any other Affected Party (which
          demand shall be


                                   Annex I-36



          accompanied by a statement setting forth the basis for such demand),
          the Seller shall pay directly to the Buyer and/or any other Affected
          Party such additional amount or amounts as will compensate the Buyer
          and/or any other Affected Party for such additional or increased cost
          actually incurred or such reduction actually suffered.

          (ii) If either (A) the introduction of or any change in or in the
          interpretation of any law, guideline, rule, regulation, directive or
          request or (B) compliance by the Buyer and/or any other Affected Party
          with any law, guideline, rule, regulation, directive or request from
          any central bank or other Governmental Authority or agency (whether or
          not having the force of law), including, without limitation,
          compliance by the Buyer and/or any other Affected Party with any
          request or directive regarding capital adequacy, has or would have the
          effect of reducing the rate of return on the capital of the Buyer
          and/or any other Affected Party as a consequence of its obligations
          hereunder or arising in connection herewith to a level below that
          which the Buyer and/or any other Affected Party could have achieved
          but for such introduction, change or compliance (taking into
          consideration the policies of the Buyer and/or any other Affected
          Party with respect to capital adequacy) by an amount deemed by the
          Buyer and/or any other Affected Party to be material, then from time
          to time, within ten (10) days after demand by the Buyer and/or any
          other Affected Party (which demand shall be accompanied by a statement
          setting forth the basis for such demand), the Seller shall pay
          directly to the Buyer and/or any other Affected Party such additional
          amount or amounts as will compensate the Buyer and/or any other
          Affected Party for such reduction. For the avoidance of doubt, any
          interpretation of Accounting Research Bulletin No. 51 by the Financial
          Accounting Standards Board shall constitute an adaptation, change,
          request or directive subject to this Paragraph 3(i)(ii).

          (iii) In determining any amount provided for in this Paragraph 3(i),
          the Buyer and/or any other Affected Party may use any reasonable
          averaging and attribution methods. The Buyer or the Affected Party
          making a claim under this Paragraph 3(i) shall submit to the Seller a
          written description as to such additional or increased cost or
          reduction and the calculation thereof, which written description shall
          be conclusive absent demonstrable error. Notwithstanding anything to
          the contrary contained in clauses (i) or (ii) of this Paragraph 3(i),
          the Buyer shall not seek to impose any such Increased Costs on the
          Seller unless the Buyer is imposing such Increased Costs on similarly
          situated sellers or borrowers. To the extent possible, the Buyer will
          use its best efforts to give prior notice to the Seller that there
          will be Increased Costs incurred. If the Buyer gives notice of
          Increased Costs and the Seller either accepts such Increased Costs or
          continues to utilize the Facility with knowledge of such Increased
          Costs, the Seller shall be obligated to pay such Increased Costs
          before exercising the termination option set forth in the next
          sentence. If the proposed Increased Costs exceed 7.5% of the Seller's
          Facility costs for the preceding year, the Seller shall have the
          option to terminate the Repurchase Agreement by giving three (3)
          Business Days prior written notice to the Buyer and remitting to the
          Buyer on or before the effective date of the termination all
          outstanding Obligations due to the Buyer and the other Affected
          Parties under the Repurchase Documents. If the Seller terminates the
          Repurchase Agreement in accordance with the preceding sentence, the
          Seller shall be entitled to a pro-rata rebate of the Commitment Fee
          based on the portion of the three (3) year Facility that was not used
          by the Seller.

          (iv) If the Buyer and/or any other Affected Party shall notify the
          Seller that a Eurodollar Disruption Event as described in clause (a)
          of the definition of "Eurodollar Disruption Event" has occurred, all
          Transactions in respect of which the Price


                                   Annex I-37



          Differential accrues at the Adjusted Eurodollar Rate shall immediately
          be converted into Transactions in respect of which the Price
          Differential accrues at the Base Rate.

          (v) Without prejudice to the survival of any other agreement of the
          Seller hereunder, the agreements and obligations of the Seller
          contained in this Paragraph 3(i) shall survive the termination of this
          Repurchase Agreement until the expiration of the applicable statute of
          limitations.

          (j) Taxes.

          (i) All payments made by the Seller, the Guarantor and the Pledgor
          under the Repurchase Documents will be made free and clear of and
          without deduction or withholding for or on account of any Taxes. If
          any Taxes are required to be withheld from any amounts payable to the
          Buyer and/or any other Affected Party, then the amount payable will be
          increased (such increase, the "Additional Amount") such that every net
          payment made under the Repurchase Documents after withholding for or
          on account of any Taxes (including, without limitation, any Taxes on
          such increase) is not less than the amount that would have been paid
          had no such deduction or withholding been deducted or withheld. The
          foregoing obligation to pay Additional Amounts, however, will not
          apply with respect to net income or franchise taxes imposed on the
          Buyer and/or any other Affected Party, with respect to payments
          required to be made by the Seller, the Guarantor or the Pledgor under
          the Repurchase Documents, by a taxing jurisdiction in which the Buyer
          and/or any other Affected Party is organized, conducts business or is
          paying taxes (as the case may be).

          (ii) The Seller will indemnify the Buyer and any other Affected Party
          for the full amount of Taxes payable by such Person in respect of
          Additional Amounts and any liability (including penalties, interest
          and expenses) arising therefrom or with respect thereto. All payments
          in respect of this indemnification shall be made within ten (10) days
          from the date a written invoice therefor is delivered to either
          Seller.

          (iii) Within thirty (30) days after the date of any payment by the
          Seller of any Taxes, the Seller will furnish to the Buyer, at its
          address set forth under its name on the signature pages of the Master
          Repurchase Agreement, appropriate evidence of payment thereof.

          (iv) Without prejudice to the survival of any other agreement of the
          Seller hereunder, the agreements and obligations of the Seller
          contained in this Paragraph 3(j) shall survive the termination of this
          Repurchase Agreement until the expiration of the applicable statute of
          limitations.

          (k) Obligations Absolute. Except as set forth to the contrary in the
          Repurchase Documents, all sums payable by the Seller and/or the
          Guarantor hereunder shall be paid without notice, demand,
          counterclaim, setoff, deduction or defense and without abatement,
          suspension, deferment, diminution or reduction, and the obligations
          and liabilities of the Seller and the Guarantor hereunder shall in no
          way be released, discharged, or otherwise affected (except as
          expressly provided herein) by reason of: (a) any damage to or
          destruction of or any taking of any Property, any Underlying Mortgaged
          Property, any other collateral for a Purchased Asset or any portion of
          the foregoing; (b) any restriction or prevention of or interference
          with any use of any Property, Underlying Mortgaged Property, any other
          collateral for a Purchased Asset or any portion of the foregoing; (c)
          any title defect or encumbrance or any eviction from any


                                   Annex I-38



          Property, Underlying Mortgaged Property, any other collateral for a
          Purchased Asset or any portion of the foregoing by title paramount or
          otherwise; (d) any Insolvency Proceeding relating to any of the
          Seller, the Guarantor, a Borrower or any obligor, account debtor or
          indemnitor under the Mortgage Loan Documents or any Affiliate of the
          foregoing, or any action taken with respect to this Repurchase
          Agreement or any other Repurchase Document by any trustee or receiver
          of any of the Seller, the Guarantor, a Borrower or any obligor,
          account debtor or indemnitor under the Mortgage Loan Documents or any
          Affiliate of the foregoing, or by any court, in any such proceeding;
          (e) any claim that the Seller has or might have against the Buyer or
          any Affiliate; (f) any default or failure on the part of the Buyer to
          perform or comply with any of the terms of this Repurchase Agreement,
          the Repurchase Documents, the Engagement Letter or of any other
          agreement with the Seller, the Guarantor or any Affiliate of the
          foregoing; (g) the invalidity or unenforceability of any Purchased
          Asset or any of the Mortgage Loan Documents; (h) any failure, refusal
          or inability of a Borrower to pay any obligation due under the
          Mortgage Loan Documents; or (i) any other occurrence whatsoever,
          whether similar or dissimilar to the foregoing, whether or not any of
          the Seller, the Guarantor or any Affiliate of the foregoing shall have
          notice or knowledge of any of the foregoing."

     (i) Paragraph 4(a) of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "If at any time the Buyer determines in good faith (based on such
          factors as the Buyer determines to rely on in its discretion,
          including, but not limited to, a credit analysis of the Underlying
          Mortgaged Properties and/or the current market conditions for the
          Purchased Assets) that (i) with respect to Purchased Assets other than
          CMBS Securities, the Margin Base for such assets (as determined by the
          Buyer in its good faith discretion on such date) is less than the
          aggregate Purchase Price for all outstanding Transactions other than
          CMBS Securities and/or (ii) with respect to CMBS Securities, the
          Margin Base for such CMBS Securities (as determined by the Buyer in
          its good faith discretion on such date) is less than the Margin
          Amounts for such CMBS Securities (in each case a "Margin Deficit"),
          then the Buyer may by notice to the Seller in the form of Exhibit VIII
          (a "Margin Deficit Notice") require the Seller to transfer to the
          Buyer cash or Additional Purchased Assets in the amount of the Margin
          Deficit to the Buyer by no later than the Margin Correction Deadline.
          All cash transferred to the Buyer pursuant to this Paragraph 4(a)
          shall be deposited in the Collection Account and shall be attributed
          to such Transaction or Transactions as the Buyer shall determine in
          its discretion and shall be applied to reduce the outstanding Purchase
          Price to which it has been attributed. Transfers of Eligible Assets to
          the Buyer under this Paragraph 4(a) shall be subject to the same
          conditions and requirements that are applicable to the transfers of
          Eligible Assets under Paragraph 3(a). Notwithstanding anything
          contained herein to the contrary, the rights of the Buyer under this
          Paragraph 4(a) to require the elimination of the Margin Deficit may
          also be exercised whenever such a Margin Deficit exists with respect
          to any single or multiple Transactions hereunder (calculated without
          regard to the other Transaction outstanding under this Repurchase
          Agreement). The Buyer's election, in its discretion, not to deliver a
          Margin Deficit Notice at any time there is a Margin Deficit shall not
          waive the Margin Deficit or in any way limit or impair the Buyer's
          right to deliver a Margin Deficit Notice at any time the same or any
          other Margin Deficit exists."

     (j) Paragraph 4(b) of the Master Repurchase Agreement is hereby deleted in
its entirety (the terms "Margin Excess", "Seller's Margin Percentage" and
"Seller's Margin Amount" shall be disregarded entirely and be of no effect
wherever they appear in the Master Repurchase Agreement).


                                   Annex I-39



     (k) Paragraph 4(c) of the Master Repurchase Agreement is hereby deleted in
its entirety.

     (l) Paragraph 4(d) of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "Any cash transferred pursuant to Paragraph 4 of the Repurchase
          Agreement shall be attributable to Transactions in the manner required
          by Annex 1."

     (m) Paragraph 4(e) of the Master Repurchase Agreement is deleted in its
entirety.

     (n) Paragraph 4(f) of the Master Repurchase Agreement is hereby deleted in
its entirety.

     (o) Paragraph 5 of the Master Repurchase Agreement is hereby deleted in its
entirety and the following is substituted therefor:

          "The Buyer shall be entitled to receive for application in accordance
          with the provisions of this Repurchase Agreement an amount equal to
          all Income paid or distributed on or in respect of the Purchased
          Items, which amount shall be deposited by the Seller, each Servicer
          and each PSA Servicer and all other applicable Persons into the
          Collection Account. The Seller hereby agrees to instruct each
          Servicer, PSA Servicer, Swap Counterparty, each counterparty under any
          other Interest Rate Protection Agreement and all other applicable
          Persons to transfer all Income with respect to the Purchased Items in
          accordance with Section 5 of this Repurchase Agreement, who shall hold
          any funds so received pending application pursuant to the following
          sentence. On each Payment Date, any amounts received by the Buyer and
          deposited to the Collection Account since the immediately preceding
          Payment Date shall be applied as follows: first, to the extent not
          paid, to the payment of all outstanding fees, costs and expenses due
          to the Custodian under the Custodial Fee Letter, second, to the
          payment of all fees, costs, expenses and advances then due to the
          Buyer pursuant to the Repurchase Documents, other than the items
          covered in third through ninth; third, to the payment of outstanding
          Late Payment Fees and Price Differential at the Post-Default Rate,
          fourth, pari passu and pro-rata (based on the amounts owed to such
          Persons under this clause fourth), to the payment of accrued and
          unpaid Price Differential on the Purchased Assets then due to the
          Buyer and to the Swap Counterparty any Net Swap Payments then due to
          the Swap Counterparty for the current and any prior Payment Dates
          (other than Swap Breakage Costs); fifth, to the extent not previously
          paid by the Seller, to pay the Repurchase Price for Purchased Assets
          then subject to a request to repurchase in accordance with the terms
          of Paragraph 3(b) of this Repurchase Agreement; sixth, without
          limiting the Seller's obligations to cure Margin Deficits in a timely
          manner in accordance with Paragraph 4 of this Repurchase Agreement, to
          the Buyer for the payment of, as applicable, any Margin Deficit
          outstanding; seventh, to the extent any Income includes payments or
          prepayments of principal on the underlying Purchased Assets, such
          payments shall be applied to reduce the aggregate Repurchase Price
          outstanding; provided, however, prior to an Event of Default and
          provided no Margin Deficit is outstanding, only an amount equal to the
          product of the Advance Rate and the amount of such principal payment
          or prepayment shall be applied to reduce the Repurchase Price
          outstanding for the related Transaction; eighth, without limiting the
          Seller's obligations under Paragraph 3(c) of this Repurchase Agreement
          and to the extent not paid previously by the Seller, to the Buyer for
          the reduction of the Purchase Price outstanding in accordance with
          Paragraph 3(c) of this Repurchase Agreement; ninth, pari passu and
          pro-rata (based on the amounts owed to


                                   Annex I-40



          such Persons under this clause ninth), to the payment of Breakage
          Costs, if any, Swap Breakage Costs, if any, Indemnified Amounts, if
          any, Increased Costs, if any, Additional Amounts, if any, and all
          other amounts then due and owing to the Buyer, the Swap Counterparty,
          any Affected Party or any other Person pursuant to the Repurchase
          Documents; and tenth, the remainder to the Seller, for such purposes
          as the Seller shall determine in its discretion, subject to the
          Financial Covenants and other requirements of the Repurchase
          Documents; provided, however, that if a Margin Deficit, Default or
          Event of Default has occurred and is continuing, amounts collected
          pursuant to this Paragraph 5 of this Repurchase Agreement shall not be
          transferred to the Seller but shall be retained by the Buyer and
          applied in reduction of the Obligations."

     (p) Paragraph 6 of the Master Repurchase Agreement is hereby deleted in its
entirety and the following is substituted therefor:

          "(a) Grant of Security Interest.

          (i) Each of the following items or types of property, whether now
          owned or hereafter acquired, now existing or hereafter created and
          wherever located, is hereinafter collectively referred to as the
          Purchased Items (the "Purchased Items"): (A) all Purchased Assets; (B)
          all Income and Cash Collateral, if any; (C) all Mortgage Loan
          Documents; (D) all Mortgage Asset Files, including, without
          limitation, all promissory notes, certificates, instruments, Security
          Agreements, chattel mortgages and all other loan, security or other
          documents relating to such Purchased Items, together with all files,
          documents, instruments, surveys, certificates, correspondence,
          appraisals, licenses, contracts, computer programs, computer storage
          media, accounting records and other books and records relating
          thereto; (E) all collateral, security interests, rights and other
          interests under or with respect to each Purchased Item; (F) all
          Purchase Agreements and the collateral, security interests, rights and
          other interests thereunder; (G) all mortgage guaranties and insurance
          (issued by governmental agencies or otherwise) and any mortgage
          insurance certificate, policy or other document evidencing such
          mortgage guaranties or insurance relating to any Purchased Items; (H)
          all servicing fees to which the Seller is entitled and servicing and
          other rights relating to the Purchased Items; (I) all Servicing
          Agreements, Servicing Records and Servicing Files with respect to the
          Purchased Items and the rights and interests of the Seller thereunder
          or with respect thereto; (J) all Servicer Accounts established
          pursuant to any Servicing Agreement, Pooling and Servicing Agreement
          or otherwise with respect to the Purchased Items and all amounts on
          deposit therein from time to time related to the Purchased Items; (K)
          all Pooling and Servicing Agreements relating to the Purchased Items
          and all rights of the Seller thereunder or with respect thereto; (L)
          all other agreements, instruments or contracts relating to,
          constituting, or otherwise governing, any or all of the foregoing to
          the extent they relate to the Purchased Items, including the right to
          receive principal and interest payments and any related fees, breakage
          fees, late fees and penalties with respect to the Purchased Items and
          the right to enforce such payments; (M) insurance policies,
          certificates of insurance, insurance proceeds and the rights to
          enforce payment of insurance proceeds, in each case to the extent they
          relate to the Purchased Items; (N) the Collection Account and all
          monies, cash, deposits, securities or investment property from time to
          time on deposit in the Collection Account; (O) the Securities Account
          and all monies, cash, deposits, securities or investment property from
          time to time on deposit in the Securities Account; (P) any collection
          account, escrow account, collateral account or lock-box account
          related to the Purchased Items to the extent of any Seller's or the
          holder's interest therein, including all moneys, cash, deposits,
          securities or investment


                                   Annex I-41



          property from time to time on deposit therein; (Q) rights of the
          Seller under any letter of credit, guarantee or other credit support
          or enhancement related to the Purchased Items; (R) any Interest Rate
          Protection Agreements relating to the Purchased Assets, including all
          payments due to the Seller, the Guarantor or any Affiliates of the
          foregoing thereunder; (S) all "general intangibles", "accounts",
          "chattel paper", "deposit accounts", "instruments", "securities",
          "financial assets" and "investment property" as defined in the Uniform
          Commercial Code as in effect from time to time relating to or
          constituting any and all of the foregoing; and (T) any and all
          replacements, substitutions, conversions, distributions on or proceeds
          of, from or on any and all of the foregoing; provided, however, none
          of the foregoing Purchased Items shall include any obligations.

