RAIT Financial Trust (Form: 10-Q, Received: 05/12/2014 17:26:37)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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

For the transition period from to

Commission File Number 1-14760

RAIT FINANCIAL TRUST

(Exact name of registrant as specified in its charter)

Maryland

23-2919819

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


2929 Arch Street, 17 ^th Floor, Philadelphia, PA		19104
(Address of principal executive offices)		(Zip Code)

(215) 243-9000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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

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

A total of 82,290,907 common shares of beneficial interest, par value $0.03 per share, of the registrant were outstanding as of May 9, 2014.

RAIT FINANCIAL TRUST

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	1

	Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2014 and 2013	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three-Month Periods Ended March 31, 2014 and 2013	3

	Consolidated Statement of Changes in Equity for the Three-Month Period Ended March 31, 2014	4

	Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2014 and 2013	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48

Item 4.	Controls and Procedures	48

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 6.	Exhibits	49

	Signatures	50

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

RAIT Financial Trust

Consolidated Balance Sheets

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


	As of March 31, 2014			As of December 31, 2013
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,235,155		$	1,122,377
Allowance for losses		(14,279	)		(22,955	)

Total investments in mortgages and loans		1,220,876			1,099,422
Investments in real estate, net of accumulated depreciation of $135,876 and $127,745, respectively		1,205,995			1,004,186
Investments in securities and security-related receivables, at fair value		573,739			567,302
Cash and cash equivalents		110,072			88,847
Restricted cash		92,497			121,589
Accrued interest receivable		48,181			48,324
Other assets		70,469			57,081
Deferred financing costs, net of accumulated amortization of $19,389 and $17,768, respectively		19,193			18,932
Intangible assets, net of accumulated amortization of $6,511 and $4,564, respectively		23,386			21,554

Total assets	$	3,364,408		$	3,027,237

Liabilities and Equity
Indebtedness ($411,963 and $389,146 at fair value, respectively)	$	2,257,238		$	2,086,401
Accrued interest payable		30,213			26,936
Accounts payable and accrued expenses		24,182			32,447
Derivative liabilities		102,796			113,331
Deferred taxes, borrowers’ escrows and other liabilities		121,766			79,462

Total liabilities		2,536,195			2,338,577
Series D cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized, 4,000,000 and 2,600,000 shares issued and outstanding		73,301			52,970
Equity:
Shareholders’ equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized;
7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,760,000 shares authorized, 4,069,288 shares issued and outstanding		41			41
8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,300,000 shares authorized, 2,288,465 shares issued and outstanding		23			23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 3,600,000 shares authorized, 1,640,100 shares issued and outstanding		17			17
Series E cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized		0			0
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 82,289,029 and 71,447,437 issued and outstanding, including 541,825 and 369,500 unvested restricted common share awards		2,468			2,143
Additional paid in capital		2,005,102			1,920,455
Accumulated other comprehensive income (loss)		(56,825	)		(63,810	)
Retained earnings (deficit)		(1,285,807	)		(1,257,306	)

Total shareholders’ equity		665,019			601,563
Noncontrolling interests		89,893			34,127

Total equity		754,912			635,690

Total liabilities and equity	$	3,364,408		$	3,027,237

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

RAIT Financial Trust

Consolidated Statements of Operations

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


	For the Three-Month Periods Ended March 31
	2014			2013
Revenue:
Investment interest income	$	34,963		$	31,280
Investment interest expense		(7,183	)		(7,483	)

Net interest margin		27,780			23,797
Rental income		35,176			27,169
Fee and other income		4,352			7,285

Total revenue		67,308			58,251
Expenses:
Interest expense		11,605			9,666
Real estate operating expense		18,083			14,410
Compensation expense		8,555			6,947
General and administrative expense		4,201			3,776
Provision for losses		1,000			500
Depreciation and amortization expense		12,042			8,570

Total expenses		55,486			43,869

Operating Income		11,822			14,382
Other income (expense)		10			76
Gains (losses) on assets		2,224			(3	)
Gains (losses) on extinguishment of debt		2,421			0
Change in fair value of financial instruments		(24,139	)		(99,757	)

Income (loss) before taxes		(7,662	)		(85,302	)
Income tax benefit (provision)		239			(39	)

Net income (loss)		(7,423	)		(85,341	)
(Income) loss allocated to preferred shares		(5,806	)		(5,218	)
(Income) loss allocated to noncontrolling interests		(1,358	)		27

Net income (loss) allocable to common shares	$	(14,587	)	$	(90,532	)

Earnings (loss) per share—Basic:
Earnings (loss) per share—Basic	$	(0.18	)	$	(1.50	)

Weighted-average shares outstanding—Basic		79,970,599			60,363,153

Earnings (loss) per share—Diluted:
Earnings (loss) per share—Diluted	$	(0.18	)	$	(1.50	)

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

RAIT Financial Trust

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited and dollars in thousands)


	For the Three-Month Periods Ended March 31
	2014			2013
Net income (loss)	$	(7,423	)	$	(85,341	)
Other comprehensive income (loss):
Change in fair value of interest rate hedges		(552	)		(532	)
Realized gains (losses) on interest rate hedges reclassified to earnings		7,537			8,286

Total other comprehensive income (loss)		6,985			7,754

Comprehensive income (loss) before allocation to noncontrolling interests		(438	)		(77,587	)
Allocation to noncontrolling interests		(1,358	)		27

Comprehensive income (loss)	$	(1,796	)	$	(77,560	)

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

RAIT Financial Trust

Consolidated Statement of Changes in Equity

(Unaudited and dollars in thousands, except share information)