          (ii) The Buyer and the Seller intend that the Transactions hereunder
          be sales to the Buyer of the Purchased Assets and not loans from the
          Buyer to the Seller secured by the Purchased Assets. However, in order
          to preserve the Buyer's rights under this Repurchase Agreement in the
          event that a court or other forum recharacterizes the Transactions
          hereunder as loans and as security for (A) the repayment of the
          Aggregate Unpaids and performance by the Seller of all of the Seller's
          obligations to the Buyer hereunder and under the Repurchase Documents
          and the Transactions entered into hereunder (collectively, the
          "Repurchase Obligations"), (B) the Seller-Related Obligations and (C)
          all expenses and charges, legal or otherwise, incurred in collecting
          or enforcing, realizing on or protecting any security for, the
          Repurchase Obligations and/or the Seller Related Obligations (the
          amounts described in the foregoing clauses A-C are collectively
          referred to as the "Obligations"), (a) the Seller hereby assigns,
          pledges and grants a security interest in all of its right, title and
          interest in, to and under the Purchased Items to the Buyer (on behalf
          of the Buyer and the Swap Counterparty) to secure the Obligations, (b)
          it is the express intent of the parties that conveyance of the
          Purchased Items be deemed a pledge of the Purchased Items by the
          Seller to the Buyer (on behalf of the Buyer and the Swap Counterparty)
          to secure a debt or other obligation of the Seller, and (c) (i) this
          Repurchase Agreement shall also be deemed to be a security agreement
          within the meaning of Article 9 of the UCC of the applicable
          jurisdiction; (ii) the conveyance provided for herein shall be deemed
          to be a grant by the Seller to the Buyer (on behalf of the Buyer and
          the Swap Counterparty) of a security interest in all of the Seller's
          right, title and interest in and to the Purchased Items; (iii) the
          assignment by the Buyer (on behalf of the Buyer and the Swap
          Counterparty) of the interest of the Buyer as contemplated herein
          shall be deemed to be an assignment of any security interest created
          hereunder; (iv) the possession by the Buyer or any of its agents,
          including, without limitation, the Custodian, of the Mortgage Loan
          Documents, the Purchased Items and such other items of Property as
          constitute instruments, money, negotiable documents or chattel paper
          shall be deemed to be possession by the secured party for purposes of
          perfecting the security interest pursuant to the UCC; and (v)
          notifications to Persons (other than the Buyer and the Swap
          Counterparty) holding such Property, and acknowledgments, receipts or
          confirmations from Persons (other than the Buyer and the Swap
          Counterparty) holding such Property, shall be deemed notifications to,
          or acknowledgments, receipts or confirmations from, financial
          intermediaries, bailees or agents (as applicable) of the secured party
          for the purpose of perfecting such security interest under the UCC and
          Applicable Law. The assignment, pledge and grant of security interest
          contained herein shall be, and the Seller hereby represents and
          warrants to the Buyer and the Swap Counterparty that it is, a first
          priority perfected security interest. The Seller agrees to mark its
          computer records and tapes to evidence the interests granted to the
          Buyer (on behalf of the Buyer and the Swap Counterparty) hereunder.
          All Purchased Items shall secure the payment of all Obligations now or


                                   Annex I-42



          hereafter existing, including, without limitation, the Seller's
          obligation to repurchase Purchased Assets, or if such obligation is so
          recharacterized as a loan, to repay such loan for the Repurchase Price
          and to pay the Aggregate Unpaids and any and all other Obligations.
          For the avoidance of doubt and not by way of limitation of the
          foregoing, (A) each Purchased Asset, including all Income related
          thereto, secures the obligations of the Seller with respect to all
          other Transactions and the obligations with respect to all other
          Purchased Assets, including those Purchased Assets that are junior in
          priority to the Purchased Asset in question, and (B) if there is an
          Event of Default, no Purchased Item will be released from the Buyer's
          Lien or transferred to the Seller until the Obligations are
          indefeasibly paid in full. All references in this Repurchase Agreement
          and the other Repurchase Documents to the Buyer as the secured party
          or the rights of the Buyer as the secured party shall be deemed to
          include the Swap Counterparty as a secured party and the rights of the
          Swap Counterparty as a secured party. Notwithstanding the foregoing,
          the Indebtedness of the Seller under the Obligations shall be full
          recourse to the Seller.

          (iii) Pursuant to the Custodial Agreement, the Custodian shall hold
          the Mortgage Asset Files as exclusive bailee pursuant to the terms of
          the Custodial Agreement and shall deliver the Trust Receipts (along
          with completed Mortgage Asset File Checklists attached thereto) to the
          Buyer (with a copy to the Seller), each such Trust Receipt to reflect
          that the Custodian has reviewed such Mortgage Asset Files in the
          manner and to the extent required by the Custodial Agreement and
          identifying any deficiencies in such Mortgage Asset Files as so
          reviewed.

          (iv) The assignment under this Paragraph 6 does not constitute and is
          not intended to result in the creation or an assumption by the Buyer
          of any obligation of the Seller or any other Person in connection with
          any or all of the Purchased Items or under any agreement or instrument
          relating thereto. Anything herein to the contrary notwithstanding, (i)
          the Seller shall remain liable under the Purchased Items to the extent
          set forth therein to perform all of their duties and obligations
          thereunder to the same extent as if the Repurchase Documents had not
          been executed, (ii) the exercise by the Buyer of any of its rights
          under, in or to the Purchased Items shall not release the Seller from
          any of its duties or obligations under the Purchased Items, and (iii)
          the Buyer shall not have any obligations or liability under the
          Purchased Items by reason of the Repurchase Documents or otherwise,
          nor shall the Buyer be obligated to perform any of the obligations or
          duties of the Seller or any other Person thereunder or to take any
          action to collect or enforce any claim for payment assigned hereunder.

          (b) Release of Lien on Purchased Assets. Except as otherwise provided
          in a Repurchase Document, at such time as any Purchased Asset is
          repurchased in accordance with this Repurchase Agreement, and the
          Repurchase Price and all other amounts due with respect thereto have
          been paid in full, the Buyer shall release its interest in such
          Purchased Asset and any related Purchased Items; provided, that, the
          Buyer will make no representation or warranty, express or implied,
          with respect to any such Purchased Asset or Purchased Items in
          connection with such release (other than with respect to Liens created
          by the Buyer), and any transfer of such Purchased Items shall be
          without recourse to or the expense of the Buyer.

          (c) Further Assurances. The provisions of Section 19 of this
          Repurchase Agreement shall apply to the security interest granted
          under Paragraph 6 of this Repurchase Agreement as well as to the
          Transactions hereunder.


                                   Annex I-43



          (d) Remedies. Upon the occurrence of an Event of Default, the Buyer
          shall have, with respect to the security interest in the Purchased
          Items granted pursuant to Paragraph 6 of this Repurchase Agreement,
          and in addition to all other rights and remedies available to the
          Buyer under this Repurchase Agreement, the Repurchase Documents and
          other Applicable Law, all rights and remedies of a secured party upon
          default under the UCC."

     (q) Paragraph 7 of the Master Repurchase Agreement is hereby deleted in its
entirety and the following is substituted therefor:

          "All of the Seller's right, title and interest in the Purchased Assets
          that constitute CMBS Securities shall pass to the Buyer on the
          applicable Purchase Date. The Seller shall deliver to the Buyer a
          complete set of all transfer documents to be completed by the Buyer
          and executed copies of any transfer documents to be completed by the
          Seller, in either case in blank, but in form sufficient to allow
          transfer and registration of such Purchased Assets to the Buyer no
          later than the proposed Purchase Date for the relevant Purchased
          Asset, and such CMBS Securities shall be medallion guaranteed. All
          transfers of certificated securities from the Seller to the Buyer
          shall be effected by physical delivery to the Buyer of the Purchased
          Assets (duly endorsed by the Seller, in blank) together with a stock
          power executed by the Seller, in blank. With respect to Purchased
          Assets that shall be delivered through the DTC or the National Book
          Entry System of the Federal Reserve, as applicable, in book-entry form
          and credited to or otherwise held in an account, the Seller shall take
          such actions necessary to provide instruction to the relevant
          financial institution, clearing corporation, securities intermediary
          or other entity, to effect and perfect a legally valid delivery of the
          relevant interest granted herein to the Buyer hereunder to be held in
          the Securities Account. Purchased Assets delivered in book-entry form
          shall be under the custody of and held in the name of the Buyer in the
          Securities Account."

     (r) Paragraph 8 of the Master Repurchase Agreement is hereby deleted in its
entirety and the following is substituted therefor:

          "Title to all Purchased Items shall pass to the Buyer, and the Buyer
          shall have free and unrestricted use of all Purchased Items subject to
          the terms of this Repurchase Agreement. Nothing in this Repurchase
          Agreement shall preclude the Buyer from engaging in repurchase
          transactions with the Purchased Items or otherwise selling, pledging,
          syndicating, repledging, transferring, hypothecating, or
          rehypothecating the Purchased Items, all on terms that the Buyer may
          determine in its discretion subject, however, to the Buyer's
          obligations to apply Income and reconvey the Purchased Assets to the
          Seller in accordance with the terms hereof. Nothing contained in this
          Repurchase Agreement shall obligate the Buyer to segregate any
          Purchased Items transferred to the Buyer by the Seller. Nothing
          contained in this Repurchase Agreement shall prohibit the Buyer from
          causing Purchased Items purchased hereunder to be transferred or
          re-allocated to one or more other facilities in its discretion.
          Notwithstanding the foregoing, Buyer shall reconvey, without recourse,
          representation or warranty, the Purchased Items to the Seller free and
          clear of all Liens created by the Buyer, in accordance with the terms
          of this Repurchase Agreement."

     (s) Paragraph 9 of the Master Repurchase Agreement is hereby deleted in its
entirety and shall be disregarded entirely.


                                   Annex I-44



     (t) Paragraph 10 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "The Seller represents and warrants, as of the date of this Repurchase
          Agreement and any Transaction hereunder and at all times while any
          Repurchase Document and any Transaction hereunder is in full force and
          effect, as follows:

          (a) Organization and Good Standing. Each of the Seller and the
          Guarantor has been duly organized, and is validly existing as a
          limited liability company, with respect to the Seller, and as a
          corporation, with respect to the Guarantor, in good standing, under
          the laws of the State of Delaware and Maryland, respectively, with all
          requisite power and authority to own or lease its Properties and
          conduct its business as such business is presently conducted, and had,
          at all relevant times, and now has, all necessary power, authority and
          legal right to acquire, own, sell and pledge the Purchased Items.

          (b) Due Qualification. Each of the Seller and the Guarantor is duly
          qualified to do business and is in good standing as a limited
          liability company or corporation, as applicable, and has obtained all
          necessary licenses and approvals, in all jurisdictions in which the
          ownership or lease its Property or the conduct of its business
          requires such qualification, licenses or approvals.

          (c) Power and Authority; Due Authorization; Execution and Delivery.
          Each of the Seller and the Guarantor (i) has all necessary power,
          authority and legal right (A) to execute and deliver the Repurchase
          Documents to which it is a party, (B) to carry out and perform the
          terms of the Repurchase Documents to which it is a party, and (C) to
          sell, assign and pledge the Purchased Items on the terms and
          conditions provided herein but subject to the terms of the Mortgage
          Loan Documents, and (ii) has duly authorized by all necessary
          corporate or limited liability company action, as applicable, (A) the
          execution, delivery and performance of the Repurchase Documents to
          which it is a party, and (B) the sale, assignment and pledge of the
          Purchased Items on the terms and conditions herein provided. The
          Repurchase Documents to which the Seller or the Guarantor is a party
          have been duly executed and delivered by the Seller and the Guarantor.

          (d) Binding Obligation. Each of the Repurchase Documents to which each
          of the Seller and the Guarantor is a party constitutes a legal, valid
          and binding obligation of the Seller and the Guarantor, enforceable
          against the Seller and the Guarantor in accordance with its respective
          terms, except as such enforceability may be limited by Insolvency Laws
          and by general principles of equity (whether considered in a suit at
          law or in equity).

          (e) Security Interest.

          (i) This Repurchase Agreement and the other Repurchase Documents
          constitute a valid transfer to the Buyer of all right, title and
          interest of the Seller in, to and under all Purchased Items, free and
          clear of any Lien of any Person claiming through or under the Seller,
          the Guarantor, the Pledgor or any of their Affiliates, except for
          Permitted Liens and the Seller's repurchase rights described herein,
          and is enforceable against creditors of and purchasers from the
          Seller. If the conveyances contemplated by this Repurchase Agreement
          are determined to be transfers for security, then this Repurchase
          Agreement constitutes a grant of a security interest in all Purchased
          Items to the Buyer, that, upon the delivery of the Confirmations, the
          Assignments and Mortgage Asset Files to the


                                   Annex I-45



          Custodian and the filing of the financing statements described in
          Section 3, shall be a first priority perfected security interest in
          all Purchased Items to the extent such Purchased Items can be
          perfected by possession, by filing or control, subject only to
          Permitted Liens. Neither the Seller nor any Person claiming through or
          under the Seller shall have any claim to or interest in the Collection
          Account or the Securities Account, except for the interest of the
          Seller in such property as a debtor for purposes of the UCC;

          (ii) Other than the Lien and transfers contemplated hereunder, the
          Seller has not sold, assigned, pledged, encumbered or otherwise
          conveyed any of the Purchased Items to any Person, and, immediately
          prior to the sale to the Buyer, the Seller was the sole owner of such
          Purchased Items, and the Seller owns and has good and marketable title
          to the Purchased Items free and clear of any Lien (other than
          Permitted Liens);

          (iii) The Seller has received all consents and approvals, if any,
          required by the terms of any Purchased Items to the sale and granting
          of a security interest in the Purchased Items hereunder to the Buyer;

          (iv) Upon execution and delivery of the Account Agreement and the
          Securities Account Agreement, the Buyer shall either be the owner of,
          or have a valid and fully perfected first priority security interest
          in, the Collection Account and the Securities Account and the
          securities, deposits, investment property and other Purchased Items
          contained therein;

          (v) The Seller has not authorized the filing of and is not aware of
          any financing statements against the Seller as debtor that include a
          description of collateral covering the Purchased Items other than any
          financing statement (A) that has been terminated, or (B) granted
          pursuant to this Repurchase Agreement. The Seller is not aware of the
          filing of any judgment or tax Lien filings against the Seller;

          (vi) None of the Mortgage Loan Documents has any marks or notations
          indicating that it has been pledged, assigned or otherwise conveyed to
          any Person other than the Buyer.

          (f) Tax Liens. Each of the Seller and the Guarantor have timely filed
          returns for and, subject to the next sentence, paid all applicable
          federal, state, and local Taxes. The Seller and the Guarantor
          represents and warrants that there are no delinquent federal, state,
          city, county or other Taxes relating to such Person, the Purchased
          Items or any arrangement pursuant to which the Purchased Items are
          issued, except those relating to the Seller or Guarantor that are
          being contested by such Person, in good faith and with respect to
          which payment has been stayed by a court of competent jurisdiction.

          (g) Financial Statements. Each of the Seller and the Guarantor
          represents and warrants that, since the date of the financial
          statements heretofore most recently delivered by such Person (which
          such Person represents and warrants to be the most recent financial
          statement), there has been no development or event (or prospective
          development or event), that would constitute a material adverse change
          in such Person's financial condition or results of operations or any
          other Material Adverse Effect.

          (h) No Proceedings. There is no litigation, proceeding or
          investigation pending or, to the best knowledge of the Seller or the
          Guarantor, threatened in writing against the Seller or the Guarantor,
          before any Governmental Authority (i) asserting the invalidity of


                                   Annex I-46



          the Repurchase Documents, (ii) seeking to prevent the consummation of
          any of the transactions contemplated by the Repurchase Documents to
          which the Seller or the Guarantor is a party, or (iii) seeking any
          determination or ruling that could reasonably be expected to have
          Material Adverse Effect.

          (i) No Violation or Defaults. The consummation of the transactions
          contemplated by the Repurchase Documents to which each of the Seller
          and the Guarantor is a party and the fulfillment of the terms of the
          Repurchase Documents will not (i) conflict with, result in any breach
          of any of the terms and provisions of, or constitute (with or without
          notice or lapse of time or both) a default under, the Seller's or the
          Guarantor's, as applicable, Governing Documents or any material
          Indebtedness, Guarantee Obligation or Contractual Obligation of the
          Seller or the Guarantor, as applicable, (ii) result in the creation or
          imposition of any Lien (other than Permitted Liens) upon any of the
          Seller's or the Guarantor's Properties pursuant to the terms of any
          such Indebtedness, Contractual Obligation or Guarantee Obligation
          other than this Repurchase Agreement, or (iii) violate any Applicable
          Law.

          (j) All Consents Required. All approvals, authorizations, consents,
          orders or other actions of any Person or of any Governmental Authority
          (if any) required for the due execution, delivery and performance by
          the Seller and the Guarantor of the Repurchase Documents to which each
          is a party (including the transfer of and the grant of a security
          interest in the Purchased Items) have been obtained, effected, waived
          or given and are in full force and effect.

          (k) Bulk Sales. The execution, delivery and performance of this
          Repurchase Agreement and the other Repurchase Documents and the
          transactions contemplated hereby and thereby do not require compliance
          with any "bulk sales" act or similar law by the Seller or the
          Guarantor.

          (l) No Event of Default. No Default or Event of Default has occurred
          and is continuing hereunder.

          (m) Insurance. Each of the Seller and the Guarantor has and maintains,
          with respect to its Properties and business, insurance which meets the
          requirements of Section 5(r) of this Repurchase Agreement. In
          addition, the Seller shall maintain the insurance required by Section
          5.7 of the Custodial Agreement.

          (n) Environmental Matters. With respect to Properties of the Seller or
          the Guarantor other than Purchased Assets:

          (i) No Properties owned or leased by the Seller or the Guarantor and,
          to the knowledge of the Seller and the Guarantor, no Properties
          formerly owned or leased by the Seller or the Guarantor, or any
          Subsidiaries thereof, contain, or have previously contained, any
          Materials of Environmental Concern in amounts or concentrations that
          constitute or constituted a violation of, or reasonably could be
          expected to give rise to liability under, Environmental Laws;

          (ii) Each of the Seller and the Guarantor is in compliance, and has in
          the last five (5) years (or such shorter period as the Seller and/or
          the Guarantor shall have been in existence) been in compliance, with
          all applicable Environmental Laws, and, to the knowledge of the Seller
          and the Guarantor, there is no violation of any Environmental


                                   Annex I-47



          Laws that reasonably could be expected to interfere with the continued
          operations of the Seller or the Guarantor;

          (iii) Neither the Seller nor the Guarantor has received any notice of
          violation, alleged violation, non-compliance, liability or potential
          liability under any Environmental Law, nor does the Seller or the
          Guarantor have knowledge that any such notice will be received or is
          being threatened;

          (iv) Materials of Environmental Concern have not been transported or
          disposed of by the Seller or the Guarantor (including any employee or
          agent of either the Seller or the Guarantor) in violation of, or in a
          manner or to a location that reasonably could be expected to give rise
          to liability under, any applicable Environmental Law, nor has any of
          them generated, treated, stored or disposed of at, on or under any of
          the Properties in violation of, or in a manner that reasonably could
          be expected to give rise to liability under, any applicable
          Environmental Law;

          (v) No judicial proceedings or governmental or administrative action
          is pending, or, to the knowledge of the Seller or the Guarantor,
          threatened, under any Environmental Law to which the Seller or the
          Guarantor is or will be named as a party, nor are there any consent
          decrees or other decrees, consent orders, administrative orders or
          other orders, or other administrative or judicial requirements arising
          out of judicial proceedings or governmental or administrative actions,
          outstanding under any Environmental Law to which the Seller or the
          Guarantor is a party;

          (vi) There has been no release or, to the best knowledge of the Seller
          and the Guarantor, threat of release of Materials of Environmental
          Concern in violation of or in amounts or in a manner that reasonably
          could be expected to give rise to liability under any Environmental
          Law for which the Seller or the Guarantor may become liable; and

          (vii) To the best knowledge of the Seller and the Guarantor, each of
          the representations and warranties set forth in the preceding clauses
          (i) through (vi) is true and correct with respect to each parcel of
          real property owned or operated by the Seller or the Guarantor.

          (o) Investment Company Act. Each of the Seller and the Guarantor
          represents and warrants to Buyer that it is a "qualified purchaser" as
          defined in Section 2(a)(51) of the 40 Act. Neither of the Seller nor
          the Guarantor is required to register as or is controlled by an entity
          required to register as an "investment company" within the meaning of
          the 40 Act.