	Preferred Shares— Series A		Par Value Preferred Shares— Series A		Preferred Shares— Series B		Par Value Preferred Shares— Series B		Preferred Shares— Series C		Par Value Preferred Shares— Series C		Common Shares		Par Value Common Shares		Additional Paid In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, January 1, 2014		4,069,288	$	41		2,288,465	$	23		1,640,100	$	17		71,447,437	$	2,143	$	1,920,455		$	(63,810	)	$	(1,257,306	)	$	601,563		$	34,127		$	635,690
Net income (loss)		0		0		0		0		0		0		0		0		0			0			(8,781	)		(8,781	)		1,358			(7,423	)
Preferred dividends		0		0		0		0		0		0		0		0		0			0			(5,806	)		(5,806	)		0			(5,806	)
Common dividends declared		0		0		0		0		0		0		0		0		0			0			(13,914	)		(13,914	)		0			(13,914	)
Other comprehensive income (loss), net		0		0		0		0		0		0		0		0		0			6,985			0			6,985			0			6,985
Stock compensation expense		0		0		0		0		0		0		0		0		(5,944	)		0			0			(5,944	)		0			(5,944	)
Issuance of noncontrolling interests		0		0		0		0		0		0		0		0		0			0			0			0			56,360			56,360
Distribution to noncontrolling interests		0		0		0		0		0		0		0		0		0			0			0			0			(1,952	)		(1,952	)
Common shares issued for equity compensation		0		0		0		0		0		0		413,936		12		4,465			0			0			4,477			0			4,477
Common shares issued, net		0		0		0		0		0		0		10,427,656		313		86,425			0			0			86,738			0			86,738
4.0% convertible senior notes embedded conversion option		0		0		0		0		0		0		0		0		1,182			0			0			1,182			0			1,182
4.0% convertible senior notes capped call		0		0		0		0		0		0		0		0		(1,481	)		0			0			(1,481	)		0			(1,481	)


Balance, March 31, 2014		4,069,288	$	41		2,288,465	$	23		1,640,100	$	17		82,289,029	$	2,468	$	2,005,102		$	(56,825	)	$	(1,285,807	)	$	665,019		$	89,893		$	754,912

RAIT Financial Trust

Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)


	For the Three-Month Periods Ended March 31
	2014			2013
Operating activities:
Net income (loss)	$	(7,423	)	$	(85,341	)
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for losses		1,000			500
Share-based compensation expense		1,449			723
Depreciation and amortization		12,042			8,570
Amortization of deferred financing costs and debt discounts		1,853			1,575
Accretion of discounts on investments		(275	)		(3,037	)
(Gains) losses on assets		(2,224	)		3
(Gains) losses on extinguishment of debt		(2,421	)		0
Change in fair value of financial instruments		24,139			99,757
Provision (benefit for deferred taxes)		(250	)		0
Changes in assets and liabilities:
Accrued interest receivable		(2,106	)		(2,845	)
Other assets		(7,308	)		(3,065	)
Accrued interest payable		(3,946	)		(4,242	)
Accounts payable and accrued expenses		(10,570	)		(2,152	)
Deferred taxes, borrowers’ escrows and other liabilities		18,321			(840	)

Cash flow from operating activities		22,281			9,606
Investing activities:
Proceeds from sales of other securities		5			377
Purchase and origination of loans for investment		(225,403	)		(97,062	)
Principal repayments on loans		18,276			5,610
Sales of conduit loans		72,422			41,428
Investments in real estate		(87,816	)		(4,658	)
Proceeds from the disposition of real estate		3,820			0
(Increase) Decrease in restricted cash		34,563			5,122

Cash flow from investing activities		(184,133	)		(49,183	)
Financing activities:
Repayments on secured credit facilities and loans payable on real estate		(6,777	)		(7,502	)
Proceeds from secured credit facilities and loans payable on real estate		18,850			0
Repayments and repurchase of CDO notes payable		(57,097	)		(7,872	)
Proceeds from issuance of 4.0% convertible senior notes		16,750			0
Proceeds from repurchase agreements		106,652			5,310
Repayments of repurchase agreements		(45,318	)		(2,060	)
Issuance (acquisition) of noncontrolling interests		51,408			102
Payments for deferred costs and convertible senior note hedges		(2,113	)		57
Preferred share issuance, net of costs incurred		33,584			14,509
Common share issuance, net of costs incurred		83,825			6,864
Distributions paid to preferred shareholders		(5,329	)		0
Distributions paid to common shareholders		(11,358	)		(6,018	)

Cash flow from financing activities		183,077			3,390

Net change in cash and cash equivalents		21,225			(36,187	)
Cash and cash equivalents at the beginning of the period		88,847			100,041

Cash and cash equivalents at the end of the period	$	110,072		$	63,854

Supplemental cash flow information:
Cash paid for interest	$	6,682		$	6,031
Cash paid (refunds received) for taxes		39			132
Non-cash decrease in indebtedness from conversion to shares or debt extinguishments		(2,421	)		0
Non-cash increase in indebtedness from the assumption of debt from property acquisitions		111,986			0
Non-cash increase in other assets from business combination		7,302			0

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 1: THE COMPANY

RAIT Financial Trust invests in and manages a portfolio of real-estate related assets, including direct ownership of real estate properties, and provides a comprehensive set of debt financing options to the real estate industry. References to “RAIT”, “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT.

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

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2013 included in our Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

For the three month period ended March 31, 2014, gains (losses) on assets in the accompanying consolidated statement of operations includes the write-off of assets totaling $3,001 that were associated with property transactions completed in a prior period.

b. Principles of Consolidation

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

We expanded our third party property management platform and now own a retail property management firm, which managed 62 properties representing 16,744,360 square feet in 26 states as of March 31, 2014. As of March 31, 2014, we have goodwill with a balance of $14,752 and identifiable intangibles assets of $19,050.

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

c. Use of Estimates

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

d. Investments in Loans

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

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

We maintain an allowance for losses on our investments in commercial mortgages, mezzanine loans and other loans. Management’s periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. Management reviews loans for impairment and establishes specific reserves when a loss is probable and reasonably estimable under the provisions of FASB ASC Topic 310, “Receivables.” A loan is impaired when it is probable that we may not collect all principal and interest payments according to the contractual terms. As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower’s financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, “Contingencies.” Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off loans when the investment is no longer realizable and legally discharged.

f. Investments in Real Estate

Investments in real estate are shown net of accumulated depreciation. We capitalize those costs that have been evaluated to improve the real property and depreciate those costs on a straight-line basis over the useful life of the asset. We depreciate real property using the following useful lives: buildings and improvements—30 to 40 years; furniture, fixtures, and equipment—5 to 10 years; and tenant improvements—shorter of the lease term or the life of the asset. Costs for ordinary maintenance and repairs are charged to expense as incurred.

Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, “Business Combinations.” Fair value is determined by appraisals obtained or by management based on market conditions and inputs at the time the asset is acquired. All expenses incurred to acquire a real estate asset are expensed as incurred.

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

g. Investments in Securities

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

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

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

h. Revenue Recognition

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

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

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

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

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

Fee and other income —We generate fee and other income through our various subsidiaries by (a) funding conduit loans for sale into unaffiliated CMBS securitizations, (b) providing or arranging to provide financing to our borrowers, (c) providing ongoing asset management services to investment portfolios under cancelable management agreements, and (d) providing property management services to third parties. We recognize revenue for these activities when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably assured and the services under the arrangement have been provided. While we may receive asset management fees when they are earned, we eliminate earned asset management fee income from securitizations while such securitizations are consolidated. During the three-month periods ended March 31, 2014 and 2013, we received $1,128 and $1,216, respectively, of earned asset management fees. During the three-month periods ended March 31, 2014 and 2013, we eliminated $842 and $882, respectively, of these earned asset management fees as it was associated with consolidated securitizations.

i. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

•

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

•

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

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

•

Level 3 : Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset. Generally, assets and liabilities carried at fair value and included in this category are trust preferred securities, or TruPS, and subordinated debentures, trust preferred obligations and CDO notes payable where significant observable market inputs do not exist.

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

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

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

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

j. Deferred Financing Costs and Intangible Assets

Costs incurred in connection with debt financing are capitalized as deferred financing costs and charged to interest expense over the terms of the related debt agreements, under the effective interest method.

Intangible assets on our consolidated balance sheets represent identifiable intangible assets acquired in business acquisitions. We amortize identified intangible assets to expense over their estimated lives using the straight-line method. We evaluate intangible assets for impairment as events and circumstances change, in accordance with FASB ASC Topic 360, “Property, Plant, and Equipment.” The gross carrying amount for our customer relationships was $21,726 as of March 31, 2014 and December 31, 2013, respectively. The gross carrying amount for our in-place leases was $6,671 and $2,892 as of March 31, 2014 and December 31, 2013, respectively. The gross carrying amount for our trade name was $1,500 as of March 31, 2014 and December 31, 2013, respectively. The accumulated amortization for our intangible assets was $6,511 and $4,564 as of March 31, 2014 and December 31, 2013, respectively. We recorded amortization expense of $1,946 and $560 for the three-month periods ended March 31, 2014 and 2013, respectively. We expect to record amortization expense of intangible assets of $4,590 for the remainder of 2014, $2,929 for 2015, $2,686 for 2016, $1,969 for 2017, $1,921 for 2018 and $9,291 thereafter.

k. Recent Accounting Pronouncements

In April 2014, the FASB issued an accounting standard classified under FASB ASC Topic 205, “Presentation of Financial Statements”. This accounting standard amends existing guidance to change reporting requirements for discontinued operations by requiring the disposal of an entity to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. This standard is effective for interim and annual reporting periods beginning on or after December 15, 2014. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

NOTE 3: INVESTMENTS IN LOANS

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

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of March 31, 2014:


	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	927,998		$	(18,137	)	$	909,861			73		6.3	%	May 2014 to Apr. 2024
Mezzanine loans		257,845			(3,021	)		254,824			77		9.5	%	Jun. 2014 to Jan. 2029
Preferred equity interests		42,609			(914	)		41,695			10		7.7	%	May 2015 to Aug. 2025

Total CRE Loans		1,228,452			(22,072	)		1,206,380			160		7.0	%
Other loans		30,625			66			30,691			2		4.3	%	Jun. 2014 to Oct. 2016

Total Loans	$	1,259,077		$	(22,006	)	$	1,237,071			162		6.9	%

Deferred fees		(1,916	)		0			(1,916	)

Total investments in loans	$	1,257,161		$	(22,006	)	$	1,235,155

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of December 31, 2013:


	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	792,526		$	(19,257	)	$	773,269			59		6.4	%	Mar. 2014 to Jan. 2029
Mezzanine loans		269,034			(3,273	)		265,761			81		9.6	%	Mar. 2014 to Jan. 2029
Preferred equity interests		54,389			(939	)		53,450			11		8.6	%	May 2015 to Aug. 2025

Total CRE Loans		1,115,949			(23,469	)		1,092,480			151		7.3	%
Other loans		30,625			72			30,697			2		4.3	%	Mar. 2014 to Oct. 2016

Total Loans		1,146,574			(23,397	)		1,123,177			153		7.2	%

Deferred fees		(800	)		0			(800	)

Total investments in loans	$	1,145,774		$	(23,397	)	$	1,122,377

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

During the three-month period ended March 31, 2014 and 2013, we did not convert any underperforming commercial real estate loans to real estate owned property.

The following table summarizes the delinquency statistics of our commercial real estate loans as of March 31, 2014 and December 31, 2013:


Delinquency Status	As of March 31, 2014		As of December 31, 2013
30 to 59 days	$	23,972	$	0
60 to 89 days		0		6,441
90 days or more		19,103		2,163
In foreclosure or bankruptcy proceedings		8,916		16,002

Total	$	51,991	$	24,606

As of March 31, 2014 and December 31, 2013, approximately $28,019 and $37,073, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 4.7% and 6.3%, respectively. As of March 31, 2014 and December 31, 2013, 1 Other loan with a carrying amount of approximately $10,487 was on non-accrual status and had a weighted-average interest rate of 7.2%.