          (p) Patriot Act. Each of the Seller and the Guarantor represents and
          warrants that, to its actual knowledge, it is in compliance, in all
          material respects, with the (i) the Trading with the Enemy Act, as
          amended, and each of the foreign assets control regulations of the
          United States Treasury Department (31 C.F.R. , Subtitle B, Chapter V,
          as amended) and any other applicable enabling legislation or executive
          order relating thereto, (ii) the Uniting and Strengthening America by
          Providing Appropriate Tools Required to Intercept and Obstruct
          Terrorism (USA Patriot Act of 2001), and (iii) all other anti-money
          laundering laws and regulations. The Seller and the Guarantor has
          established an adequate anti-money laundering compliance program as
          required by the above-referenced laws and has conducted the requisite
          due diligence in connection with the origination or acquisition of
          each Purchased Asset for purposes of such laws and the


                                   Annex I-48



          acquisition of each of the Purchased Assets by the Seller, its agents
          and/or Affiliates complies with each of the above-references laws. No
          part of the proceeds of any Transaction will be used, directly or
          indirectly, for any payments to any governmental official or employee,
          political party, official of a political party, candidate for
          political office, or anyone else acting in an official capacity, in
          order to obtain, retain or direct business or obtain any improper
          advantage, in violation of the United States Foreign Corrupt Practices
          Act of 1977, as amended.

          (q) Office of Foreign Assets Control. Each of the Seller and the
          Guarantor represents and warrants that it is not a Person (i) whose
          Property or interest in Property is blocked or subject to blocking
          pursuant to Section 1 of Executive Order 13224 of September 23, 2001
          Blocking Property and Prohibiting Transactions With Persons Who
          Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
          (2001)), (ii) who engages in any dealings or transactions prohibited
          by Section 2 of such executive order, or, to the Seller's and the
          Guarantor's actual knowledge, is otherwise associated with any such
          Person in any manner violative of Section 2 of such executive order,
          or (iii) on the current list of Specially Designated Nationals and
          Blocked Persons or subject to the limitations or prohibitions under
          any other U.S. Department of Treasury's Office of Foreign Assets
          Control regulation or executive order.

          (r) Certain Tax Matters. Each of the Seller and the Guarantor
          represents, warrants, acknowledges and agrees, that it does not intend
          to treat any Transaction or any related transactions hereunder as
          being a "reportable transaction" (within the meaning of United States
          Treasury Department Regulation Section 1.6011-4). In the event that
          the Seller or the Guarantor determines to take any action inconsistent
          with such intention, it will promptly notify the Buyer. If the Seller
          or the Guarantor so notifies the Buyer, the Seller or Guarantor, as
          applicable, acknowledges and agrees that the Buyer may treat each
          Transaction as part of a transaction that is subject to United States
          Treasury Department Regulation Section 301.6112-1, and the Buyer will
          maintain the lists and other records required by such Treasury
          Regulation.

          (s) True and Complete Disclosure. Each of the Seller and the Guarantor
          represents and warrants that the information, reports, financial
          statements, exhibits and schedules furnished in writing by or on
          behalf of the Seller or the Guarantor to the Buyer in connection with
          the negotiation, preparation or delivery of this Repurchase Agreement
          and the other Repurchase Documents or included herein or therein or
          delivered pursuant hereto or thereto, when taken as a whole, do not
          contain any untrue statement of material fact or knowingly omit to
          state any material fact necessary to make the statements herein or
          therein, in light of the circumstances under which they were made, not
          misleading. There is no fact known to the Seller or the Guarantor,
          after due inquiry, that would reasonably be expected to have a
          Material Adverse Effect that has not been disclosed herein or in a
          report, financial statement, exhibit, schedule, disclosure letter or
          other writing furnished to the Buyer for use in connection with the
          transactions contemplated hereby or thereby. All written information
          furnished after the date hereof by or on behalf of the Seller or the
          Guarantor to the Buyer in connection with this Repurchase Agreement or
          the other Repurchase Documents and the transactions contemplated
          hereby and thereby will be true, complete and accurate in all material
          respects, or (in the case of projections) based on reasonable
          estimates, on the date as of which such information is stated or
          certified.


                                   Annex I-49



          (t) Solvency. None of this Repurchase Agreement, any other Repurchase
          Document or any Transaction hereunder is entered into in contemplation
          of insolvency or with intent to hinder, delay or defraud any of the
          Seller's or the Guarantor's creditors. The transfer of the Purchased
          Items subject hereto, the obligation to repurchase such Purchased
          Items and the entering into of the Repurchase Documents (including the
          Guaranty) are not undertaken with the intent to hinder, delay or
          defraud any of the Seller's or the Guarantor's creditors. As of each
          Purchase Date, the Seller and the Guarantor are and will be Solvent,
          and the transfer and sale of the Purchased Items pursuant hereto, the
          obligation to repurchase such Purchased Items and the entering into of
          the Repurchase Documents (including the Guaranty) will not render any
          such party not Solvent. No petition in bankruptcy has been filed
          against either Seller or the Guarantor in the last ten (10) years, and
          neither the Seller nor the Guarantor has in the last ten (10) years
          made an assignment for the benefit of creditors or taken advantage of
          any debtor relief laws.

          (u) Exchange Act Compliance; Regulations T, U and X. None of the
          Transactions contemplated herein (including, without limitation, the
          use of the proceeds from the sale of the Purchased Items) will violate
          or result in a violation of Section 7 of the Exchange Act, or any
          regulations issued pursuant thereto, including, without limitation,
          Regulations T, U and X. Neither the Seller nor the Guarantor owns or
          intends to carry or purchase, and no proceeds from the Transactions
          will be used to carry or purchase, any "margin stock" within the
          meaning of Regulation U or to extend "purpose credit" within the
          meaning of Regulation U.

          (v) ERISA Compliance. (A) Neither the Seller nor Guarantor has
          established nor maintained any Plan; and (B) each of Seller and
          Guarantor either (1) qualifies as an Operating Company; (2) complies
          with an exception set forth in the Plan Asset Regulations such that
          the assets of such Person would not be subject to Title I of ERISA or
          Section 4975 of the Internal Revenue Code; or (3) does not hold any
          Plan Assets that are subject to ERISA.

          (w) Eligibility of Purchased Assets. With respect to each Purchased
          Asset, to the Seller's actual knowledge, the Seller is not aware of
          any material exception to or non-compliance with the eligibility
          criteria set forth on Schedule 1 to this Repurchase Agreement
          applicable to such Purchased Asset.

          (x) Interest Rate Protection Agreements. Each of the Seller and the
          Guarantor represents and warrants that no "default" has occurred or is
          continuing under any Interest Rate Protection Agreement.

          (y) Tradenames. The exact legal name of each of the Seller and the
          Guarantor is set forth on the signature pages to this Repurchase
          Agreement. Neither of the Seller nor the Guarantor has any trade
          names, fictitious names, assumed names or "doing business as" names or
          other names under which it has done or is doing business.

          (z) Ongoing Representations. On the Purchase Date for each Transaction
          and on each day that a Purchased Asset remains subject to this
          Repurchase Agreement, the Seller shall be deemed to restate and make
          each of the representations and warranties made by it in this
          Paragraph 10 of this Repurchase Agreement.

          (aa) Value Given. The Seller shall have given reasonably equivalent
          value to each Transferor in consideration for the transfer to the
          Seller of the Purchased Items under the


                                   Annex I-50



          applicable Purchase Agreement, no such transfer shall have been made
          for or on account of an antecedent debt owed by the Transferor
          thereunder to the Seller, and no such transfer is or may be voidable
          or subject to avoidance under any section of the Bankruptcy Code.

          (bb) [RESERVED].

          (cc) Compliance. Each of the Seller and the Guarantor has complied in
          all material respects (i) with all Applicable Laws to which it may be
          subject, and no Purchased Item contravenes any Applicable Laws
          (including, without limitation, laws, rules and regulations relating
          to licensing, truth in lending, fair credit billing, fair credit
          reporting, equal credit opportunity, fair debt collection practices
          and privacy) and (ii) all Contractual Obligations, Indebtedness and
          Guarantee Obligations.

          (dd) Income. The Seller acknowledges that all Income received by it or
          its Affiliates and the Servicers and PSA Servicers with respect to the
          Purchased Items sold hereunder are held in trust and shall be held in
          trust for the benefit of the Buyer until deposited into the Collection
          Account as required herein.

          (ee) Set-Off, etc. No Purchased Item has been compromised, adjusted,
          extended, satisfied, subordinated, rescinded, set-off or modified by
          the Seller, the Guarantor or any Affiliate of the foregoing, and no
          Purchased Item is subject to compromise, adjustment, extension (except
          as set forth in the related Mortgage Asset File), satisfaction,
          subordination, rescission, set-off, counterclaim, defense, abatement,
          suspension, deferment, deduction, reduction, termination or
          modification, whether arising out of transactions concerning the
          Purchased Item or otherwise, by the Seller, the Guarantor or any
          Affiliate of the foregoing, except for amendments to such Purchased
          Items otherwise permitted under Section 6(e)(iii) of this Repurchase
          Agreement.

          (ff) Full Payment. The Seller or the Guarantor has knowledge of any
          fact that should lead it to expect that any Purchased Asset will not
          be paid in full.

          (gg) Assignments. The Assignments do not violate any provisions of the
          underlying Mortgage Loan Documents, such documents do not contain any
          express or implied prohibitions on sales or assignments of the
          Purchased Assets to national banks, and such agreements are valid,
          binding and enforceable against the Seller.

          (hh) Acting as Principal. The Seller will engage in such Transactions
          as principal, or, if agreed in writing in advance of any Transaction
          by the Buyer, as agent for a disclosed principal.

          (ii) No Broker. Neither the Seller, the Guarantor nor any Affiliate of
          the foregoing has dealt with any broker, investment banker, agent or
          other Person, except for the Buyer (or an Affiliate of the Buyer), who
          may be entitled to any commission or compensation in connection with
          the sale of Purchased Assets pursuant to this Repurchase Agreement.

          (jj) Ability to Perform. Neither the Seller nor the Guarantor
          believes, nor do they have any reason or cause to believe, that it
          cannot perform each and every agreement and covenant contained in the
          Repurchase Documents applicable to it and to which it is a party.


                                   Annex I-51



          (kk) Financial Condition.

          (i) The audited consolidated balance sheet of the Guarantor and its
          Consolidated Subsidiaries as of the fiscal year ending December 31,
          2004 provided to the Buyer and the related audited consolidated
          statements of income and retained earnings and of cash flows for the
          year then ended, setting forth in each case in comparative form the
          figures for the previous year, reported on without a "going concern"
          or like qualification arising out of the scope of the audit conducted
          by Ernst & Young LLP, copies of which have heretofore been furnished
          to the Buyer, are complete and correct and present fairly the
          consolidated financial condition of the Guarantor and its Consolidated
          Subsidiaries of the foregoing as of such date, and the consolidated
          results of their operations and their consolidated cash flows for the
          fiscal year then ended. All such financial statements, including the
          related schedules and notes thereto (if any), have been prepared in
          accordance with GAAP applied consistently throughout the periods
          involved (except as disclosed therein). Neither the Guarantor nor any
          of its Consolidated Subsidiaries had, as of the date of the most
          recent balance sheet referred to above, any material contingent
          liability or liability for taxes, or any long term lease or unusual
          forward or long term commitment, including, without limitation, any
          interest rate or foreign currency swap or exchange transaction or
          other financial derivative, that is not reflected in the foregoing
          statements or in the notes thereto. During the period from December
          31, 2004 to and including the date hereof, there has been no sale,
          transfer or other disposition by the Seller, the Guarantor or any
          Consolidated Subsidiaries of the foregoing of any material part of
          their business or Property and no purchase or other acquisition of any
          business or Property (including any Capital Stock of any other Person)
          material in relation to the consolidated financial condition of the
          Seller, the Guarantor or any Consolidated Subsidiaries of the
          foregoing on the date hereof other than (A) the sale of 729 7th Avenue
          and (B) the repayment of approximately $25,000,000 of mortgage debt.

          (ii) The operating forecast and cash flow projections of the Seller,
          the Guarantor and any Consolidated Subsidiaries of the foregoing,
          copies of which have heretofore been furnished to the Buyer, have been
          prepared in good faith under the direction of a Responsible Officer of
          the Seller and the Guarantor and in accordance with GAAP. Neither the
          Seller nor the Guarantor has any reason to believe that as of the date
          of delivery thereof such operating forecast and cash flow projections
          are materially incorrect or misleading in any material respect or omit
          to state any material fact which would render them misleading in any
          material respect.

          (ll) Servicing Agreements. The Seller has delivered to the Buyer all
          Servicing Agreements and all Pooling and Servicing Agreements with
          respect to the Purchased Assets, and, to the best of the Seller's
          knowledge, no material default or event of default exists thereunder.

          (mm) Seller's Indebtedness. The Seller has no Indebtedness or
          Contractual Obligations other than (i) ordinary trade payables, (ii)
          in connection with Mortgage Assets originated or acquired for this
          Facility and (iii) the Repurchase Documents. The Seller has no
          Guarantee Obligations.

          (nn) [RESERVED].

          (oo) Purchased Assets. (i) There are no outstanding rights, options,
          warrants or agreements for the purchase, sale or issuance of the
          Purchased Assets created by, through,


                                   Annex I-52



          or as a result of the Seller's or the Guarantor's actions or
          inactions; (ii) there are no agreements on the part of the Seller or
          the Guarantor to issue, sell or distribute the Purchased Assets, other
          than this Repurchase Agreement, and (iii) other than this Repurchase
          Agreement, the Seller has no obligation (contingent or otherwise) to
          purchase, redeem or otherwise acquire any securities or any interest
          therein or to pay any dividend or make any distribution in respect of
          the Purchased Assets.

          (pp) No Defenses. To the actual knowledge of the Seller and the
          Guarantor, there are no defenses, offsets, counterclaims, abatements,
          rights of rescission or other claims, legal or equitable, available to
          the Seller or the Guarantor or any other Person with respect to this
          Repurchase Agreement, the Engagement Letter, the Repurchase Documents,
          any other instrument, document and/or agreement described herein or
          therein (including, without limitation, the validity or enforceability
          of any of the foregoing) or with respect to the obligation of the
          Seller and the Guarantor to repay the Aggregate Unpaids and other
          amounts due hereunder.

          (qq) Separateness. As of the date hereof, the Seller (i) owns no
          assets, and does not engage in any business, other than the assets and
          transactions intended to be transferred to the Buyer under this
          Repurchase Agreement; (ii) has not incurred any indebtedness or
          obligation, secured or unsecured, direct or indirect, absolute or
          contingent (including guaranteeing any obligation), other than (A)
          with respect to Retained Interests, (B) commitments to make loans
          which may become Eligible Assets, and (C) as permitted herein; (iii)
          has not made any loans or advances to any Affiliate other than loans
          to the Guarantor that have been disclosed in writing to and approved
          in writing by the Buyer, and has not acquired obligations or
          securities of its Affiliates; (iv) has paid its debts and liabilities
          (including, as applicable, shared personnel and overhead expenses)
          only from its own assets; (v) complies with the provisions of its
          organizational documents; (vi) does all things necessary to observe
          organizational formalities and to preserve its existence, and has not
          amended, modified or otherwise changed its Governing Documents other
          than as the same have been heretofore amended, or suffered same to be
          amended, modified or otherwise changed other than as the same have
          been heretofore amended; (vii) maintains all of its books, records,
          financial statements and bank accounts separate from those of its
          Affiliates (except that such financial statements may be consolidated
          to the extent consolidation is required under GAAP consistently
          applied or as a matter of Applicable Law); (viii) is, and at all times
          holds itself out to the public as, a legal entity separate and
          distinct from any other entity (including any Affiliate), corrects any
          known misunderstanding regarding its status as a separate entity,
          conducts business in its own name, and does not identify itself or any
          of its Affiliates as a division or part of the other; (ix) maintains
          adequate capital for the normal obligations reasonably foreseeable in
          a business of its size and character and in light of its contemplated
          business operations; (x) does not engage in or suffer any direct
          change of ownership, dissolution, winding up, liquidation,
          consolidation or merger in whole or in part; (xi) does not commingle
          its funds or other assets with those of any Affiliate or any other
          Person; (xii) maintains its accounts separately from those of any
          Affiliate or any other Person; (xiii) does not hold itself out to be
          responsible for the debts or obligations of any other Person; (xiv)
          has not (A) filed or consented to the filing of any Insolvency
          Proceeding with respect to the Seller, instituted any proceedings
          under any applicable Insolvency Law or otherwise sought any relief
          under any laws relating to the relief from debts or the protection of
          debtors generally with respect to the Seller, (B) sought or consented
          to the appointment of a receiver, liquidator, assignee, trustee,
          sequestrator, custodian or any similar official for the Seller or a
          substantial portion of its properties or (C) made any assignment for
          the benefit of the


                                   Annex I-53



          Seller's creditors; (xv) has at least one (1) Independent Director or
          such greater number as required by the Buyer or any Rating Agency;
          (xvi) maintains an arm's length relationship with its Affiliates;
          (xvii) uses separate stationary, invoices and checks; and (xviii)
          allocates fairly and reasonably any overhead for shared office space.

          (rr) Subsidiaries. The Seller is a Subsidiary of the Guarantor. The
          Seller does not have any Subsidiaries.

          (ss) REIT Status. The Guarantor qualifies as a REIT.

          (tt) No Reliance. Each of the Seller and the Guarantor has made its
          own independent decisions to enter into the Repurchase Documents and
          each Transaction and as to whether such Transaction is appropriate and
          proper for it based upon its own judgment and upon advice from such
          advisors (including, without limitation, legal counsel and
          accountants) as it has deemed necessary. Each of the Seller and the
          Guarantor is not relying upon any advice from the Buyer as to any
          aspect of the Transactions, including, without limitation, the legal,
          accounting or tax treatment of such Transactions."

     (u) Paragraph 11 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "In the event that (i) the aggregate Repurchase Price for all
          Transactions outstanding on any day exceeds the Maximum Amount and the
          same continues unremedied for two (2) Business Days after notice from
          the Buyer; (ii) a Servicer Default occurs and is continuing; (iii) an
          Act of Insolvency relating to the Seller, the Guarantor, the Pledgor
          shall have occurred, or any Act of Insolvency shall have occurred with
          respect to any Affiliate of the Seller, the Guarantor or the Pledgor
          and the same affects, impacts or impairs (A) any Lien, right or other
          interest of the Buyer under any of the Repurchase Documents or (B) the
          Seller's, the Guarantor's or the Pledgor's performance, or ability to
          perform, its obligations, duties or agreements under any of the
          Repurchase Documents; (iv) the Seller, the Guarantor or the Pledgor
          shall become required to register as an "investment company" within
          the meaning of the 40 Act or the arrangements contemplated by the
          Repurchase Documents shall require registration as an "investment
          company" within the meaning of the 40 Act; (v) there shall exist any
          event or occurrence that has caused or resulted in a Material Adverse
          Effect with respect to clauses (a), (b), (c) or (d) of the definition
          of Material Adverse Effect; (vi) (A) any Repurchase Document, or any
          Lien or security interest granted thereunder, shall (except in
          accordance with its terms), in whole or in part, terminate, cease to
          be effective or cease to be the legally valid, binding and enforceable
          obligation of the Seller, the Guarantor or the Pledgor, (B) the
          Seller, the Guarantor, the Pledgor, or any other Person shall,
          directly or indirectly, contest in any manner the effectiveness,
          validity, binding nature or enforceability of any Repurchase Document
          or any Lien or security interest thereunder, (C) the Purchased Items
          shall not have been sold to the Buyer, or the Liens contemplated under
          the Repurchase Documents shall cease or fail to be first priority
          perfected Liens on any Purchased Items or the Equity Interests or
          shall be Liens in favor of any Person other than the Buyer or (D) the
          Seller, the Guarantor, the Pledgor or any of their Affiliates shall
          grant, or suffer to exist, any Lien on any Purchased Item or the
          Equity Interests (except Permitted Liens); (vii) the Seller, the
          Guarantor or the Pledgor shall have failed to observe or perform in
          any material respect any of the covenants or agreements of the Seller,
          the Guarantor or the Pledgor set forth in this Repurchase Agreement or
          the other Repurchase Documents to which the Seller, the Guarantor or
          the Pledgor is a party and


                                   Annex I-54



          the same continues unremedied for a period of twenty (20) calendar
          days after the earlier to occur of (A) the date on which written
          notice of such failure requiring the same to be remedied shall have
          been given to the Seller, the Guarantor or the Pledgor by the Buyer,
          and (B) the date on which the Seller, the Guarantor or the Pledgor
          becomes aware thereof; (viii) any representation, warranty or
          certification made by the Seller, the Guarantor or the Pledgor in this
          Repurchase Agreement or any Repurchase Document or in any certificate
          or other document or agreement delivered pursuant to this Repurchase
          Agreement or any Repurchase Document (in each case other than the
          eligibility criteria contained in Schedule 1 to this Repurchase
          Agreement unless the Seller shall have affirmed or confirmed any such
          criteria with actual knowledge that it was not satisfied in any
          material respect) shall prove to have been incorrect in any material
          respect when made or deemed made and the same continues unremedied for
          a period of twenty (20) calendar days after the earlier to occur of
          (A) the date on which written notice of such failure requiring the
          same to be remedied shall have been given to the Seller, the Guarantor
          or the Pledgor by the Buyer, and (B) the date on which the Seller, the
          Guarantor or the Pledgor becomes aware thereof; (ix) (A) the Seller,
          the Guarantor or the Pledgor shall have failed to make any payment due
          with respect to any material Indebtedness in excess of (1) $5,000,000
          in the case of the Guarantor and the Pledgor, and (2) $1,000,000 in
          the case of the Seller (in each case including, without limitation,
          recourse debt), any Guarantee Obligations or any material Contractual
          Obligation in excess of $5,000,000 in the case of the Guarantor and
          the Pledgor, and $1,000,000 in the case of the Seller, to which the
          Seller, the Guarantor or the Pledgor as applicable, is a party, or a
          default or an event or condition shall have occurred that would permit
          acceleration of any of the foregoing whether or not such event or
          condition has been waived, (B) the Seller, the Guarantor or the
          Pledgor shall be in default of any monetary obligation with respect to
          any Seller-Related Obligation (other than the Swap Documents) or (C)
          the Seller, the Guarantor or the Pledgor shall be in default with
          respect to any obligation under the Swap Documents; (x) (A) the Seller
          shall default in the payment of (1) any Repurchase Price due
          (including, without limitation, pursuant to Paragraph 3 of the
          Repurchase Agreement) or (2) any amount due under Paragraph 5 of this
          Repurchase Agreement or any other provision of this Repurchase
          Agreement or the Repurchase Documents when due (whether at stated
          maturity, upon acceleration or at mandatory or optional prepayment),
          or (B) the failure of the Seller, the Guarantor, the Pledgor, any
          Affiliate of the forgoing, any Servicer, any PSA Servicer or any other
          Person to timely deposit to the Collection Account all Income as
          required by Section 5 of this Repurchase Agreement or the failure of
          the Seller to deposit or credit to the Securities Account any
          uncertificated CMBS Security and related Purchased Items required to
          be deposited or credited to such account; (xi) the Seller shall have
          failed to pay any Margin Deficit due under Paragraph 4 of this
          Repurchase Agreement by the Margin Correction Deadline; (xii) the
          Seller, the Guarantor or the Pledgor shall default in the payment of
          any other amount payable by it hereunder or under any other Repurchase
          Document after notification by the Buyer of such default, and such
          default shall have continued unremedied for two (2) Business Days;
          (xiii) a final judgment or judgments for the payment of money in
          excess of (1) $5,000,000 in the case of the Guarantor and the Pledgor,
          and (2) $1,000,000 in the case of the Seller, in the aggregate shall
          be rendered against the Seller, the Guarantor or the Pledgor, as
          applicable, by one (1) or more courts, administrative tribunals or
          other bodies or any Governmental Authority having jurisdiction, and
          the same shall not be satisfied, discharged (or provision shall not be
          made for such discharge) or bonded, or a stay of execution thereof
          shall not be procured, within thirty (30) days from the date of entry
          thereof; (xiv) the Seller, the Guarantor, the Pledgor or an ERISA
          Affiliate shall engage in a non-exempt prohibited transaction (as


                                   Annex I-55



          defined in Section 406 of ERISA or Section 4975 of the Code); (xv) the
          Seller fails to repurchase Purchased Assets on the applicable
          Repurchase Date, including, without limitation the Facility Maturity
          Date, and to pay all amounts due in connection therewith; (xvi) NRFC
          Sub-REIT Corp. shall cease to own directly 100% of the issued and
          outstanding Capital Stock of the Seller; (xvii) the Seller, the
          Guarantor or the Pledgor shall admit its inability to, or its
          intentions not to, perform its obligations, covenants or agreements
          under any Repurchase Document or admit that it is not Solvent; or
          (xviii) the Seller, the Guarantor or the Pledgor shall merge or
          consolidate into any entity, and such entity is, in Buyer's opinion,
          materially weaker in its financial condition (in the aggregate) than
          such Person pre-merger or consolidation (each an "Event of Default"):

          (a) (i) At the option of the Buyer, exercised by written notice to the
          Seller (which option shall be deemed to have been exercised, even if
          no notice is given, immediately upon the occurrence of an Act of
          Insolvency of the Seller, the Guarantor, the Pledgor or, subject to
          Paragraph 11(iii) of the Repurchase Agreement, any of their
          Affiliates), the Repurchase Date for each Transaction hereunder, if it
          has not already occurred, shall be deemed immediately to occur (except
          that, in the event that the Purchase Date for any Transaction has not
          yet occurred as of the date of such exercise or deemed exercise, such
          Transaction shall be deemed immediately cancelled without any
          liability to the Buyer). The Buyer shall (except upon the occurrence
          of an Insolvency of the Seller, the Guarantor, the Pledgor or, subject
          to Paragraph 11(iii) of the Repurchase Agreement, any of their
          Affiliates) give notice to the Seller of the exercise of such option
          as promptly as practicable.

          (ii) If the Buyer exercises or is deemed to have exercised the option
          referred to in Paragraph 11(a)(i) of this Repurchase Agreement,

          (A) (1) the Seller's obligations in such Transactions to repurchase
          all Purchased Items, at the Repurchase Price therefor on the
          Repurchase Date, and, without duplication, to pay the Aggregate
          Unpaids and all other Obligations hereunder and under the other
          Repurchase Documents, shall thereupon become immediately due and
          payable, (2) all Income paid after such exercise or deemed exercise
          shall be retained by the Buyer and applied to the aggregate unpaid
          Repurchase Price, the Aggregate Unpaids and any other Obligations, and
          (3) the Seller shall immediately deliver to the Buyer any Purchased
          Items subject to such Transactions then in the Seller's possession or
          control; and

          (B) all Income actually received by the Buyer pursuant to Paragraph
          3(e)(i) of this Repurchase Agreement (excluding any Late Payment Fees
          paid pursuant to Paragraph 5 of this Repurchase Agreement) shall be
          applied to the aggregate unpaid Repurchase Price and Aggregate Unpaids
          and any other Obligations, in such order as the Buyer shall determine
          in its discretion.

          (iii) Upon the occurrence of one or more Events of Default, and
          subject to Section 6(n) of this Repurchase Agreement, the Buyer shall
          have the right to obtain physical possession of the Servicing Records
          (subject to the provisions of the Custodial Agreement), the Servicing
          Files, the Servicing Agreements and all other files of the Seller or
          any third party acting for the Seller relating to the Purchased Items
          and all documents relating to the Purchased Items which are then or
          may thereafter come into the possession of the Seller or any third
          party acting for the Seller, and the Seller shall deliver to the Buyer
          such assignments as the Buyer shall request (all of the foregoing
          being at the


                                   Annex I-56



          expense of the Seller), and the Buyer shall have the right to appoint
          any Person to act as the Servicer for the Purchased Assets.

          (iv) At any time after the second (2nd) Business Day following notice
          to the Seller (which notice may be the notice given under Paragraph
          11(a)(i) of this Repurchase Agreement), in the event the Seller have
          not repurchased all Purchased Items, the Buyer may (A) immediately
          sell, without demand or further notice of any kind, at a public or
          private sale and at such price or prices as the Buyer may deem
          reasonably satisfactory any or all Purchased Items subject to such
          Transactions hereunder and apply the proceeds thereof to the aggregate
          unpaid Repurchase Price, the Aggregate Unpaids and all other
          Obligations, or (B) in its discretion, elect, in lieu of selling all
          or a portion of such Purchased Items, to give the Seller credit for
          such Purchased Items in an amount equal to the Market Value (as
          determined by the Buyer in its discretion) of the Purchased Items
          against the aggregate unpaid Repurchase Price, the Aggregate Unpaids
          and all other Obligations. The proceeds of any disposition of
          Purchased Items shall be applied first to the costs and expenses
          incurred by the Buyer in connection with the Seller's default; second
          to the costs of related covering and/or related hedging transactions;
          third to the Repurchase Price; fourth to the Aggregate Unpaids and any
          other Obligations; and fifth, to the Seller.

          (v) Each Party hereto agrees that the other Party may obtain an
          injunction or an order of specific performance to compel such other
          party to fulfill any of its obligations as set forth in the Repurchase
          Documents if such other party fails or refuses to perform its
          obligations as set forth therein.

          (vi) The Seller shall be liable to the Buyer, payable as and when
          incurred by the Buyer, for (A) the amount of all reasonable actual
          out-of-pocket expenses, including legal or other expenses incurred by
          the Buyer in connection with or as a consequence of an Event of
          Default, and (B) all reasonable costs incurred in connection with
          hedging or covering transactions.

          (iii) The Buyer shall have, in addition to its rights hereunder, any
          rights otherwise available to it under any other agreement or
          Applicable Law.

          (b) The Buyer may exercise one or more of the remedies available to
          the Buyer immediately upon the occurrence of an Event of Default and,
          except to the extent provided in Paragraph 11(a)(i) and 11(a)(iv) of
          this Repurchase Agreement, at any time thereafter without notice to
          the Seller. All rights and remedies arising under this Repurchase
          Agreement and the other Repurchase Documents, as amended from time to
          time, are cumulative and not exclusive of any other rights or remedies
          that the Buyer may have.

          (c) The Buyer may enforce its rights and remedies hereunder without
          prior judicial process or hearing, and the Seller and the Guarantor
          hereby expressly waives any defenses the Seller, the Guarantor or the
          Pledgor might otherwise have to require the Buyer to enforce its
          rights by judicial process. The Seller and the Guarantor also waives
          any defense (other than a defense of payment or performance) the
          Seller, the Guarantor and/or the Pledgor might otherwise have arising
          from the use of non-judicial process, enforcement and sale of all or
          any portion of the Purchased Items, or from any other election of
          remedies. The Seller, the Guarantor and the Pledgor recognize that
          non-


                                   Annex I-57



          judicial remedies are consistent with the usages of the trade, are
          responsive to commercial necessity and are the result of a bargain at
          arm's-length.

          (d) To the extent permitted by Applicable Law, the Seller shall be
          liable to the Buyer for interest on any amounts owing by the Seller
          hereunder, from the date the Seller becomes liable for such amounts
          hereunder until such amounts are (i) paid in full by the Seller or
          (ii) satisfied in full by the exercise of the Buyer's rights
          hereunder. Interest on any sum payable by the Seller to the Buyer
          under this Paragraph 11(d) shall accrue interest from and after the
          date of the Event of Default and while such Event of Default is
          continuing at a rate equal to the Post-Default Rate.

          (e) In addition to the rights under this Paragraph 11, during the
          continuance of an Event of Default, the Buyer shall no longer be
          obligated to enter into any additional Transactions pursuant to any
          outstanding Confirmation and the Buyer shall have the following
          additional rights if an Event of Default exists:

          (i) The Buyer, the Seller and the Guarantor agree and acknowledge that
          the Purchased Assets constitute collateral that may decline rapidly in
          value. Accordingly, notwithstanding anything to the contrary in this
          Repurchase Agreement, the Buyer shall not be required to give notice
          to the Seller or the Guarantor prior to exercising any remedy in
          respect of an Event of Default. If no prior notice is given, the Buyer
          shall give notice to the Seller of the remedies affected by the Buyer
          promptly thereafter. The Buyer shall act in good faith in exercising
          its rights pursuant to this Paragraph 11(e).

          (ii) The Buyer may, in its discretion, elect to hold any Purchased
          Asset for its own account and earn the related interest on the full
          face amount thereof.

          (f) In making a determination as to whether an Event of Default has
          occurred, the Buyer shall be entitled to rely on reports published or
          broadcast by media sources believed by the Buyer to be generally
          reliable and on information provided to it by any other sources
          believed by it to be generally reliable, provided that the Buyer
          reasonably and in good faith believes such information to be accurate.

          (g) Notwithstanding anything contained in the Repurchase Documents to
          the contrary, neither the Seller, the Guarantor, the Pledgor nor any
          other Person shall be permitted to cure an Event of Default after the
          acceleration of any of the Obligations.

          (h) Subject to Paragraphs 3(k) and 17(d), Sections 8 and 9 and other
          similar provisions contained in the Repurchase Documents, the Seller
          and the Guarantor shall have all remedies available to them at law or
          equity for any breach of this Repurchase Agreement by the Buyer."

     (v) Paragraph 12 of the Master Repurchase Agreement is hereby amended by
deleting the final sentence therein in its entirety and the following is
substituted therefor:

          "Accordingly, each of the Seller and the Guarantor agrees (i) to
          perform all of its obligations in respect of each Transaction
          hereunder, and that a default in the performance of any such
          obligations shall constitute a default by it in respect of all
          Transactions hereunder, and (ii) that payments, deliveries and other
          transfers made by it or others on its behalf in respect of any
          Transaction shall be deemed to have been made in consideration of
          payments, deliveries and other transfers in respect of any other


                                   Annex I-58



          Transactions hereunder, and the obligations to make any such payments,
          deliveries and other transfers may be applied against each other and
          netted."

     (w) Paragraph 13 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "All notices and other communications provided for hereunder shall,
          unless otherwise stated herein, be in writing (including telex
          communication and communication by facsimile copy) and mailed,
          telexed, transmitted or delivered, as to each party hereto, at its
          address set forth under its name on the signature pages of the Master
          Repurchase Agreement or at such other address as shall be designated
          by such party in a written notice to the other parties hereto. All
          such notices and communications shall be effective, upon receipt, or
          in the case of (a) notice by telex, when telexed against receipt of
          answer back, or (b) notice by facsimile copy, when verbal
          communication of receipt is obtained. Neither the Seller, the
          Guarantor nor the Pledgor shall be entitled to any notices of any
          nature whatsoever from the Buyer except with respect to matters for
          which this Repurchase Agreement or the Repurchase Documents
          specifically and expressly provide for the giving of notice by the
          Buyer to the Seller, the Guarantor and/or the Pledgor and, except with
          respect to matters for which the Seller, the Guarantor or the Pledgor
          is not, pursuant to Applicable Law, permitted to waive the giving of
          notice."

     (x) Paragraph 15 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "(a) The Buyer may at any time and without the permission of, but with
          contemporaneous notice to, the Seller, sell, assign, transfer, pledge
          or grant a security interest or sell a participation interest in, its
          rights and interests under the Repurchase Documents (or any portion
          thereof) to any Person; provided, however, that (i) if the Buyer is
          assigning or selling a participation interest in more than 50% of the
          Maximum Amount to a Person that is not a Pre-Approved Buyer and there
          is no Default or Event of Default, then the Seller must first approve
          such assignment or participation (which approval shall not be
          unreasonably withheld, conditioned or delayed), (ii) provided there is
          no Event of Default, the Buyer will retain control over decisions
          relating to waivers and consents (including, without limitation,
          Market Value determinations, margin calls, term extensions and
          approval of Eligible Assets) expressly contemplated under the
          Repurchase Documents and (iii) assignments by the Buyer shall be in a
          minimum amount of $5,000,000 unless the Buyer is assigning all of its
          remaining interests under this Repurchase Agreement. The parties to
          any such assignment, grant or sale of participation interest shall
          execute and deliver to the Buyer, for its acceptance and recording in
          its books and records, such agreement or document as may be
          satisfactory to such parties and the Buyer. Notwithstanding anything
          contained in this Paragraph 15(a) to the contrary, after an Event of
          Default that is continuing, the Buyer may sell any Purchased Asset (or
          portion thereof) without the consent of the Seller in accordance with
          the Buyer's exercise of remedies under this Repurchase Agreement.

          (b) The Seller agrees to cooperate with the Buyer at the Buyer's cost
          in connection with any such sale, assignment, transfer, pledge or
          participation and to enter into such restatements of, and amendments,
          supplements and other modifications to, the Repurchase Documents in
          order to give effect to such assignment, transfer or sale.


                                   Annex I-59



          (c) The Seller shall not assign or delegate, or grant or transfer any
          interest in, or permit any Lien to exist upon, the Seller's rights,
          obligations or duties under this Repurchase Agreement or the
          Repurchase Documents without the prior written consent of the Buyer
          (which consent may be withheld in the Buyer's discretion). Any attempt
          by the Seller to assign any of its rights or obligations under this
          Repurchase Agreement without the prior written consent of the Buyer
          (which consent may be withheld in the Buyer's discretion) shall be
          null and void."

     (y) Paragraph 16 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF OBJECTION TO VENUE.
          THIS REPURCHASE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
          ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
          THE CONFLICT OF LAWS PROVISIONS THEREOF). EACH OF THE PARTIES HERETO
          HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
          FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE
          PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
          CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
          HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE
          GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY
          SUCH COURT."

     (z) Paragraph 17 of the Master Repurchase Agreement is hereby deleted in
its entirety and the following is substituted therefor:

          "(a) Upon the occurrence and during the continuance of an Event of
          Default, the Buyer shall have, with respect to the security interest
          in the Purchased Assets granted pursuant to Paragraph 6 of this
          Repurchase Agreement, and in addition to all other rights and remedies
          available to the Buyer under this Repurchase Agreement or other
          Applicable Law, all rights and remedies of a secured party upon
          default under the UCC.

          (b) The Seller and the Guarantor agree, to the full extent that it may
          lawfully so agree, that neither it nor anyone claiming through or
          under it will set up, claim or seek to take advantage of any
          appraisement, valuation, stay, extension or redemption law now or
          hereafter in force in any locality where any Purchased Items may be
          situated in order to prevent, hinder or delay the enforcement or
          foreclosure of this Repurchase Agreement, or the absolute sale of any
          of the Purchased Items or any part thereof, or the final and absolute
          putting into possession thereof, immediately after such sale, of the
          buyers thereof, and the Seller and the Guarantor, each for itself and
          all who may at any time claim through or under it, hereby waives, to
          the full extent that it may be lawful so to do, the benefit of all
          such laws and any and all right to have any of the properties or
          assets constituting the Purchased Items marshaled upon any such sale,
          and agrees that the Buyer or any court having jurisdiction to
          foreclose the security interests granted in this Repurchase Agreement
          may sell the Purchased Items as an entirety or in such parcels as the
          Buyer or such court may determine.