Allowance For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for the three-month periods ended March 31, 2014 and 2013:


	For the Three-Month Period Ended March 31, 2014			For the Three-Month Period Ended March 31, 2013
Beginning balance	$	22,955		$	30,400
Provision		1,000			500
Charge-offs		(9,676	)		(4,694	)

Ending balance	$	14,279		$	26,206

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

As of March 31, 2014 and December 31, 2013, we identified 8 and 10, respectively, commercial mortgages, mezzanine loans and other loans with unpaid principal balances and recorded investment of $21,089 and $30,143, respectively, as impaired.

The average unpaid principal balance and recorded investment of total impaired loans was $25,616 and $47,036 during the three-month periods ended March 31, 2014 and 2013. As of March 31, 2014, there are no impaired loans in which there is no allowance. We recorded interest income from impaired loans of $1 and $19 for the three-month periods ended March 31, 2014 and 2013.

We have evaluated modifications to our commercial real estate loans to determine if the modification constitutes a troubled debt restructuring (TDR) under FASB ASC Topic 310, “Receivables”. During the three-month periods ended March 31, 2014 and 2013, we have determined that there were no modifications to any commercial real estate loans that constituted a TDR. As of March 31, 2014, there were no TDRs that subsequently defaulted for modifications within the previous 12 months.

NOTE 4: INVESTMENTS IN SECURITIES

Our investments in securities and security-related receivables are accounted for at fair value. The following table summarizes our investments in securities as of March 31, 2014:


Investment Description	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS and subordinated debentures	$	620,376	$	0	$	(133,628	)	$	486,748		3.7	%		20.2
Other securities		12,460		0		(12,460	)		0		4.7	%		38.6

Total trading securities		632,836		0		(146,088	)		486,748		3.8	%		20.5
Available-for-sale securities		3,600		0		(3,598	)		2		2.0	%		28.6
Security-related receivables
TruPS and subordinated debenture receivables		32,900		0		(24,510	)		8,390		3.4	%		18.0
Unsecured REIT note receivables		30,000		3,066		0			33,066		6.7	%		2.9
CMBS receivables (2)		65,905		1,936		(23,372	)		44,469		5.6	%		30.1
Other securities		32,972		0		(31,908	)		1,064		2.2	%		36.2

Total security-related receivables		161,777		5,002		(79,790	)		86,989		4.6	%		23.8

Total investments in securities	$	798,213	$	5,002	$	(229,476	)	$	573,739		3.9	%		21.4

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

(2)

CMBS receivables include securities with a fair value totaling $10,167 that are rated between “AAA” and “A-” by Standard & Poor’s, securities with a fair value totaling $24,902 that are rated “BBB+” and “B-” by Standard & Poor’s, securities with a fair value totaling $8,183 that are rated “CCC” by Standard & Poor’s and securities with a fair value totaling $1,217 that are rated “D” by Standard & Poor’s.

All of our gross unrealized losses at March 31, 2014 were greater than 12 months.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

The following table summarizes our investments in securities as of December 31, 2013:


Investment Description	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS and subordinated debentures	$	620,376	$	0	$	(139,531	)	$	480,845		3.7	%		20.4
Other securities		12,312		0		(12,312	)		0		4.7	%		38.9

Total trading securities		632,688		0		(151,843	)		480,845		3.8	%		20.8
Available-for-sale securities		3,600		0		(3,598	)		2		2.0	%		28.9
Security-related receivables
TruPS and subordinated debenture receivables		32,900		0		(24,689	)		8,211		3.4	%		18.3
Unsecured REIT note receivables		30,000		3,046		0			33,046		6.7	%		3.1
CMBS receivables (2)		69,905		1,722		(27,509	)		44,118		5.6	%		30.6
Other securities		33,144		0		(32,064	)		1,080		2.2	%		36.5

Total security-related receivables		165,949		4,768		(84,262	)		86,455		4.7	%		24.4

Total investments in securities	$	802,237	$	4,768	$	(239,703	)	$	567,302		3.9	%		21.7

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

(2)

CMBS receivables include securities with a fair value totaling $8,228 that are rated between “AAA” and “A-” by Standard & Poor’s, securities with a fair value totaling $26,594 that are rated between “BBB+” and “B-” by Standard & Poor’s, securities with a fair value totaling $8,164 that are rated “CCC” by Standard & Poor’s, and securities with a fair value totaling $1,132 that are rated “D” by Standard & Poor’s.

All of our gross unrealized losses at December 31, 2013 were greater than 12 months.

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

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


	As of March 31, 2014							As of December 31, 2013
	Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value		Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value
TruPS and TruPS receivables	$	83,557		1.8	%	$	1,450	$	83,557		1.8	%	$	5,678
Other securities		41,299		3.1	%		11		41,019		3.1	%		11
CMBS receivables		18,772		5.9	%		227		22,772		5.9	%		447

The assets of our consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of March 31, 2014 and December 31, 2013, investment in securities of $653,276, respectively, in principal amount of TruPS and subordinated debentures, and $87,383 and $91,383, respectively, in principal amount of unsecured REIT note receivables and CMBS receivables, collateralized the consolidated CDO notes payable of such entities.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 5: INVESTMENTS IN REAL ESTATE

The table below summarizes our investments in real estate:


	As of March 31, 2014					As of December 31, 2013
	Book Value			Number of Properties		Book Value			Number of Properties
Multi-family real estate properties	$	914,330			45	$	716,708			37
Office real estate properties		294,091			12		282,371			11
Retail real estate properties		83,767			4		83,653			4
Parcels of land		49,683			10		49,199			10

Subtotal		1,341,871			71		1,131,931			62
Less: Accumulated depreciation and amortization		(135,876	)				(127,745	)

Investments in real estate	$	1,205,995				$	1,004,186

As of March 31, 2014, our investments in real estate of $1,205,995 are financed through $297,082 of mortgages held by third parties and $891,314 of mortgages held by our RAIT I and RAIT II CDO securitizations. As of December 31, 2013, our investments in real estate of $1,004,186 are financed through $171,223 of mortgages held by third parties and $864,689 of mortgages held by our RAIT I and RAIT II CDO securitizations. Together, along with commercial real estate loans held by RAIT I and RAIT II, these mortgages serve as collateral for the CDO notes payable issued by the RAIT I and RAIT II CDO securitizations. All intercompany balances and interest charges are eliminated in consolidation.

Acquisitions:

During the three-month period ended March 31, 2014, we acquired nine multi-family properties and one office property with a combined purchase price of $211,942, which we assumed first mortgages on some of these properties. Upon acquisition, we recorded the investment in real estate, including any related working capital and intangible assets, at fair value of $217,481 and recorded a gain on asset of $5,539. Of these acquisitions, our subsidiary, Independence Realty Trust, Inc., acquired seven properties at a fair value of $132,131.

The following table summarizes the aggregate estimated fair value of the assets and liabilities associated with the ten properties acquired during the three-month period ended March 31, 2014, on the respective date of each acquisition, for the real estate accounted for under FASB ASC Topic 805.


Description	Estimated Fair Value
Assets acquired:
Investments in real estate	$	213,703
Cash and cash equivalents		283
Restricted cash		1,436
Other assets		1,457
Deferred financing costs		702
Intangible assets		3,778

Total assets acquired		221,359
Liabilities assumed:
Loans payable on real estate		110,255
Accounts payable and accrued expenses		3,049
Other liabilities		2,481

Total liabilities assumed		115,785
Noncontrolling interests assumed:		3,000

Estimated fair value of net assets acquired	$	102,574

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

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


Description	Estimated Fair Value
Fair value of consideration transferred:
Commercial real estate loans and cash	$	97,680
Other considerations		4,894

Total fair value of consideration transferred	$	102,574

During the three-month period ended March 31, 2014, these investments contributed revenue of $3,933 and a net income allocable to common shares of $209. During the three-month period ended March 31, 2014, we incurred $317 of third-party acquisition-related costs, which is included in general and administrative expense in the accompanying consolidated statements of operations.

The table below presents the revenue, net income and earnings per share effect of the acquired properties, as reported in our consolidated financial statements and on a pro forma basis as if the acquisitions occurred on January 1, 2013. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods.


Description	For the Three-Month Period Ended March 31, 2014		For the Three-Month Period Ended March 31, 2013
Total revenue of real estate properties acquired, as reported	$	3,933	$	0
Pro forma revenue of real estate properties acquired		7,017		6,733
Net income (loss) allocable to common shares of real estate properties acquired, as reported		209		0
Pro forma net income (loss) allocable to common shares of real estate properties acquired		759		1,274
Earnings (loss) per share attributable to common shareholders of real estate properties acquired
Basic and diluted—as reported		0.00		0.00
Basic and diluted—as pro forma		0.01		0.02

We have not yet completed the process of estimating the fair value of assets acquired and liabilities assumed. Accordingly, our preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as we complete the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in our financial statements retrospectively. During the three-month period ended March 31, 2014, we have not recorded any adjustments for prior period real estate acquisitions.

Subsequent to March 31, 2014, we acquired one office real estate property with a purchase price of $26,085, which consisted of the assumption of one commercial real estate loan. We are completing the process of estimating the fair value of the assets acquired.

Dispositions:

During the three-month period ended March 31, 2014, we disposed of one multi-family real estate property for a total sale price of $4,250. We recorded losses on the sale of this asset of $2,528, of which $321 is included in the accompanying consolidated statements of operations during the three-month period ended March 31, 2014.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 6: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of March 31, 2014:


Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	34,066	$	33,058		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		141,750		132,419		4.0	%	Oct. 2033
Secured credit facilities		5,000		5,000		3.5	%	Oct. 2016
Junior subordinated notes, at fair value (3)		18,671		12,515		0.5	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		2.7	%	Apr. 2037
CMBS facilities		22,133		22,133		2.7	%	Nov. 2014 to Oct. 2015
Commercial mortgage facilities		76,951		76,951		2.4	%	Dec. 2014 to Jan. 2016

Total recourse indebtedness (4)		323,671		307,176		3.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,162,992		1,161,735		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		857,616		399,448		0.9	%	2037 to 2038
CMBS securitization (8)		89,331		89,331		2.2	%	Jan. 2029
Loans payable on real estate		297,100		299,548		5.1	%	Sep. 2015 to Mar. 2024

Total non-recourse indebtedness		2,407,039		1,950,062		1.3	%

Total indebtedness	$	2,730,710	$	2,257,238		1.6	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

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

(4)	Excludes senior secured notes issued by us with an aggregate principal amount equal to $84,000 with a weighted average coupon of 7.0%, which are eliminated in consolidation.

(5)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(6)

Collateralized by $1,652,296 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(7)

Collateralized by $983,429 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of March 31, 2014 was $741,732. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(8)

Excludes the FL1 junior notes purchased by us which are eliminated in consolidation. Collateralized by $123,093 principal amount of commercial mortgages loans and participation interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

The following table summarizes our total recourse and non-recourse indebtedness as of December 31, 2013:


Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	34,066	$	32,938		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		125,000		116,184		4.0	%	Oct. 2033
Secured credit facilities		11,129		11,129		3.2	%	Oct. 2016 to Dec. 2016
Junior subordinated notes, at fair value (3)		18,671		11,911		0.5	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		2.7	%	Apr. 2037
CMBS facilities		30,618		30,618		2.7	%	Nov. 2014 to Oct. 2015
Commercial mortgage facility		7,131		7,131		2.8	%	Dec. 2014

Total recourse indebtedness (4)		251,715		235,011		3.8	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,204,117		1,202,772		0.6	%	2045 to 2046

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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


Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
CDO notes payable, at fair value (3)(5)(7)		865,199		377,235		0.9	%	2037 to 2038
CMBS securitization (8)		100,139		100,139		2.1	%	Jan. 2029
Loans payable on real estate		171,244		171,244		5.3	%	Sep. 2015 to Dec. 2023

Total non-recourse indebtedness		2,340,699		1,851,390		1.1	%

Total indebtedness	$	2,592,414	$	2,086,401		1.4	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

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

(4)	Excludes senior secured notes issued by us with an aggregate principal amount equal to $86,000 with a weighted average coupon of 7.0%, which are eliminated in consolidation.