          (c) No failure on the part of the Buyer to exercise, and no delay in
          exercising, any right or remedy hereunder shall operate as a waiver
          thereof; nor shall any single or partial


                                   Annex I-60



          exercise of any right or remedy hereunder preclude any further
          exercise thereof or the exercise of any other right. The rights and
          remedies herein provided are cumulative and not exclusive of any
          rights and remedies provided by Applicable Law. Application of the
          Post-Default Rate or increased Pricing Spread after a Default or Event
          of Default shall not be deemed to constitute a waiver of any Default
          or Event of Default or any rights or remedies of the Buyer under this
          Repurchase Agreement, any other Repurchase Documents or Applicable
          Law, or a consent to any extension of time for the payment or
          performance of any obligation with respect to which the Post-Default
          Rate or increase in Pricing Spread after an Event of Default may be
          invoked.

          (d) In the event that a claim or adjudication is made that the Buyer
          has acted unreasonably or unreasonably delayed acting in any case
          where by Applicable Law or under this Repurchase Agreement or the
          other Repurchase Documents it has an obligation to act reasonably or
          promptly, the Buyer shall not be liable for any punitive,
          consequential, indirect or special damages in connection therewith or
          any other breach or default by the Buyer, and the Seller's and the
          Guarantor's sole remedies shall be limited to commencing an action
          seeking injunctive relief, actual damages or declaratory judgment."

     (aa) Paragraph 19(a) of the Master Repurchase Agreement is hereby modified
by adding the following sentence to the end of Paragraph 19(a):

          "It is understood that this Agreement constitutes a "Master Netting
          Agreement" as that term is defined in Section 101 of Title 11 of the
          United State Code."

     (bb) Paragraph 20 of the Master Repurchase Agreement is hereby modified by
deleting the period at the end thereof and by adding the following at the end of
such paragraph:

          "; and (d) in the case of Transactions in which one of the parties is
          an "insured depository institution" as that term is defined in Section
          1813(c)(2) of Title 12 of the United States Code, funds held by the
          financial institution pursuant to a Transaction hereunder are not a
          deposit and therefore are not insured by the Federal Deposit Insurance
          Corporation, the Savings Association Insurance Fund or the Bank
          Insurance Fund, as applicable."

     3. CONDITIONS PRECEDENT.

     (a) The Buyer shall not be obligated to enter into any Transaction
hereunder nor shall the Buyer be obligated to take, fulfill or perform any other
action hereunder until the following conditions have been satisfied, in the
discretion of, or waived in writing by, the Buyer:

          (i) The Buyer shall be in receipt of good standing certificates,
     secretary certificates (or the equivalent) and copies of the Governing
     Documents and applicable resolutions of the Seller, the Guarantor and the
     Pledgor evidencing, as applicable, the corporate or other authority for the
     Seller, the Guarantor and the Pledgor with respect to the execution,
     delivery and performance of the Repurchase Documents and each of the other
     documents to be delivered by the Seller, the Guarantor and the Pledgor from
     time to time in connection herewith;

          (ii) This Repurchase Agreement, the Guaranty and each other Repurchase
     Document shall have been duly executed by, and delivered to, the parties
     thereto and such documents shall be in form and substance satisfactory to
     the Buyer;


                                   Annex I-61



          (iii) UCC financing statements shall have been filed against the
     Seller and the Pledgor in the appropriate filing office;

          (iv) Each of the Seller and the Pledgor shall have delivered to the
     Buyer a duly executed Power of Attorney in the form of Exhibit II;

          (v) The Buyer shall be in receipt of such Opinions of Counsel from the
     counsel to the Seller, the Guarantor and the Pledgor and an Opinion from
     in-house counsel to the Custodian as the Buyer may require, each in form
     and substance satisfactory to the Buyer in its reasonable discretion,
     including, without limitation, corporate opinions and perfection opinions;

          (vi) The Buyer shall be in receipt of the Servicing Agreements and the
     Pooling and Servicing Agreements (if any), certified as true, correct and
     complete copies of the originals, together with the Servicer Notices, fully
     executed by the Seller and any applicable Servicer;

          (vii) The Buyer shall have received payment from the Seller of the
     fees payable under the Fee Letter and the amount of actual costs and
     expenses, including, without limitation, the fees and expenses of counsel
     to the Buyer as contemplated by Paragraph 3(h)(iv) of this Repurchase
     Agreement, incurred by the Buyer in connection with the development,
     preparation and execution of this Repurchase Agreement, the other
     Repurchase Documents and any other documents prepared in connection
     herewith or therewith;

          (viii) The Buyer shall have completed to its satisfaction such due
     diligence as it may require in its discretion and obtained internal credit
     approval of the Facility;

          (ix) The Buyer shall have received all such other and further
     documents, certifications, reports, approvals and legal opinions as the
     Buyer may reasonably require;

          (x) no Applicable Law shall prohibit or render it unlawful, and no
     order, judgment or decree of Governmental Authority shall prohibit, enjoin
     or render it unlawful, to enter into the Facility or any Transaction;

          (xi) the Seller, the Guarantor and the Pledgor shall each be in
     compliance in all material respects with all Applicable Laws, Contractual
     Obligations and all Indebtedness, each shall have obtained all required
     consents, approvals and/or waivers of all necessary Persons, including all
     requisite Governmental Authorities, to the execution, delivery and
     performance of this Repurchase Agreement and the other Repurchase Documents
     to which each is a party and the consummation of the transactions
     contemplated hereby or thereby;

          (xii) any and all consents, approvals and waivers applicable to the
     Purchased Items shall have been obtained;

          (xiii) the Buyer is in receipt of pro-forma Financial Covenant
     calculations; and

          (xiv) no Material Adverse Effect has occurred.

     (b) The Buyer's agreement to enter into each Transaction (including the
initial Transaction) is subject to the satisfaction of the following further
conditions precedent, both immediately prior to entering into such Transaction
and also after giving effect to the consummation thereof and the intended use of
the proceeds of the sale:


                                   Annex I-62



          (i) no Applicable Law shall prohibit or render it unlawful, and no
     order, judgment or decree of Governmental Authority shall prohibit, enjoin
     or render it unlawful, to enter into such Transaction by the Buyer in
     accordance with the provisions of this Repurchase Agreement or any other
     transaction contemplated herein;

          (ii) the Seller, the Guarantor, each Servicer and each PSA Servicer
     shall have delivered to the Buyer all reports and other information
     required to be delivered as of the date of such Transaction;

          (iii) The Buyer shall have received a written Transaction Request, the
     related Underwriting Package and the related Seller Asset Schedule;

          (iv) the Seller shall have delivered a Confirmation, via Electronic
     Transmission, in accordance with the procedures set forth in Paragraph
     3(a)(iii) of this Repurchase Agreement, and the Buyer shall have approved
     in writing the purchase of the Eligible Asset to be included in such
     Transaction in its discretion and shall have obtained all necessary
     internal credit and other approvals for such Transaction;

          (v) no Default or Event of Default shall have occurred and be
     continuing, no Margin Deficits are outstanding, and no Material Adverse
     Effect has occurred;

          (vi) the Buyer shall have received a Compliance Certificate in the
     form of Exhibit VI attached hereto ("Compliance Certificate") from a
     Responsible Officer of the Seller and the Guarantor that, among other
     things: (A) shows in detail the calculations demonstrating that, after
     giving effect to the requested Transaction, the aggregate Purchase Price of
     the Transactions outstanding shall not exceed the Maximum Amount, (B) the
     Seller, the Guarantor and the Pledgor have observed or performed all of
     their covenants and other agreements, and satisfied every condition,
     contained in this Repurchase Agreement, the Repurchase Documents and the
     related documents to be observed, performed or satisfied by them, and that
     such Responsible Officer has obtained no knowledge of any Default or Event
     of Default except as specified in such certificate, (C) states that all
     representations and warranties contained in the Repurchase Documents are
     true and correct in all material respects on and as of such day as though
     made on and as of such day and shall be deemed to be made on such day, (D)
     shows that the Seller and the Guarantor are in compliance with the
     Financial Covenants and, on a quarterly basis as provided in Section
     (5)(i)(i)(B) of this Repurchase Agreement, showing in detail the
     calculations supporting the certification of the Seller's and the
     Guarantor's compliance with the Financial Covenants, (E) and discloses the
     status of each Interest Rate Protection Agreement described under clause
     (ii) of the definition thereof;

          (vii) subject to the Buyer's right to perform one or more due
     diligence reviews pursuant to Section 20 of this Repurchase Agreement, the
     Buyer shall have completed, in accordance with Paragraph 3(a) of this
     Repurchase Agreement, its due diligence review of the Mortgage Asset, the
     Mortgage Asset File and the Underwriting Package for each proposed Mortgage
     Asset and such other documents, records, agreements, instruments, mortgaged
     properties or information relating to such Mortgage Asset as the Buyer in
     its discretion deems appropriate to review, and such reviews shall be
     satisfactory to the Buyer in its discretion;

          (viii) with respect to any Eligible Asset to be purchased hereunder on
     the related Purchase Date that is not serviced by the Seller, the Seller
     shall have provided to the Buyer copies of the related Servicing Agreements
     and the Pooling and Servicing Agreements, certified as true,


                                   Annex I-63



     correct and complete copies of the originals, together with Servicer
     Notices fully executed by the Seller and the Servicer;

          (ix) the Buyer shall have received all fees and expenses of the Buyer
     and counsel to the Buyer as contemplated by Paragraph (3)(h)(vi) and
     Section 17 of this Repurchase Agreement and the Fee Letter and the Buyer
     shall have received the reasonable costs and expenses incurred by them in
     connection with the entering into of any Transaction hereunder, including,
     without limitation, costs associated with due diligence recording or other
     administrative expenses necessary or incidental to the execution of any
     Transaction hereunder, which amounts, at the Buyer's option, may be
     withheld from the sale proceeds of any Transaction hereunder;

          (x) for each Non-Table Funded Purchased Asset, the Buyer shall have
     received from the Custodian on each Purchase Date a Trust Receipt (along
     with a completed Mortgage Asset File Checklist attached thereto) and an
     Asset Schedule and Exception Report with respect to each Eligible Asset,
     each dated the Purchase Date, duly completed and, in the case of the Asset
     Schedule and Exception Report, with exceptions acceptable to the Buyer in
     its discretion in respect of Eligible Assets to be purchased hereunder on
     such Business Day. In the case of a Table Funded Purchased Asset, the Buyer
     shall have received on the related Purchase Date the Table Funded Trust
     Receipt and all other items described in the second (2nd) sentence of
     Paragraph 3(a)(v), each in form and substance satisfactory to the Buyer in
     its discretion, provided that the Buyer subsequently receives the items
     described in Paragraph 3(a)(iv) and 3(a)(v) and the other delivery
     requirements under the Custodial Agreement on or before the date and time
     specified herein and therein, which items shall be in form and substance
     satisfactory to the Buyer in its discretion;

          (xi) the Buyer shall have received from the Seller a Warehouse
     Lender's Release Letter substantially in the form of Annex 10-B to the
     Custodial Agreement (or such other form acceptable to the Buyer)
     ("Warehouse Lender's Release Letter"), if applicable, or a Seller's Release
     Letter substantially in the form of Annex 10-A to the Custodial Agreement
     (or such other form acceptable to the Buyer) ("Seller's Release Letter")
     covering each Eligible Asset to be sold to the Buyer;

          (xii) prior to the purchase of any Eligible Asset acquired (by
     purchase or otherwise) by the Seller from any Affiliate of Seller, the
     Buyer shall have received certified copies of the applicable Purchase
     Agreements (if any) and, if requested by the Buyer in its reasonable
     discretion, a True Sale Opinion;

          (xiii) on and as of such day, the Seller, the Guarantor, the Pledgor
     and the Custodian shall have performed all of the covenants and agreements
     contained in the Repurchase Documents to be performed by such Person at or
     prior to such day;

          (xiv) the Repurchase Date for such Transaction is not later than the
     Facility Maturity Date;

          (xv) the Buyer shall have received evidence satisfactory to the Buyer
     that the Seller has delivered an irrevocable instruction to each Servicer,
     PSA Servicer or other applicable Person to pay Income with respect to the
     Purchased Items directly to the Collection Account, as provided herein,
     which instructions may not be modified without the prior written consent of
     the Buyer, and the Seller shall have delivered all notices and instructions
     and obtained all certifications, acknowledgments, agreements and
     registrations required to perfect any CMBS Security;


                                   Annex I-64



          (xvi) both immediately prior to the requested Transaction and also
     after giving effect thereto and to the intended use thereof, all
     representations and warranties made by each of the Seller, the Guarantor
     and the Pledgor shall be true, correct and complete on and as of such
     Purchase Date in all material respects with the same force and effect as if
     made on and as of such date;

          (xvii) the Buyer shall be in receipt of the evidence of insurance (if
     any) required by Section 9.1 of the Custodial Agreement;

          (xviii) none of the following shall have occurred and/or be
     continuing:

               (A) an event or events shall have occurred in the good faith
          determination of the Buyer resulting in the effective absence of a
          "repo market" or related "lending market" for purchasing (subject to
          repurchase) or financing debt obligations secured by commercial
          mortgage loans or securities, or an event or events shall have
          occurred resulting in the Buyer not being able to finance Mortgage
          Assets through the "repo market" or "lending market" with traditional
          counterparties at rates that would have been reasonable prior to the
          occurrence of such event or events;

               (B) an event or events shall have occurred resulting in the
          effective absence of a "securities market" for securities backed by
          Mortgage Assets or commercial or multifamily real property, or an
          event or events shall have occurred resulting in the Buyer not being
          able to sell securities backed by Mortgage Assets or commercial or
          multifamily real property at prices that would have been reasonable
          prior to such event or events; or

               (C) there shall have occurred a material adverse change in the
          financial condition of the Buyer that affects (or can reasonably be
          expected to affect) materially and adversely the ability of the Buyer
          to fund its obligations under this Repurchase Agreement;

          (xix) after giving effect to the requested Transaction, the aggregate
     outstanding Purchase Price of the Transactions outstanding shall not exceed
     the Asset Value of all the Purchased Assets subject to outstanding
     Transactions or the Maximum Amount;

          (xx) the Mortgage Asset shall be an Eligible Asset (unless waived by
     the Buyer in its discretion) and the Buyer shall have obtained internal
     credit approval review and/or approval of such Mortgage Asset; and

          (xxi) the Buyer shall have received all such other and further
     documents, reports, certifications, approvals and legal opinions as the
     Buyer in its discretion shall reasonably require.

     The failure of the Seller or the Guarantor, as applicable, to satisfy any
of the foregoing conditions precedent in respect of any Transaction shall,
unless such failure was expressly waived in writing by the Buyer on or prior to
the related Purchase Date, give rise to a right of the Buyer, which right may be
exercised at any time on the demand of the Buyer, to rescind the related
Transaction and direct the Seller to pay to the Buyer for the benefit of the
Buyer an amount equal to the Purchase Price, the Price Differential, Breakage
Costs and other amounts due in connection therewith during any such time that
any of the foregoing conditions precedent were not satisfied.

     4. BUYER'S DUTY OF CARE. Except as herein provided in this Section 4 of
this Repurchase Agreement, Buyer's (or, on its behalf, the Custodian) sole duty
with respect to the Purchased Items shall


                                   Annex I-65



be to use reasonable care in the custody, use, operation and preservation of the
Purchased Items in its possession or control. The Buyer shall incur no liability
to the Seller, the Guarantor or any other Person for any act of government, act
of God or other such destruction in whole or in part or negligence or wrongful
act of custodians or agents selected by and supervised by Buyer with reasonable
care, or Buyer's failure to provide adequate protection or insurance for the
Purchased Items. Buyer shall have no obligation to take any action to preserve
any rights of the Seller in any of the Purchased Items against prior parties,
and the Seller hereby agrees to take such action. The Seller shall defend the
Purchased Items against all such claims and demands of all persons (other than
claims and demands resulting from interests created by Buyer), at all times, as
are adverse to Buyer. Buyer shall have no obligation to realize upon any
Purchased Item, except through proper application of any distributions with
respect to the Purchased Items made directly to Buyer or its agent(s). So long
as Buyer (or the Custodian, on the Buyer's behalf) shall act in good faith in
its handling of the Purchased Items, each of the Seller and the Guarantor hereby
waives the defense of impairment of the Purchased Items by Buyer.

     5.   COVENANTS.

     (a) Compliance with Laws and Contractual Obligations. The Seller and the
Guarantor shall comply in all material respects with all Applicable Laws
(including Environmental Laws), including those with respect to the Purchased
Assets or any part thereof, and shall comply, and perform all duties and
obligations under, all Contractual Obligations, Indebtedness and Guarantee
Obligations (including, without limitation, its duties and obligations under the
Mortgage Loan Documents). No part of the proceeds of any Transaction shall be
used for any purpose which violates, or would be inconsistent with, the
provisions of Regulation T, U or X.

     (b) Payment of Taxes. The Seller and the Guarantor shall pay and discharge
all Taxes, assessments and governmental charges or levies imposed on it or on
its income or profits or on any of its Property prior to the date on which
penalties attach thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper proceedings
and against which adequate reserves are being maintained in accordance with
GAAP.

     (c) Corporate Existence. The Seller and the Guarantor shall continue to
engage in business of the same general type as now conducted by it and shall
preserve and maintain its company existence, rights, franchises and privileges
in the jurisdiction of its formation and will qualify and remain qualified in
good standing as a corporation or other entity in each jurisdiction where the
failure to preserve and maintain such existence, rights, franchises, privileges
and qualification has had, or could reasonably be expected to have, a Material
Adverse Effect.

     (d) ERISA Matters. Each of the Seller and the Guarantor will not without
the prior approval of the Buyer, establish or maintain any Plan, nor take any
action that would (i) cause it to fail to qualify as an Operating Company or
(ii) cause it to fail to otherwise meet an exception under the Plan Asset
Regulations which would prevent the assets of such Person from being subject to
Title I of ERISA or Section 4975 of the Code.

     (e) Interest Rate Protection Agreements. Each of the Seller and the
Guarantor shall perform its duties and obligations and make all payments due
under and shall otherwise maintain any existing Interest Rate Protection
Agreements.

     (f) Payment of Obligations. The Seller and the Guarantor shall pay,
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all its obligations in excess of $250,000 with
respect to the Seller and $1,000,000 with respect to the Guarantor, including,
without limitation, all Indebtedness, Contractual Obligations and Guarantee
Obligations, except where the


                                   Annex I-66



amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Seller, the Guarantor or any of
their Subsidiaries, as the case may be.

     (g) Keeping of Records and Books of Account. The Seller will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing the Purchased Items in the
event of the destruction of the originals thereof) and will keep and maintain
all documents, books, records and other information reasonably necessary or
advisable in which complete entries are made in accordance with GAAP and
Applicable Laws.