(5)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(6)

Collateralized by $1,662,537 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(7)

Collateralized by $989,781 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of December 31, 2013 was $746,939. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(8)

Excludes the FL1 junior notes purchased by us which are eliminated in consolidation. Collateralized by $131,843 principal amount of commercial mortgages loans and participation interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the loans payable on real estate that are guaranteed by us. Non-recourse indebtedness consists of indebtedness of consolidated VIEs (i.e. securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or during the three-month period ended March 31, 2014 is as follows:

Recourse Indebtedness

7.0% convertible senior notes. The 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 149.7815 common shares per $1 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $6.68 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 7.0% convertible senior notes in diluted earnings per share using the if-converted method if the conversion value in excess of the par amount is considered in the money during the respective periods.

4.0% convertible senior notes. The 4.0% Convertible Senior Notes due 2033, or the 4.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 99.2356 common shares per $1 principal amount of 4.0% convertible senior notes (equivalent to a current conversion price of $10.08 per common share). Upon conversion of 4.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 4.0% convertible senior notes in diluted earnings per share using the if-converted method if the conversion value in excess of the par amount is considered in the money during the respective periods.

In January 2014, the underwriters exercised the overallotment option with respect to an additional $16,750 aggregate principal amount of the 4.0% convertible senior notes and we received total net proceeds of $16,300 after deducting underwriting fees and adjusting for accrued interim interest. In the aggregate, we issued $141,750 aggregate principal amount of the 4.0% convertible senior notes in the offering and raised total net proceeds of approximately $137,238 after deducting underwriting fees and offering expenses.

According to FASB ASC Topic 470, “Debt”, we recorded a discount on our issued and outstanding 4.0% convertible senior notes of $1,182. This discount reflects the fair value of the embedded conversion option within the 4.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 4.0% convertible senior notes agreement by a discount rate that represents management’s estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 4.0% convertible senior notes were issued. The discount will be amortized to interest expense through October 1, 2018, the date at which holders of our 4.0% convertible senior notes could require repayment.

We entered into a second capped call transaction with an affiliate of the underwriter of the 4.0% convertible senior notes to reduce the potential dilution to holders of our common shares upon conversion of the 4.0% convertible senior notes. The second capped call transaction has a cap price of $11.91, which is subject to certain adjustments, and an initial strike price of $9.57, which is subject to certain adjustments and is equivalent to the conversion price of the 4.0% convertible senior notes. The strike price and the cap price of the second capped call transaction are identical to those in the first capped call transaction. The capped calls expire on various dates ranging from June 2018 to October 2018. The capped call transaction is a separate transaction and is not part of the terms of the 4.0% convertible senior notes and will not affect the holders’ rights under the 4.0% convertible senior notes. The capped call transaction meets the criteria for equity classification and was recorded as a reduction to additional paid in capital. The capped call transaction is excluded from the dilutive EPS calculation as their effect would be anti-dilutive.

Secured credit facilities. As of March 31, 2014, we have $2,500 outstanding under the Independence Realty Operating Partnership, LP, or IROP, credit agreement. The IROP credit agreement has a 3-year term, bears interest at LIBOR plus 2.75% and contains customary financial covenants for this type of revolving credit agreement.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

In January 2014, we repaid the outstanding $6,143 under our other secured credit facility, including any accrued interest.

CMBS facilities. We maintain CMBS facilities with two investment banks with total borrowing capacity of $250,000. The CMBS facilities are repurchase agreements that provide for margin calls in the event the conduit loans financed by the facilities change in value. As of March 31, 2014, we had $22,133 of outstanding borrowings under the CMBS facilities. As of March 31, 2014, $227,867 in aggregate principal amount remained available under the CMBS facilities. As of March 31, 2014, we were in compliance with all financial covenants contained in both CMBS facilities.

Commercial Mortgage Facilities. We maintain a commercial mortgage facility with an investment bank with total borrowing capacity of $150,000, or the $150,000 commercial mortgage facility. The $150,000 commercial mortgage facility is a repurchase agreement that provides for margin calls in the event the commercial mortgages financed by the facility change in value. As of March 31, 2014, we had $26,373 of outstanding borrowings under the $150,000 commercial mortgage facility. As of March 31, 2014, $123,627 in aggregate principal amount remained available under the $150,000 commercial mortgage facility. As of March 31, 2014, we were in compliance with all financial covenants contained in the $150,000 commercial mortgage facility.

On January 27, 2014, we entered into a two year $75,000 commercial mortgage facility, or the $75,000 commercial mortgage facility, pursuant to which we may sell, and later repurchase, commercial mortgage loans and other assets meeting defined eligibility criteria which are approved by the purchaser in its sole discretion. The aggregate principal amount of the $75,000 commercial mortgage facility is $75,000 and incurs interest at LIBOR plus 200 basis points. The $75,000 commercial mortgage facility contains standard margin call provisions and financial covenants. As of March 31, 2014, we had $50,578 of outstanding borrowings under the $75,000 commercial mortgage facility. As of March 31, 2014, $24,422 in aggregate principal amount remained available under the $75,000 commercial mortgage facility. As of March 31, 2014, we were in compliance with all financial covenants contained in the $75,000 commercial mortgage facility.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Two of our consolidated securitizations collateralized primarily by commercial real estate loans, RAIT I and RAIT II, are meeting all of their over collateralization, or OC, and interest coverage, or IC, trigger tests as of March 31, 2014.