     (h) Financial Statements. The Seller and the Guarantor shall deliver to the
Buyer:

          (i) as soon as available, and in any event within forty-five (45)
     calendar days after the end of the first three fiscal quarters of the
     Seller and the Guarantor, the unaudited consolidated balance sheets for the
     Seller and the Guarantor as at the end of such period and the related
     unaudited consolidated statements of income and retained earnings and of
     cash flows for the Seller and the Guarantor for such period and the portion
     of the fiscal year through the end of such period, accompanied by an
     Officer's Certificate from the Seller and the Guarantor, which certificate
     shall state that said consolidated financial statements fairly present in
     all material respects the consolidated financial condition and results of
     operations of the Seller or the Guarantor, as applicable, in accordance
     with GAAP, consistently applied, as at the end of, and for, such period
     (subject to normal year-end adjustments);

          (ii) as soon as available, and in any event within ninety (90) days
     after the end of each fiscal year of the Seller and the Guarantor, the
     audited (in the case of the Guarantor only) or the signed (in the case of
     the Seller only) consolidated balance sheets of the Seller and the
     Guarantor, as applicable, as at the end of such fiscal year and the related
     consolidated statements of income and retained earnings and of cash flows
     for the Seller and the Guarantor for such year, and, in the case of the
     Guarantor only, setting forth in each case in comparative form the figures
     for the previous year, accompanied by an opinion thereon of independent
     certified public accountants of recognized national standing, which opinion
     shall not be qualified as to scope of audit or going concern and shall
     state that said consolidated financial statements fairly present the
     consolidated financial condition and results of operations of the Guarantor
     as at the end of, and for, such fiscal year in accordance with GAAP;

          (iii) with respect to each Purchased Asset, if provided to the Seller,
     the Guarantor or any Servicer or PSA Servicer by any Borrower under any
     Purchased Asset, as soon as available, but in any event not later than
     forty-five (45) days after the end of each fiscal quarter of the Seller,
     the operating statement and rent roll for each Underlying Mortgaged
     Property; provided, however, the Buyer reserves the right in its discretion
     to request such information on a monthly basis (to be provided no later
     than thirty (30) days after the end of each month) but the Seller's failure
     to obtain such information shall not be a breach of this covenant provided
     the related Purchased Asset with respect to which information was not
     provided is included in the Facility for less than six (6) months;

          (iv) with respect to each Purchased Asset, if provided to the Seller
     or the Guarantor by any Borrower under any Purchased Asset, as soon as
     available, but in any event not later than thirty (30) days after receipt
     thereof, the annual balance sheet with respect to such Borrower;

          (v) with respect to each Purchased Asset, as soon as available but in
     any event not later than thirty (30) days after receipt thereof, (A) the
     related monthly securitization report, if


                                   Annex I-67



     any, and any other reports delivered under the Pooling and Servicing
     Agreements to the Seller or the Guarantor, if any, and, (B) within
     forty-five (45) days after the end of each quarter, a copy of the standard
     monthly exception report (if any) , prepared by the Seller in the ordinary
     course of its business in respect of the related Purchased Asset or
     Underlying Mortgaged Property; and

          (vi) from time to time such other information regarding the financial
     condition, operations or business of the Seller and the Guarantor as the
     Buyer may reasonably request.

          All such financial statements shall be complete and correct in all
     material respects and shall be prepared in reasonable detail and in
     accordance with GAAP applied consistently throughout the periods reflected
     therein and with prior periods (except as approved by such accountants or
     officer, as the case may be, and disclosed therein); provided, that any
     financial statements delivered by the Seller or the Guarantor with respect
     to any Borrower under any Underlying Mortgage Loan shall be delivered to
     the Buyer in the form received by the Seller or the Guarantor.

     (i) Certificates; Other Information. The Seller and the Guarantor shall
furnish to the Buyer:

          (i) (A) concurrently with the delivery of the annual financial
     statements referred to in Section 5(h) above, a certification from the
     independent certified public accountant reporting on such financial
     statements stating that, in making the examination necessary therefore, no
     information was obtained of any Defaults or Events of Default except as
     specified in such certificate, and (B) concurrently with the delivery of
     the financial statements referred to in Section 5(h) above and in
     connection with the delivery of each Confirmation, a Compliance Certificate
     from a Responsible Officer of the Seller and the Guarantor, which
     Compliance Certificate shall, among other things, describe in detail, on a
     quarterly basis, the calculations supporting the Responsible Officer's
     certification of the Seller's and the Guarantor's compliance with the
     Financial Covenants;

          (ii) (A) within thirty (30) days of the end of each calendar quarter,
     the Seller shall provide the Buyer with a quarterly report, which report
     shall include, among other items, a summary of the Seller's delinquency and
     loss experience with respect to Purchased Assets serviced by the Seller,
     any Servicer, any PSA Servicer or any designee of the foregoing, the
     Seller's internal risk rating, the Seller's and any Servicer's or PSA
     Servicer's surveillance reports on the Purchased Assets, and the operating
     statements, occupancy status and other property level information with
     respect to each Purchased Asset, (B) within ten (10) days of receipt
     thereof by the Seller, any Servicer or PSA Servicer, any remittance reports
     with respect to the servicing of any Purchased Items and (C) promptly, any
     such additional reports as the Buyer may reasonably request with respect to
     the Seller, any Servicer or PSA Servicer servicing the portfolio, or
     pending originations of Mortgage Assets;

          (iii) no later than the fifteenth (15th) day of each month, with
     respect to each Purchased Asset, a Purchased Asset Data Summary,
     substantially in the form of Exhibit VII ("Purchased Asset Data Summary"),
     properly completed;

          (iv) the Seller shall promptly deliver or cause to be delivered to the
     Buyer (i) any report or material notice received by the Seller from any
     Borrower or obligor under the Purchased Items promptly following receipt
     thereof and (ii) any other such document or information relating to the
     Purchased Items as the Buyer may reasonably request in writing from time to
     time;


                                   Annex I-68



          (v) promptly, any modifications or additions to the items contained in
     the Underwriting Package; and

          (vi) promptly, such additional financial and other information as the
     Buyer may from time to time reasonably request.

     (j) Notices. The Seller and the Guarantor will furnish written notice to
the Buyer and the Swap Counterparty with respect to the following:

          (i) Representations. Promptly upon notice or knowledge thereof, notice
     of (A) any representation or warranty set forth in Paragraph 10 of this
     Repurchase Agreement was incorrect at the time it was given or deemed to
     have been given or (B) any eligibility criteria set forth in Schedule 1 to
     this Repurchase Agreement is or was not satisfied at any time;

          (ii) Covenants. Promptly upon notice or knowledge thereof, notice of
     any material default with respect to any covenant, duty or agreement of the
     Seller, the Guarantor or the Pledgor under any Repurchase Document;

          (iii) Material Events. Promptly upon becoming aware thereof, notice of
     any material change in the Asset Value of any Purchased Asset, any material
     change in the market value of any or all of the Seller's or Guarantor's
     assets or any other event or circumstance that, in the reasonable judgment
     of the Seller or the Guarantor, is likely to have a Material Adverse
     Effect;

          (iv) Event of Default. The Seller and the Guarantor shall immediately
     notify the Buyer upon the Seller or the Guarantor becoming aware of any
     event which would constitute a Default or an Event of Default.

          (v) Casualty. With respect to any Purchased Asset hereunder, promptly
     upon notice or knowledge thereof that the Underlying Mortgaged Property has
     been damaged by waste, fire, earthquake or earth movement, flood, tornado
     or other casualty, or otherwise damaged so as to affect adversely the Asset
     Value of such Purchased Asset;

          (vi) Liens. Promptly upon notice or knowledge of any Lien or security
     interest on, or claim asserted against, any Purchased Asset or the Equity
     Interests other than Permitted Liens;

          (vii) Defaults. Promptly upon notice or knowledge thereof, notice of
     (A) any material default (beyond any applicable notice and cure period)
     related to any Purchased Items or the Mortgage Loan Documents, or (B) any
     default (beyond any applicable notice and cure period) under any
     Contractual Obligation, Indebtedness or Guarantee Obligation of the Seller,
     the Guarantor or any of their Subsidiaries, which, if not cured, could
     reasonably be expected to have a Material Adverse Effect;

          (viii) Servicers. Promptly upon notice or knowledge thereof, notice of
     the resignation or termination of any Servicer under any Servicing
     Agreement with respect to any Purchased Items or any PSA Servicer under a
     Pooling and Servicing Agreement;

          (ix) Losses. Promptly upon notice or knowledge thereof, notice of any
     loss or expected loss in respect of any Purchased Item, or any other event
     or change in circumstances or expected event or change in circumstances
     that could be reasonably be expected to result in a material decline in
     value or cash flow of any Purchased Item or any Underlying Mortgaged
     Property;


                                   Annex I-69



          (x) Sales. Notice of the conveyance, sale, lease, assignment, transfer
     or other disposition (any such transaction, or related series of
     transactions, a "Sale") of any Property, business or assets of the Seller,
     whether now owned or hereafter acquired, with the exception of (A) this
     Repurchase Agreement and (B) any Sale of Property by the Seller that is not
     material to the conduct of its business and is effected in the ordinary
     course of business; and

          (xi) Proceedings. As soon as possible and in any event within three
     (3) Business Days after the Seller or the Guarantor receives notice or
     obtains knowledge thereof, notice of any settlement of, material judgment
     (including a material judgment with respect to the liability phase of a
     bifurcated trial) in or commencement of any labor controversy (of a
     material nature), litigation, action, suit, arbitration or proceeding
     before any court or governmental department, commission, board, bureau,
     agency, arbitrator, investigation or instrumentality, domestic or foreign,
     affecting (A) the Purchased Items, (B) the Repurchase Documents, (C) the
     Buyer's interest in the Purchased Items, or (D) the Seller or the Guarantor
     and, with respect to this clause (D) only, the amount in controversy
     exceeds $250,000 with respect to the Seller and/or $1,000,000 with respect
     to the Guarantor.

Each notice pursuant to this Section 5(j) shall be accompanied by an Officer's
Certificate from the Seller and/or the Guarantor, as applicable, setting forth
details of the occurrence referred to therein and stating what action the Seller
or the Guarantor has taken or proposes to take with respect thereto.

     (k) Limitations on Liens. Without prior written consent of the Buyer, the
Seller will not: (i) assign, sell, transfer, pledge, grant, create, incur,
assume or suffer or permit to exist any security interest in or Lien on any of
the Purchased Items to anyone except Buyer, (ii) permit any financing statement
(except any financing statements in favor of Buyer) or assignment (except for
any assignments in favor of Buyer) to be on file in any public office with
respect thereto, (iii) permit or suffer to exist any Lien or right of others to
attach to any of the Purchased Items (or any portion thereof), except as
contemplated by this Repurchase Agreement, or (iv) consent to any amendment or
supplement to the Mortgage Loan Documents pursuant to which the Purchased Assets
were issued or created that would materially and adversely affect Buyer's
interests hereunder or with respect to the Purchased Items without the prior
written consent of Buyer or (v) sell, pledge, transfer, assign, participate or
grant a Lien on its interest under the Repurchase Documents or the Purchased
Items.

     (l) Lien Covenants. With respect to each Purchased Item acquired by the
Buyer, the Seller will (i) take all action reasonably requested by the Buyer to
perfect, protect and more fully evidence the Buyer's ownership of and first
priority perfected security interest in such Purchased Item, including, without
limitation, executing or causing to be executed such other instruments or
notices as may be necessary or appropriate and (ii) taking all additional action
that the Buyer may reasonably request to perfect, protect and more fully
evidence the respective interests of the parties to this Repurchase Agreement
and the Repurchase Documents in such Purchased Items. Immediately upon notice to
the Seller of a Lien or any circumstance which, if adversely determined would be
reasonably likely to give rise to a Lien (other than in favor of the Buyer or
created by or through Buyer), on any of the Purchased Items, the Seller shall
notify the Buyer and the Seller shall further defend the Purchased Items
against, and will take such other action as is necessary to remove, any Lien or
claim on or to the Purchased Items (other than any Lien created under this
Repurchase Agreement), and the Seller will defend the right, title and interest
of the Buyer in and to any of the Purchased Items against the claims and demands
of all Persons whomsoever.


                                   Annex I-70



     (m) Sub-Limit. The Seller shall not sell to the Buyer any Eligible Asset
if, after giving effect to such Transaction, a Sub-Limit would be exceeded,
unless waived in advance in writing by the Buyer in its discretion.

     (n) Registration of Securities. In the case of any Purchased Asset not
physically delivered to the Buyer or its designee, unless otherwise consented to
by the Buyer, the Seller shall maintain, or cause to be maintained, each of the
Securities with either DTC or with the National Book Entry System of the Federal
Reserve, DTC or any similar firm or agency, as applicable, in the Buyer's name.

     (o) [RESERVED].

     (p) Investments. The Seller, the Guarantor or any of their Affiliates shall
not acquire or maintain any right or interest in any Purchased Asset that is
senior to or pari passu with the rights and interests of the Buyer therein under
this Repurchase Agreement unless such Mortgage Asset is also a Purchased Asset.

     (q) Prohibition of Fundamental Changes. The Seller or the Guarantor shall
not enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, however,
that the Seller or the Guarantor may merge or consolidate with (i) any wholly
owned Subsidiary of such Person, or (ii) any other Person if the Seller or the
Guarantor is the surviving corporation; provided, that, (x) if after giving
effect thereto, no Event of Default would exist hereunder, (y) if such merger or
consolidation would adversely affect the Swap Counterparty, the Swap
Counterparty has consented thereto, and (z) the new entity (if any) assumes the
obligations, liabilities and Indebtedness under the Repurchase Documents and the
Swap Documents.

     (r) Maintenance of Property; Insurance. The Seller and the Guarantor shall
keep all Property useful and necessary in its business in good working order and
condition, shall maintain with financially sound and reputable insurance
companies insurance on all its Property in at least such amounts and against at
least such risks as are usually and customarily insured against in the same
general area by companies acting prudently and engaged in the same or a similar
business, and furnish to the Buyer, upon written request, full information as to
the insurance carried.

     (s) Financial Covenants.

          (i) Maintenance of Liquidity. The Guarantor shall not permit, for any
     calendar quarter, its Liquidity for such Test Period to be less than (i) if
     the Debt to Book Equity Ratio is above 2:1, $12,000,000, (ii) if the Debt
     to Book Equity Ratio is between 1:1 and 2:1, $6,000,000, and (iii) if the
     Debt to Book Equity Ratio is below 1:1, $4,000,000; provided, however, the
     Guarantor's Liquidity shall never be less than $4,000,000.

          (ii) Maintenance of Tangible Net Worth. The Guarantor shall not
     permit, for any Test Period, its Tangible Net Worth (including the
     Guarantor's minority interest in Guarantor's operating partnership) at any
     time to be less than the sum of (A) $125,000,000 plus (B) an amount equal
     to 75% of the aggregate net proceeds after costs and expenses received by
     the Guarantor, Subsidiaries of the Guarantor and/or the Guarantor's
     operating partnership in connection with the offering or issuance of any
     Capital Stock of the Guarantor, Subsidiaries of the Guarantor and/or the
     Guarantor's operating partnership after the Closing Date.


                                   Annex I-71



          (iii) Maintenance of Debt to Book Equity. The Guarantor shall not
     permit, for any Test Period, the ratio of its recourse Indebtedness to
     Tangible Net Worth (the "Debt to Book Equity Ratio") at any time to be
     greater than 3:5 to 1:0.

          (iv) Interest Coverage. The Seller shall not permit, for any Test
     Period, the ratio of (A) the sum of its Consolidated Adjusted EBITDA for
     such Test Period to (B) its Interest Expense for such Test Period to be
     less than 1:5 to 1:0.

     (t) Delivery of Income. The Seller will deposit and cause all Servicers and
other applicable Persons to deposit all Income received in respect of the
Purchased Items into the Collection Account within two (2) Business Days of
receipt thereof. The Seller shall instruct all PSA Servicers and other
applicable Persons under the Pooling and Servicing Agreements to deposit into
the Collection Account within two (2) Business Days of the date the PSA Servicer
is obligated to disburse the same under the Pooling and Servicing Agreements all
Income in respect of the Purchased Items and the Seller shall take reasonable
steps necessary to enforce such instructions. The Seller will instruct the Swap
Counterparty under the Swap Documents and all other counterparties under other
Interest Rate Protection Agreements to deposit any payments due to the Seller
from time to time under the Swap Documents and the other Interest Rate
Protection Agreements into the Collection Account within two (2) Business Days
of the date such Person is obligated to disburse same and the Seller shall take
reasonable steps to enforce such instructions. Furthermore, the Seller shall
remit or cause to be remitted to the Buyer via Electronic Transmission
sufficient detail to enable the Buyer to appropriately identify the Purchased
Asset to which any full or partial principal payment or prepayment applies.

     (u) Performance and Compliance with Purchased Assets. The Seller will, at
its expense, timely and fully perform and comply (or as applicable cause the
Transferors, Servicers and PSA Servicers to perform and comply) with all
provisions, covenants, duties, agreements, obligations and other promises
required to be observed under the Purchased Items, all other agreements related
to such Purchased Items, including the Mortgage Loan Documents, and the Retained
Interests.

     (v) Purchased Items Not to be Evidenced by Instruments. Neither the Seller
nor the Guarantor will not take any action to cause any Purchased Item that is
not, as of the applicable Purchase Date, evidenced by an Instrument to be so
evidenced except in connection with the enforcement or collection of such
Purchased Items.

     (w) Deposits. The Seller will not deposit or otherwise credit, or cause or
permit to be so deposited or credited, to the Collection Account cash or cash
proceeds other than Income in respect of Purchased Items. The Seller will not
deposit or otherwise credit, or cause or permit to be so deposited or credited,
to the Securities Account any item except uncertificated CMBS Securities that
are Purchased Assets and all cash, property, proceeds, securities or investment
property with respect to such Purchased Assets. The Seller shall perform all of
its obligations under the Account Control Agreement and Securities Account
Control Agreement.

     (x) Change of Name or Location of Asset Files. The Seller shall not (i)
change its name, organizational number, identity, structure or jurisdiction of
formation, move the location of its principal place of business and chief
executive office, or change the offices where it keeps the records (as defined
in the UCC) from the location referred to in on the signature page to the Master
Repurchase Agreement, or (ii) move, or consent to the Custodian moving, the
Mortgage Asset Files from the location thereof on the Closing Date, unless the
Seller has given at least thirty (30) days' prior written notice to the Buyer
and has taken all actions required under the UCC of each relevant jurisdiction
in order to continue the first priority perfected security interest of the Buyer
in the Purchased Items.


                                   Annex I-72



     (y) Exceptions. The Seller shall promptly correct any and all Exceptions
set forth on any Asset Schedule and Exception Report.

     (z) Purchase Agreements; Servicing Agreements. The Seller or the Guarantor
will not materially amend, modify, waive or terminate any provision of any
Purchase Agreement, Servicing Agreement or Pooling and Servicing Agreement
without the prior written consent of the Buyer.

     (aa) Transactions with Affiliates. The Seller may enter into any
transaction with an Affiliate, provided that such transaction is upon fair and
reasonable terms no less favorable to the Seller than it would obtain in a
comparable arm's length transaction with a Person that is not an Affiliate;
provided, further, that in no event shall the Seller transfer to the Buyer
hereunder any Eligible Asset acquired by the Seller from an Affiliate of the
Seller unless the Seller shall have delivered a certified copy of the related
Purchase Agreement and, if requested by the Buyer in its reasonable discretion,
a True Sale Opinion has been delivered to the Buyer prior to such sale.

     (bb) Negative Pledge. The Seller shall not contract, create, incur, assume
or permit to exist any Lien on or with respect to any of its Property or assets
of any kind (whether real or personal, tangible or intangible), whether now
owned or hereafter acquired, except for Permitted Liens.