During the three-month period ended March 31, 2014, we repurchased, from the market, a total of $5,800 in aggregate principal amount of CDO notes payable issued by RAIT I. The aggregate purchase price was $3,379 and we recorded a gain on extinguishment of debt of $2,421.

CDO notes payable, at fair value. Both of our consolidated securitizations collateralized primarily by TruPS, Taberna VIII and Taberna IX, are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC test failures are due to defaulted collateral assets and credit risk securities. During the three month period ended March 31, 2014, $7,584 of cash flows, which is comprised of $1,445 that was re-directed from our retained interests in these securitizations and $6,139 that was from principal collections on the underlying collateral, were used to repay the most senior holders of our CDO notes payable.

CMBS securitization. During the three month period ended March 31, 2014, $10,804 that was from principal collections on the underlying collateral were used to repay the investment grade senior notes issued by the trust.

Loans payable on real estate. As of March 31, 2014 and December 31, 2013, we had $297,100 and $171,244, respectively, of other indebtedness outstanding relating to loans payable on consolidated real estate. These loans are secured by specific consolidated real estate and commercial loans included in our consolidated balance sheets.

During the three-month period ended March 31, 2014, we obtained or assumed five first mortgages on our investments in real estate from third party lenders that have a total aggregate principal balance of $126,635, maturity dates ranging from April 2016 to March 2024, and have interest rates ranging from 3.8% to 5.6%.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.

Interest Rate Swaps and Caps

We have entered into various interest rate swap and cap contracts to hedge interest rate exposure on floating rate indebtedness. We designate interest rate hedge agreements at inception and determine whether or not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of March 31, 2014, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of March 31, 2014 and December 31, 2013:


	As of March 31, 2014							As of December 31, 2013
	Notional		Fair Value of Assets		Fair Value of Liabilities			Notional		Fair Value of Assets		Fair Value of Liabilities
Cash flow hedges:
Interest rate swaps	$	1,046,547	$	0	$	(102,796	)	$	1,071,447	$	183	$	(113,331	)
Interest rate caps		36,000		946		0			36,000		1,122		0

Net fair value	$	1,082,547	$	946	$	(102,796	)	$	1,107,447	$	1,305	$	(113,331	)

During the period April 1, 2014 through December 31, 2014, interest rate swap agreements relating to RAIT I and RAIT II with a notional amount of $67,288 and a weighted average strike rate of 5.25% as of March 31, 2014, will terminate in accordance with their terms.

For interest rate swaps that are considered effective hedges, we reclassified realized losses of $7,537 and $8,286, respectively, to earnings for the three-month periods ended March 31, 2014 and 2013.

On January 1, 2008, we adopted the fair value option, which has been classified under FASB ASC Topic 825, “Financial Instruments”, for certain of our CDO notes payable. Upon the adoption of this standard, hedge accounting for any previously designated interest rate swaps associated with these CDO notes payable was discontinued and amounts are reclassified from accumulated other comprehensive income to earnings over the remaining life of the interest rate swaps. As of March 31, 2014, the notional value associated with these interest rate swaps where hedge accounting was discontinued was $561,151 and had a liability balance with a fair value of $62,821. See Note 8: “Fair Value of Financial Instruments” for the changes in value of these hedges during the three-month periods ended March 31, 2014 and 2013. The change in value of these hedges was recorded as a component of the change in fair value of financial instruments in our consolidated statement of operations.

Effective interest rate swaps are reported in accumulated other comprehensive income and the fair value of these hedge agreements is included in other assets or derivative liabilities.

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

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

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

The following table summarizes the carrying amount and the fair value of our financial instruments as of March 31, 2014:


Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans, other loans and preferred equity interests, net	$	1,220,876	$	1,185,050
Investments in securities and security-related receivables		573,739		573,739
Cash and cash equivalents		110,072		110,072
Restricted cash		92,497		92,497
Derivative assets		946		946
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		33,058		44,626
4.0% convertible senior notes		132,419		137,125
Secured credit facilities		5,000		5,000
Junior subordinated notes, at fair value		12,515		12,515
Junior subordinated notes, at amortized cost		25,100		14,534
CMBS facilities		22,133		22,133
Commercial mortgage facility		76,951		76,951
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,161,735		975,719
CDO notes payable, at fair value		399,448		399,448
CMBS securitization		89,331		89,331
Loans payable on real estate		299,548		303,873
Derivative liabilities		102,796		102,796
Warrants and investor SARs		41,004		41,004

The following table summarizes the carrying amount and the fair value of our financial instruments as of December 31, 2013:


Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,122,377	$	1,083,118
Investments in securities and security-related receivables		567,302		567,302
Cash and cash equivalents		88,847		88,847
Restricted cash		121,589		121,589
Derivative assets		1,305		1,305
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		32,938		47,778
4.0% convertible senior notes		116,184		124,063
Secured credit facilities		11,129		11,129
Junior subordinated notes, at fair value		11,911		11,911
Junior subordinated notes, at amortized cost		25,100		14,007
CMBS facilities		30,618		30,618
Commercial mortgage facility		7,131		7,131

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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


Financial Instrument	Carrying Amount		Estimated Fair Value
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,202,772		724,885
CDO notes payable, at fair value		377,235		377,235
CMBS securitization		100,139		100,214
Loans payable on real estate		171,244		176,979
Derivative liabilities		113,331		113,331
Warrants and investor SARs		31,304		31,304

Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2014, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:


Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2014
Trading securities
TruPS	$	0	$	0	$	486,748	$	486,748
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		8,390		8,390
Unsecured REIT note receivables		0		33,066		0		33,066
CMBS receivables		0		44,469		0		44,469
Other securities		0		1,064		0		1,064
Derivative assets		0		946		0		946