     (cc) Limitation on Distributions. The Seller or the Guarantor shall not
declare or make any payment on account of, or set apart assets for, a sinking or
other analogous fund for the purchase, redemption, defeasance, retirement or
other acquisition of any equity or partnership interest of the Seller or the
Guarantor, as applicable, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly, whether in
cash or property or in obligations of Seller or the Guarantor, as applicable,
except that the Seller and the Guarantor, as applicable, each may declare and
pay dividends in accordance with its respective Governing Documents, and without
restriction as to amount, so long as, in the case of the Seller and the
Guarantor, (i) no Default or Event of Default shall have occurred, (ii) no
Margin Deficit is outstanding and (iii) the distribution of such funds will not
violate any Financial Covenant. Notwithstanding the preceding sentence and
irrespective of the occurrence of the events described in clauses (i), (ii) or
(iii) of the immediately preceding sentence, the Guarantor may at all times pay
dividends either (A) as required by Applicable Law to maintain its REIT status
and/or (B) to its preferred equity holders.

     (dd) Extension or Amendment of Purchased Items. The Seller shall not,
except as otherwise permitted in Section 6(e)(iii) of this Repurchase Agreement,
extend, amend, waive or otherwise modify, or permit any Servicer or PSA Servicer
to extend, amend, waive or otherwise modify, the material terms of any Purchased
Item.

     (ee) Inconsistent Agreements. The Seller and the Guarantor shall not, and
shall not permit the Pledgor to, directly or indirectly, enter into any
agreement containing any provision that would be violated or breached by any
Transaction hereunder or by the performance by the Seller, the Guarantor or the
Pledgor of its obligations under any Repurchase Document.

     (ff) Distributions in Respect of Purchased Items. If the Seller shall
receive any rights, whether in addition to, in substitution of, as a conversion
of, or in exchange for any Purchased Items, or otherwise in respect thereof, the
Seller shall accept the same as the Buyer's agent, hold the same in trust for
the Buyer and deliver the same forthwith to the Buyer (or its designee) in the
exact form received, together with duly executed instruments of transfer or
assignment in blank and such other documentation as the Buyer shall reasonably
request. If any sums of money or property are paid or distributed in respect of
the Purchased Items and received by the Seller (other than the Borrower Reserve
Payments), the Seller shall promptly pay or deliver such money or property to
the Buyer and, until such money or property is so


                                   Annex I-73



paid or delivered to the Buyer, hold such money or property in trust for the
Buyer, segregated from other funds of the Seller.

     (gg) Governing Documents. The Seller shall comply with its Governing
Documents and shall not amend its Governing Documents without the prior written
consent of the Buyer.

     (hh) Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Default or Event of Default if such action is taken or
condition exists.

     (ii) Limitation on Indebtedness. The Seller shall not create, incur, assume
or suffer to exist any Indebtedness (including, but not limited to, any credit
or repurchase facility), Guarantee Obligation or Contractual Obligation of the
Seller, except Indebtedness, Guarantee Obligations and Contractual Obligations
of the Seller permitted under this Agreement.

     (jj) Unrelated Activities. The Seller shall not engage in any activity
other than activities specifically permitted by this Section 5, including, but
not limited to, investment in real estate related assets and the purchasing,
financing and holding of commercial mortgage-backed securities and activities
incident thereto.

     (kk) Separateness. The Seller shall not take any action or fail to take any
action that would cause it to violate or be inconsistent with the
representations and warranties in Paragraph 10(qq) of the Repurchase Agreement.

     (ll) Pledge and Security Agreement. Neither the Seller nor the Guarantor
shall take any direct or indirect action inconsistent with the Pledge and
Security Agreement or the security interest granted thereunder to the Buyer in
the Equity Interests.

     (mm) Guarantor Status. The Guarantor shall remain listed on a nationally
recognized securities exchange in good standing. The Guarantor may change its
status as a REIT provided it remains in compliance with the Financial Covenants
in all respects.

     (nn) Patriot Act. Each of the Seller and the Guarantor shall comply with
the Applicable Laws referenced to in Paragraph 10(p) and (q) of this Repurchase
Agreement.

     (oo) Seller Subsidiaries. The Seller shall not create, form or permit to
exist any Subsidiary prior to the later of (i) the Facility Maturity Date (as it
may be extended in accordance with this Repurchase Agreement) and (ii) the
indefeasible payment in full of the Obligations.

     6.   SERVICING.

     (a) Appointment.

          (i) The Buyer hereby appoints the Seller as its agent to service the
     Purchased Items and enforce its rights in and under such Purchased Items.
     The Seller hereby accepts such appointment and agrees to perform the duties
     and obligations with respect thereto as set forth herein.

          (ii) The Seller covenants to maintain or cause the servicing of the
     Purchased Items to be maintained in conformity with Accepted Servicing
     Practices. In the event that the preceding


                                   Annex I-74



     language is interpreted as constituting one or more servicing contracts,
     each such servicing contract shall terminate automatically upon the
     earliest of (A) an Event of Default, (B) the date on which the Repurchase
     Agreement terminates or the Seller repurchases any related Purchased Asset,
     or (C) the transfer of servicing approved in writing by the Buyer.

     (b) Seller as Servicer. If the Purchased Assets are serviced by the Seller,
the Seller agrees that, until the repurchase of a Purchased Asset on a
Repurchase Date, the Buyer is the owner of all servicing records for the period
that the Buyer owns the Purchased Items, including, but not limited to, any and
all servicing agreements, files, documents, records, data bases, computer tapes,
copies of computer tapes, computer programs, proof of insurance coverage,
insurance policies, appraisals, other closing documentation, payment history
records, and any other records relating to or evidencing the servicing of such
Purchased Assets (the "Servicing Records"). The Seller covenants to safeguard
such Servicing Records and to deliver them promptly to Buyer or its designee
(including the Custodian) at the Buyer's request.

     (c) Third Party Servicer. If the Purchased Assets are serviced by a
Servicer or a PSA Servicer pursuant to a Servicing Agreement or Pooling and
Servicing Agreement, as applicable, the Seller (i) shall, in accordance with
Section 3(b)(viii) of this Repurchase Agreement, provide to the Buyer (subject
to the last sentence of this Section 6(c)) a copy of each Servicing Agreement
(which agreements shall be in form and substance reasonably acceptable to the
Buyer), and each Pooling and Servicing Agreement, and a Servicer Notice
substantially in the form of Exhibit VIII hereto, fully executed by the Seller
and the related Servicer or PSA Servicer (in the case of a Pooling and Servicing
Agreement for a Mortgage Asset that is not a Whole Loan, the Buyer may at its
discretion waive the requirement of an executed Servicer Notice), and (ii)
hereby irrevocably assigns to the Buyer and the Buyer's successors and assigns
all right, title and interest of the Seller in, to and under, and the benefits
of (but not the obligations of), each Servicing Agreement and each Pooling and
Servicing Agreement with respect to the Purchased Items. Notwithstanding the
fact that the Seller has contracted with a Servicer or PSA Servicer to service
the Purchased Items, the Seller shall remain liable to the Buyer for the acts of
the Servicers and the PSA Servicer and for the performance of the duties and
obligations set forth herein. The Seller agrees that no Person shall assume the
servicing obligations with respect to the Purchased Assets as successor to a
Servicer or PSA Servicer unless such successor is approved in writing by the
Buyer prior to such assumption of servicing obligations. Unless otherwise
approved in writing by the Buyer, if the Purchased Assets are serviced by a
Servicer or PSA Servicer, such servicing shall be performed pursuant to a
written Servicing Agreement or Pooling and Servicing Agreement approved by the
Buyer.

     (d) Duties of the Seller.

          (i) Duties. The Seller shall take or cause to be taken all such
     actions as may be necessary or advisable to collect all Income and all
     other amounts due or recoverable with respect to the Purchased Items from
     time to time, all in accordance with Applicable Laws, with reasonable care
     and diligence, and in accordance with the standard set forth in Section
     6(a)(ii) of this Repurchase Agreement.

          (ii) Buyer's Rights. Notwithstanding anything to the contrary
     contained herein, the exercise by the Buyer of its rights hereunder shall
     not release the Seller from any of its duties or responsibilities with
     respect to the Purchased Items. The Buyer shall not have any obligation or
     liability with respect to any Purchased Items, nor shall any of them be
     obligated to perform any of the obligations of the Seller hereunder.


                                   Annex I-75



     (e) Authorization of the Seller.

          (i) The Buyer hereby authorizes the Seller (including any successor
     thereto) to take any and all reasonable steps in its name and on its behalf
     necessary or desirable and not inconsistent with the sale of the Purchased
     Items to the Buyer, to collect all amounts due under any and all Purchased
     Items, including, without limitation, endorsing checks and other
     instruments representing Income, executing and delivering any and all
     instruments of satisfaction or cancellation, or of partial or full release
     or discharge, and all other comparable instruments, with respect to the
     Purchased Items and, after the delinquency of any Purchased Item and to the
     extent permitted under and in compliance with Applicable Law, to commence
     proceedings with respect to enforcing payment thereof, to the same extent
     as the Seller could have done if it had continued to own such Purchased
     Items. The Buyer shall furnish the Seller (and any successors thereto) with
     any powers of attorney and other documents necessary or appropriate to
     enable the Seller to carry out its servicing and administrative duties
     hereunder and shall cooperate with the Seller to the fullest extent in
     order to ensure the collectability of the Purchased Items. In no event
     shall the Seller be entitled to make the Buyer a party to any litigation
     without the Buyer's express prior written consent.

          (ii) Subject to all other rights of the Buyer contained herein, after
     an Event of Default has occurred and is continuing, at the direction of the
     Buyer, the Seller shall take such action as the Buyer may deem necessary or
     advisable to enforce collection of the Purchased Items; provided, however,
     subject to all other rights of the Buyer contained herein, the Buyer may,
     at any time that an Event of Default has occurred and is continuing, notify
     any Borrower with respect to any Purchased Items of the assignment of such
     Purchased Items to the Buyer and direct that payments of all amounts due or
     to become due be made directly to the Buyer or any servicer, collection
     agent or lock-box or other account designated by the Buyer and, upon such
     notification and at the expense of the Seller, the Buyer may enforce
     collection of any such Purchased Items and adjust, settle or compromise the
     amount or payment thereof.

          (iii) With respect to each Purchased Asset and to the extent not
     otherwise specifically addressed otherwise in this Repurchase Agreement,
     (i) prior to an Event of Default, the Seller (and any Servicer or PSA
     Service on its behalf) shall not exercise any material rights of a holder
     of a Purchased Item under any document or agreement governing such
     Purchased Items (including amendments, modifications, waivers and
     alterations of any of the material terms of any Purchased Item) that
     affects the Market Value of such Purchased Item without first consulting
     with the Buyer prior to taking any action and, in the event the Buyer and
     the Seller cannot agree on a course of action, the Seller shall take only
     those actions as agreed to by the Buyer, and, (ii) after an Event of
     Default, the Seller shall not exercise any rights of a holder of such
     Purchased Items under any document or agreement governing such Purchased
     Items without the prior written consent of the Buyer.

     (f) [RESERVED].

     (g) [RESERVED].

     (h) [RESERVED].

     (i) Event of Default. If the servicer of the Purchased Items is the Seller,
upon the occurrence of an Event of Default, the Buyer shall have the right to
terminate the Seller as the servicer of the Purchased Items and transfer
servicing to its designee, at no cost or expense to the Buyer, at any time


                                   Annex I-76



thereafter. If the servicer of the Purchased Items is not the Seller, the Buyer
shall have the right, as contemplated in the applicable Servicer Notice, upon
the occurrence of an Event of Default, to terminate any applicable Servicing
Agreement and any Pooling and Servicing Agreement to the extent the PSA Servicer
signed a Servicer Notice and to transfer servicing to the Buyer or the Buyer's
designee, at no cost or expense to the Buyer, it being agreed that the Seller
will pay any and all fees required to terminate such Servicing Agreements and
Pooling and Servicing Agreements and to effectuate the transfer of servicing to
the designee of the Buyer. The Seller shall fully cooperate and shall cause all
Servicers and applicable PSA Servicers to fully cooperate with the Buyer in
transferring the servicing of the Purchased Items to the Buyer's designee.

     (j) [RESERVED].

     (k) Inspection. In the event the Seller or its Affiliates are servicing the
Purchased Items, the Seller shall permit the Buyer to inspect the Seller's or
its Affiliate's servicing facilities, books and records and related documents
and information, as the case may be, for the purpose of satisfying the Buyer
that the Seller or its Affiliates, as the case may be, have the ability to
service and are servicing the Purchased Items as provided in this Repurchase
Agreement. If a Servicer or PSA Servicer is servicing a Purchased Item, the
Seller shall cooperate with the Buyer in causing each Servicer and PSA Servicer
to permit inspections of the Servicer's and PSA's facilities, books and records
and related documents and information related to the Purchased Items.

     (l) [RESERVED].

     (m) Payment of Certain Expenses by Servicer. The Seller and any Servicer
will be required to pay all expenses incurred by them in connection with their
activities under the Repurchase Documents, including fees and disbursements of
independent accountants, Taxes imposed on the Seller or the Servicers, expenses
incurred in connection with payments and reports pursuant to the Repurchase
Documents, and all other fees and expenses not expressly stated under the
Repurchase Documents for the account of the Seller. The Seller shall be required
to pay all reasonable fees and expenses owing to any bank or trust company in
connection with the maintenance of the Collection Account, the Securities
Account and all other collection, reserve or lock-box accounts related to the
Purchased Items. The Seller shall be required to pay such expenses for its own
account and shall not be entitled to any payment therefor other than the
Servicing Fee.

     (n) Pooling and Servicing Agreements. Notwithstanding the other provisions
of this Section 6(n), to the extent the Purchased Items (or portions thereof)
are serviced by a PSA Servicer (other than the Seller or any Servicer) under a
Pooling and Servicing Agreement, (a) the standards for servicing those Purchased
Items shall be those set forth in the applicable Pooling and Servicing
Agreement, (b) the Seller shall enforce its rights and interests under such
agreements for and on behalf of the Buyer, (c) the Seller shall instruct the
applicable PSA Servicer to deposit all Income received in respect of the
Purchased Items into the Collection Account in accordance with Section 5(t), (d)
prior to an Event of Default, the Seller shall not take any action or fail to
take any action or consent to any action or inaction under any Pooling and
Servicing Agreement where the effect of such action or inaction would prejudice
the interests of the Buyer, (e) the Seller will not consent to any change or
modification to any Pooling and Servicing Agreement, including, without
limitation, any payment dates, interests rates, fees, payments of principal or
interest, maturity dates, restrictions on Indebtedness or any monetary term or
release any Borrower, guarantor or collateral without the prior written consent
of the Buyer, and, (f) following an Event of Default, the Buyer shall be
entitled to exercise any and all rights of the Seller under such Pooling and
Servicing Agreements as such rights relate to the Purchased Items. In addition,
with respect to a CMBS Security, the Seller shall not exercise any material
rights of a holder of a CMBS Security under any other document or agreement
governing such CMBS Security without the prior written consent of the Buyer.


                                   Annex I-77



     (o) Servicer Default. Any material breach by any of the Seller, any of its
Servicers or any PSA Servicer of the obligations contained in this Section 6 of
this Repurchase Agreement shall constitute a "Servicer Default".

     (p) Servicer. The Seller shall not permit or cause the Purchased Items to
be serviced by a third party other than pursuant to the Servicing Agreements or
the Pooling and Servicing Agreements or, if not serviced thereunder, by any
Servicer other than a Servicer expressly approved in writing by the Buyer
(including those pre-approved Servicers set forth on Schedule 5 hereto).

     7. COUNTERPARTS. This Repurchase Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.

     8. RECOURSE. No recourse under or with respect to any obligation, covenant
or agreement (including, without limitation, the payment of any fees or any
other obligations) of the Buyer, the Seller or the Guarantor as contained in
this Repurchase Agreement or any other Repurchase Document entered into by any
such party pursuant hereto or thereto or in connection herewith or therewith
shall be had against any administrator of the Buyer, the Seller, the Pledgor or
the Guarantor or any incorporator, Affiliate, owner, member, partner,
stockholder, officer, director, employee, agent or attorney of the Buyer, the
Seller, the Pledgor or the Guarantor, or of any such administrator, as such, by
the enforcement of any assessment or by any legal or equitable proceeding, by
virtue of any statute or otherwise; it being expressly agreed and understood
that the agreements of the Buyer, the Seller, the Pledgor and the Guarantor
contained in this Repurchase Agreement and all of the other agreements,
instruments and documents entered into by any such party pursuant hereto or
thereto or in connection herewith or therewith are, in each case, solely the
corporate obligations of the Buyer, the Seller, the Pledgor and the Guarantor,
and that no personal liability whatsoever shall attach to or be incurred by any
administrator of the Buyer, the Seller, the Pledgor or the Guarantor or any
incorporator, owner, member, partner, stockholder, Affiliate, officer, director,
employee, agent or attorney of the Buyer, the Seller, the Pledgor or the
Guarantor, or of any such administrator, as such, or any other of them, under or
by reason of any of the obligations, covenants or agreements of the Buyer, the
Seller, the Pledgor or the Guarantor contained in this Repurchase Agreement, the
Repurchase Documents or in any other such instruments, documents or agreements,
or that are implied therefrom, and that any and all personal liability of every
such administrator of the Buyer, the Seller, the Pledgor and the Guarantor and
each incorporator, owner, member, partner, stockholder, Affiliate, officer,
director, employee, agent or attorney of the Buyer, the Seller, the Pledgor and
the Guarantor, or of any such administrator, or any of them, for breaches by the
Buyer, the Seller, the Pledgor or the Guarantor of any such obligations,
covenants or agreements, which liability may arise either at common law or at
equity, by statute or constitution, or otherwise, is hereby expressly waived as
a condition of and in consideration for the execution of this Repurchase
Agreement. The provisions of this Section 8 shall survive the termination of
this Repurchase Agreement until the expiration of the applicable statute of
limitations.

     9. SET-OFFS. In addition to any rights and remedies of the Buyer provided
by this Repurchase Agreement, the Repurchase Documents and by Applicable Law,
the Buyer shall have the right, without prior notice to the Seller or the
Guarantor, any such notice being expressly waived by the Seller and the
Guarantor to the extent permitted by Applicable Law, upon any amount becoming
due and payable by the Seller or the Guarantor to the Buyer hereunder, under the
Repurchase Documents or otherwise (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all monies and other property of the Seller or the Guarantor, any
and all deposits (general or special, time or demand, provisional or final), in
any currency, and any and all other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or


                                   Annex I-78



contingent, matured or unmatured, and in each case at any time held or owing by
the Buyer or any Affiliate thereof to or for the credit or the account of the
Seller or the Guarantor. The Buyer agrees promptly to notify the Seller and the
Guarantor after any such set-off and application made by the Buyer, provided
that the failure to give such notice shall not affect the validity of such
set-off and application. The Seller and the Guarantor hereby waive any right of
setoff it may have or to which it may be entitled under this Repurchase
Agreement from time to time against the Buyer or its assets.

     10. BINDING EFFECT. This Repurchase Agreement shall be binding upon and
inure to the benefit of the Buyer, the Seller and the Guarantor and their
respective successors and permitted assigns.

     11. INDEMNIFICATION.

     (a) The Seller agrees to hold the Buyer, the Swap Counterparty and their
Affiliates and the Buyer's, the Swap Counterparty's and their Affiliates'
officers, directors, shareholders, employees, agents, Affiliates and advisors
(each an "Indemnified Party" and collectively the "Indemnified Parties")
harmless from and indemnify any Indemnified Party against all out-of-pocket
liabilities, out-of-pocket losses, out-of-pocket damages, judgments,
out-of-pocket costs and out-of-pocket expenses of any kind that may be imposed
on, incurred by or asserted against such Indemnified Party (collectively, the
"Indemnified Amounts") in any way relating to, arising out of or resulting from
(i) this Repurchase Agreement, the Repurchase Documents, the Mortgage Loan
Documents or any transaction or Transaction contemplated hereby or thereby, or
any amendment, supplement, extension or modification of, or any waiver or
consent under or in respect of, this Repurchase Agreement, the Repurchase
Documents, the Mortgage Loan Documents or any transaction or Transaction
contemplated hereby or thereby, (ii) any Mortgage Asset and any Purchased Item,
(iii) any violation of Applicable Law related to any of the forgoing (including,
without limitation, violation of securities laws and Environmental Laws), (iv)
ownership of the Repurchase Documents, the Mortgage Loan Documents, the
Purchased Items, the Equity Interests, the Underlying Mortgaged Property, any
other related Property or collateral or any part thereof or any interest therein
or receipt of any Income or rents, (v) any accident, injury to or death of any
person or loss of or damage to property occurring in, on or about any Underlying
Mortgaged Property, any other related Property or collateral or any part
thereof, the Purchased Items or on the adjoining sidewalks, curbs, parking
areas, streets or ways, (vi) any use, nonuse or condition in, on or about, or
possession, alteration, repair, operation, maintenance or management of, any
Underlying Mortgaged Property, any other related Property or collateral or any
part thereof or on the adjoining sidewalks, curbs, parking areas, streets or
ways, (vii) any failure on the part of the Seller, the Pledgor the Guarantor to
perform or comply with any of the terms of the Mortgage Loan Documents or the
Repurchase Documents, (viii) performance of any labor or services or the
furnishing of any materials or other property in respect of the Underlying
Mortgaged Property, any other related Property or collateral, the Purchased
Items or any part thereof, (ix) any claim by brokers, finders or similar Persons
claiming to be entitled to a commission in connection with any lease or other
transaction involving any Underlying Mortgaged Property, any other related
Property or collateral, the Purchased Items or any part thereof or the
Repurchase Documents, (x) any Taxes including, without limitation, any Taxes
attributable to the execution, delivery, filing or recording of any Repurchase
Document, any Mortgage Loan Document or any memorandum of any of the foregoing,
(xi) any Lien or claim arising on or against the Underlying Mortgaged Property,
any other related Property or collateral, the Equity Interests, the Purchased
Items or any part thereof under any Applicable Law or any liability asserted
against the Buyer with respect thereto, (xii) the claims of any lessee or any
Person acting through or under any lessee or otherwise arising under or as a
consequence of any leases with respect to any Underlying Mortgaged Property,
related Property or collateral, or (xiii) any of the Seller's, the Guarantor's
and/or any of their Affiliate's conduct, activities, actions and/or inactions in
connection with, relating to or arising out of any of the foregoing in clauses
of this Section 11(a), that, in each case, results from anything other than any
Indemnified Party's gross negligence, bad faith or willful misconduct. Without
limiting the generality of the foregoing, the Seller


                                   Annex I-79



agrees to hold any Indemnified Party harmless from and indemnify such
Indemnified Party against all Indemnified Amounts with respect to all Purchased
Items and Mortgage Assets relating to or arising out of any violation or alleged
violation of, noncompliance with or liability under any Applicable Law
(including, without limitation, securities laws and Environmental Laws) that, in
each case, results from anything other than such Indemnified Party's gross
negligence or willful misconduct. In any suit, proceeding or action brought by
an Indemnified Party in connection with any Purchased Item for any sum owing
thereunder, or to enforce any provisions of any Purchased Item, the Seller will
save, indemnify and hold such Indemnified Party harmless from and against all
expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction of liability whatsoever of the account
debtor, obligor or Borrower thereunder arising out of a breach by the Seller,
the Guarantor or an Affiliate of any of the foregoing any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such account debtor, obligor or Borrower or its
successors from the Seller, the Guarantor or an Affiliate of any of the
foregoing. The Seller also agrees to reimburse an Indemnified Party as and when
billed by such Indemnified Party for all such Indemnified Party's costs,
expenses and fees incurred in connection with the enforcement or the
preservation of such Indemnified Party's rights under this Repurchase Agreement,
the Repurchase Documents, the Mortgage Loan Documents and any transaction or
Transaction contemplated hereby or thereby, including, without limitation, the
reasonable fees and disbursements of its counsel.

     (b) Any amounts subject to the indemnification provisions of this Section
11 shall be paid by the Seller to the Indemnified Party within thirty (30) days
following such Person's demand therefor.

     (c) The obligations of the Seller under this Section 11 shall survive the
termination of this Repurchase Agreement until the expiration of the applicable
statute of limitations.

     (d) Indemnification under this Section 11 shall be in an amount necessary
to make the Indemnified Party whole after taking into account any tax
consequences to the Indemnified Party of the receipt of the indemnity provided
hereunder, including the effect of such tax or refund on the amount of tax
measured by net income or profits that is or was payable by the Indemnified
Party.

     12. JURISDICTION; WAIVER OF JURY TRIAL.

     (a) EACH OF THE PARTIES HERETO HEREBY AGREES TO THE NON-EXCLUSIVE
JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF
THE PARTIES HERETO AND EACH SECURED PARTY HEREBY WAIVES ANY OBJECTION BASED ON
FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

     (b) TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO
HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
BETWEEN ANY OF THEM IN CONNECTION WITH THIS REPURCHASE AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

     13. AMENDMENTS AND WAIVERS. No amendment, waiver or other modification of
any provision of this Repurchase Agreement shall be effective without the
written agreement of each of the


                                   Annex I-80



Seller, the Buyer, the Guarantor and the Swap Counterparty to the extent the
proposed amendment, waiver or other modification adversely affects the Swap
Counterparty. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     14. CONFIDENTIALITY.

     (a) Each of the Buyer, the Seller and the Guarantor and their Affiliates
shall maintain and shall cause each of its employees, officers, directors,
managers, partners, owners, agents, members and shareholders to maintain the
confidentiality of this Repurchase Agreement, the Repurchase Documents and all
information with respect to the other parties, including all information
regarding the business of such other parties obtained by it or them in
connection with the structuring, negotiating and execution of the transactions
contemplated herein, except that the Buyer, the Seller and the Guarantor and
their respective employees, officers, directors, managers, partners, owners,
agents, members and shareholders may (i) disclose such information to its
external accountants, attorneys, investors, potential investors and the agents
of such Persons ("Excepted Persons"); provided, however, that each Excepted
Person shall, as a condition to any such disclosure, agree for the benefit of
the Buyer that such information shall be used solely in connection with such
Excepted Person's evaluation of, or relationship with, the Seller, the
Guarantor, the Pledgor and their Affiliates, (ii) disclose such information as
is required by Applicable Law, and (iii) disclose this Repurchase Agreement, the
Repurchase Documents and such information in any suit, action, proceeding or
investigation (whether in law or in equity or pursuant to arbitration) involving
this Repurchase Agreement or the Repurchase Documents for the purpose of
defending itself, reducing its liability, or protecting or exercising any of its
claims, rights, remedies or interests under or in connection with this
Repurchase Agreement or the Repurchase Documents. It is understood that the
financial terms that may not be disclosed except in compliance with this Section
14 include, without limitation, all fees and other pricing terms, and all Events
of Default and priority of payment provisions.

     (b) Anything herein to the contrary notwithstanding, each of the Buyer, the
Seller and the Guarantor hereby consents to the disclosure of any nonpublic
information with respect to it (i) to any other party, (ii) to any permitted
prospective or actual assignee, participant or pledgee of any of them , or (iii)
to any officers, directors, employees, agents, outside accountants and attorneys
of any of the foregoing, provided each such Person is informed of the
confidential nature of such information. In addition, the Buyer, the Seller and
the Guarantor may disclose any such nonpublic information as required pursuant
to any law, rule, regulation, direction, request or order of any judicial,
administrative or regulatory authority or proceedings (whether or not having the
force or effect of law).

     (c) Notwithstanding anything herein to the contrary, the foregoing shall
not be construed to prohibit (i) disclosure of any and all information that is
or becomes publicly known; (ii) disclosure of any and all information (A) if
required to do so by any Applicable Law, (B) to any Government Authority having
or claiming authority to regulate or oversee any respects of the Buyer's, the
Seller's or the Guarantor's business or that of their Affiliates, (C) pursuant
to any subpoena, civil investigative demand or similar demand or request of any
court, regulatory authority, arbitrator or arbitration to which the Buyer, , the
Seller, the Guarantor or an officer, director, employer, shareholder, owner,
member, partner, agent, employee or Affiliate of the Buyer, the Seller or the
Guarantor is a party, (D) in any preliminary or final offering circular,
registration statement or contract or other document approved in advance by the
Buyer, the Seller or the Guarantor, as applicable, or (E) to any Affiliate,
independent or internal auditor, agent, employee or attorney of any custodian
appointed by the Buyer, the Seller or the Guarantor having a need to know the
same, provided that such custodian advises such recipient of the confidential
nature of the information being disclosed; or (iii) any other disclosure
authorized by the Buyer, the Seller or the Guarantor.


                                   Annex I-81



     (d) Notwithstanding anything to the contrary contained herein or in any
related document, all Persons may disclose to any and all Persons, without
limitation of any kind, the federal income tax treatment of any of the
transactions contemplated by this Repurchase Agreement, the Repurchase Document
and any other related document, any fact relevant to understanding the federal
tax treatment of such transactions and all materials of any kind (including
opinions or other tax analyses) relating to such federal income tax treatment.

     15. SWAP COUNTERPARTY. The Swap Counterparty shall be a third party
beneficiary of the terms and provisions of this Repurchase Agreement and the
other Repurchase Documents. Notwithstanding anything contained herein to the
contrary, all representations, warranties, duties and covenants of the Seller
and the Guarantor to or for the benefit of the Buyer shall also be to and for
the benefit of the Swap Counterparty, regardless of whether the same is
expressly stated in each instance.

     16. [RESERVED].

     17. COSTS AND EXPENSES.

     (a) The Seller agrees to pay as and when billed by the Buyer all of the
reasonable out-of-pocket costs and expenses incurred by the Buyer in connection
with the development, preparation and execution of, and any amendment,
supplement, extension or modification to, this Repurchase Agreement, the
Repurchase Documents, any Transaction hereunder and any other documents and
agreements prepared in connection herewith or therewith. The Seller agrees to
pay as and when billed by the Buyer all of the reasonable out-of-pocket costs
and expenses incurred in connection with the consummation and administration of
the transactions contemplated hereby and thereby including, without limitation,
(i) all the reasonable fees, disbursements and expenses of counsel to the Buyer
and (ii) all the due diligence, inspection, testing, review, recording, travel,
lodging or other administrative costs and expenses incurred by the Buyer with
respect to the Buyer's review, consideration and purchase or proposed purchase
of any Mortgage Asset or any Purchased Item under this Repurchase Agreement and
the other Repurchase Documents (including any costs necessary or incidental to
the execution of any Transaction under this Repurchase Agreement), including,
but not limited to, those costs and expenses incurred by the Buyer and
reimbursable by the Seller pursuant to Section 11 of this Repurchase Agreement.

     (b) The Seller shall pay on demand any and all stamp, sales, excise and
other taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of this Repurchase Agreement, the
Repurchase Documents or the other documents to be delivered hereunder or
thereunder or the funding or maintenance of Transactions hereunder.

     18. LEGAL MATTERS.

     (a) In the event of any conflict between the terms of this Repurchase
Agreement, any other Repurchase Document and any Confirmation, the documents
shall control in the following order of priority: first, the terms of the
Confirmation shall prevail, then the terms of this Repurchase Agreement shall
prevail, and then the terms of the other Repurchase Documents shall prevail.

     (b) Each of the Seller and the Guarantor hereby acknowledges that:

          (i) it has been advised by counsel of its choosing in the negotiation,
     execution and delivery of the Repurchase Documents;

          (ii) it has no fiduciary relationship with the Buyer (including under
     any Repurchase Document); and


                                   Annex I-82



          (iii) no joint venture exists with the Buyer.

     19. PROTECTION OF RIGHT, TITLE AND INTEREST; FURTHER ACTION EVIDENCING
TRANSACTIONS.

     (a) The Seller agrees that, from time to time, at its expense, it will
promptly execute and deliver all instruments and documents, and take all
actions, that the Buyer may reasonably request in order to perfect, protect or
more fully evidence the Transactions hereunder and the security interest granted
in the Purchased Items, or to enable the Buyer to exercise and enforce its
rights and remedies hereunder, under any Repurchase Document or under any
Purchased Item.

     (b) If the Seller fails to perform any of its obligations hereunder, the
Buyer may (but shall not be required to) perform, or cause performance of, such
obligation; and the Buyer's reasonable costs and expenses incurred in connection
therewith shall be payable by the Seller. The Seller irrevocably appoints the
Buyer as its attorney-in-fact and authorizes the Buyer to act on behalf of the
Seller to file financing statements necessary or desirable in the Buyer's
discretion to perfect and to maintain the perfection and priority of the
security interest in the Purchased Items. This appointment is coupled with an
interest and is irrevocable.

     20. REVIEW OF DUE DILIGENCE AND BOOKS AND RECORDS. Each of the Seller and
the Guarantor acknowledge that the Buyer has the right to perform continuing due
diligence reviews with respect to the Purchased Items and the Seller and the
Guarantor for purposes of verifying compliance with the representations,
warranties, covenants, agreements and specifications made hereunder, under the
Repurchase Documents or otherwise, and each of the Seller and the Guarantor
agree that, upon reasonable (but no less than one (1) Business Day's) prior
notice, unless an Event of Default shall have occurred, in which case no notice
is required, to the Seller or the Guarantor, as applicable, the Buyer or its
authorized representatives shall be permitted during normal business hours to
examine, inspect, and make copies and extracts of, the books and records of the
Seller and the Guarantor, the Mortgage Asset Files and any and all documents,
records, agreements, instruments or information relating to the Purchased Items
in the possession or under the control of the Seller, the Guarantor, and/or the
Custodian. Each of the Seller and the Guarantor also shall make available to the
Buyer a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Seller, the Guarantor, the Mortgage Asset
Files and the Purchased Items. Each of the Seller and the Guarantor shall also
make available to the Buyer any accountants or auditors of the Seller and the
Guarantor to answer any questions or provide any documents as the Buyer may
require. The Seller and the Guarantor shall also cause each of the Servicers and
PSA Servicers (to the extent permitted under the applicable Pooling and
Servicing Agreement) to cooperate with the Buyer by permitting the Buyer to
conduct due diligence reviews of files of each such Servicer and PSA Servicer.
Without limiting the generality of the foregoing, each of the Seller and the
Guarantor acknowledge that the Buyer may purchase Purchased Items from the
Seller based solely upon the information provided by the Seller or the Guarantor
to the Buyer in the Seller Asset Schedule and the representations, warranties
and covenants contained herein, and that the Buyer, at its option, has the right
at any time to conduct a partial or complete due diligence review on some or all
of the Purchased Items purchased in a Transaction, including, without
limitation, ordering new credit reports and new appraisals on the related
Underlying Mortgaged Properties and otherwise re-generating the information used
to originate such Purchased Items. The Buyer may underwrite such Purchased Items
itself or engage a mutually agreed upon third party underwriter to perform such
underwriting. Each of the Seller and the Guarantor agrees to cooperate with the
Buyer and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Buyer and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Purchased Items in the possession,
or under the control, of the Seller or the Guarantor. The Seller shall


                                   Annex I-83



pay all out-of-pocket costs and expenses incurred by the Buyer in connection
with the Buyer's activities pursuant to this Section 20.

     21. TIME OF THE ESSENCE. Time is of the essence with respect to all
obligations, duties, covenants, agreements, notices or actions or inactions of
the Buyer, the Seller and the Guarantor under this Repurchase Agreement and the
other Repurchase Documents.

     22. CONSTRUCTION. This Agreement shall be construed fairly as to the
parties hereto and not in favor of or against any party, regardless of which
party or which party's counsel prepared this Repurchase Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                             [SIGNATURES TO FOLLOW]




                                   Annex I-84



     IN WITNESS WHEREOF, the parties have executed this Annex I by their duly
authorized signatories as of the date hereof.

THE BUYER:                           WACHOVIA BANK, NATIONAL
                                     ASSOCIATION, a national banking association


                                     By:
                                         ---------------------------------------
                                     Name:
                                           -------------------------------------
                                     Title:
                                            ------------------------------------

                                     Wachovia Bank, National Association
                                     One Wachovia Center, Mail Code: NC0166
                                     301 South College Street
                                     Charlotte, North Carolina 28288
                                     Attention:        Marianne Hickman
                                     Facsimile No.:    (704) 715-0066
                                     Confirmation No.: (704) 715-7818


                     [SIGNATURES CONTINUE ON FOLLOWING PAGE]




                                   Annex I-85



THE SELLER:                          NRFC WA HOLDINGS, LLC,
                                     a Delaware limited liability company


                                     By:
                                         ---------------------------------------
                                     Name:
                                           -------------------------------------
                                     Title:
                                            ------------------------------------

                                     Address for Notices:

                                     NRFC WA Holdings, LLC
                                     c/o NorthStar Realty Finance Corp.
                                     527 Madison Avenue
                                     New York, New York 10022
                                     Attention:        Mark E. Chertok
                                                       Richard McCready
                                                       Daniel R. Gilbert
                                     Facsimile No.:    (212) 208-2651
                                                       (212) 319-4558
                                     Confirmation No.: (212) 319-2618
                                                       (212) 319-2623
                                                       (212) 319-3679

                                     with a copy to:

                                     Paul Hastings Janofsky & Walker LLP
                                     75 East 55th Street
                                     New York, New York 10022
                                     Attention:        Robert J. Grados, Esq.
                                     Facsimile No.:    (212) 230-7830
                                     Confirmation No.: (212) 318-6923


                     [SIGNATURES CONTINUE ON FOLLOWING PAGE]




                                   Annex I-86



THE GUARANTOR:                       NORTHSTAR REALTY FINANCE CORP.,
                                     a Maryland corporation


                                     By:
                                         ---------------------------------------
                                     Name:
                                           -------------------------------------
                                     Title:
                                            ------------------------------------

                                     Address for Notices:

                                     NorthStar Realty Finance Corp.
                                     527 Madison Avenue
                                     New York, New York 10022
                                     Attention:        Mark E. Chertok
                                                       Richard McCready
                                                       Daniel R. Gilbert
                                     Facsimile No.:    (212) 208-2651
                                                       (212) 319-4558
                                     Confirmation No.: (212) 319-2618
                                                       (212) 319-2623
                                                       (212) 319-3679

                                     with a copy to:

                                     Paul Hastings Janofsky & Walker LLP
                                     75 East 55th Street
                                     New York, New York 10022
                                     Attention:        Robert J. Grados, Esq.
                                     Facsimile No.:    (212) 230-7830
                                     Confirmation No.: (212) 318-6923



                                   Annex I-87

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David T. Hamamoto, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of NorthStar Realty Finance Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 12, 2005				By: /s/ David T. Hamamoto Name: David T. Hamamoto Title: Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mark E. Chertok, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of NorthStar Realty Finance Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 12, 2005				By: /s/ Mark E. Chertok Name: Mark E. Chertok Title: Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Finance Corp. (the "Company") for the quarterly period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David T. Hamamoto, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 12, 2005 By:	/s/ David T. Hamamoto Name: David T. Hamamoto Title: Chief Executive Officer

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Finance Corp. (the "Company") for the quarterly period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Mark E. Chertok, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 12, 2005 By:	/s/ Mark E. Chertok Name: Mark E. Chertok Title: Chief Financial Officer