Total assets	$	0	$	79,547	$	495,138	$	574,685


Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2014
Junior subordinated notes, at fair value	$	0	$	0	$	12,515	$	12,515
CDO notes payable, at fair value		0		0		399,448		399,448
Derivative liabilities		0		39,975		62,821		102,796
Warrants and investor SARs		0		0		41,004		41,004

Total liabilities	$	0	$	39,975	$	515,788	$	555,763

(a)	During the three-month period ended March 31, 2014, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:


Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of December 31, 2013
Trading securities
TruPS	$	0	$	0	$	480,845	$	480,845
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		8,211		8,211
Unsecured REIT note receivables		0		33,046		0		33,046
CMBS receivables		0		44,118		0		44,118
Other securities		0		1,080		0		1,080
Derivative assets		0		1,305		0		1,305

Total assets	$	0	$	79,551	$	489,056	$	568,607


Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of December 31, 2013
Junior subordinated notes, at fair value	$	0	$	0	$	11,911	$	11,911
CDO notes payable, at fair value		0		0		377,235		377,235
Derivative liabilities		0		45,926		67,405		113,331
Warrants and investor SARs		0		0		31,304		31,304

Total liabilities	$	0	$	45,926	$	487,855	$	533,781

(a)	During the year ended December 31, 2013, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

When estimating the fair value of our Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include yields, credit spreads, duration, effective dollar prices and overall market conditions on not only the exact financial instrument for which management is estimating the fair value but also financial instruments that are similar or issued by the same issuer when such inputs are unavailable. Generally, an increase in the yields, credit spreads or estimated duration will decrease the fair value of our financial instruments. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value, as determined by management, may fluctuate from period to period and any ultimate liquidation or sale of the investment may result in proceeds that may be significantly different than fair value. The weighted average effective dollar price of our TruPS and TruPS receivables as of March 31, 2014 and December 31, 2013 was 76 and 75, respectively.

The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the three-month period ended March 31, 2014:


Assets	Trading Securities—TruPS and Subordinated Debentures		Security-Related Receivables—TruPS and Subordinated Debenture Receivables		Total Level 3 Assets
Balance, as of December 31, 2013	$	480,845	$	8,211	$	489,056
Change in fair value of financial instruments		5,903		179		6,082
Purchases		0		0		0
Principal Repayments		0		0		0

Balance, as of March 31, 2014	$	486,748	$	8,390	$	495,138

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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


Liabilities	Derivative Liabilities			Warrants and investor SARs			CDO Notes Payable, at Fair Value			Junior Subordinated Notes, at Fair Value		Total Level 3 Liabilities
Balance, as of December 31, 2013	$	67,405		$	31,304		$	377,235		$	11,911	$	487,855
Change in fair value of financial instruments		(4,584	)		(4,041	)		29,797			604		21,776
Purchases		0			13,741			0			0		13,741
Sales		0			0			0			0		0
Principal repayments		0			0			(7,584	)		0		(7,584	)

Balance, as of March 31, 2014	$	62,821		$	41,004		$	399,448		$	12,515	$	515,788

Our non-recurring fair value measurements relate primarily to our commercial real estate loans that are considered impaired and for which we maintain an allowance for loss. In determining the allowance for losses, we estimate the fair value of the respective commercial real estate loan and compare that fair value to our total investment in the loan. When estimating the fair value of the commercial real estate loan, management uses discounted cash flow analyses and capitalization rates on the underlying property’s net operating income. The discounted cash flow analyses and capitalization rates are based on market information and comparable sales of similar properties.

The following tables summarize the valuation technique and the level of the fair value hierarchy for financial instruments that are not fair valued in the accompanying consolidated balance sheets but for which fair value is required to be disclosed. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities and commercial mortgage facilities approximates cost due to the nature of these instruments and are not included in the tables below.


						Fair Value Measurement
	Carrying Amount as of March 31, 2014		Estimated Fair Value as of March 31, 2014		Valuation Technique	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial mortgages, mezzanine loans and other loans	$	1,220,876	$	1,185,050	Discounted cash flows	$	0	$	0	$	1,185,050
7.0% convertible senior notes		33,058		44,626	Trading price		44,626		0		0
4.0% convertible senior notes		132,419		137,125	Trading price		137,125		0		0
Junior subordinated notes, at amortized cost		25,100		14,534	Discounted cash flows		0		0		14,534
CDO notes payable, at amortized cost		1,161,735		975,719	Discounted cash flows		0		0		975,719
CMBS securitization		89,331		89,331	Discounted cash flows		0		0		89,331
Loans payable on real estate		299,548		303,873	Discounted cash flows		0		0		303,873


						Fair Value Measurement
	Carrying Amount as of December 31, 2013		Estimated Fair Value as of December 31, 2013		Valuation Technique	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial mortgages, mezzanine loans and other loans	$	1,122,377	$	1,083,118	Discounted cash flows	$	0	$	0	$	1,083,118
7.0% convertible senior notes		32,938		47,778	Trading price		47,778		0		0
4.0% convertible senior notes		116,184		124,063	Trading price		124,063		0		0
Junior subordinated notes, at amortized cost		25,100		14,007	Discounted cash flows		0		0		14,007

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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


						Fair Value Measurement
	Carrying Amount as of December 31, 2013		Estimated Fair Value as of December 31, 2013		Valuation Technique	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
CDO notes payable, at amortized cost		1,202,772		724,885	Discounted cash flows		0		0		724,885
CMBS securitization		100,139		100,214	Discounted cash flows		0		0		100,214
Loans payable on real estate		171,244		176,979	Discounted cash flows		0		0		176,979

Change in Fair Value of Financial Instruments

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


	For the Three-Month Periods Ended March 31
Description	2014			2013
Change in fair value of trading securities and security-related receivables	$	6,442		$	15,113
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(26,354	)		(109,874	)
Change in fair value of derivatives		(4,227	)		(4,996	)

Change in fair value of financial instruments	$	(24,139	)	$	(99,757	)

The changes in the fair value for the trading securities and security-related receivables, CDO notes payable, and other liabilities for which the fair value option was elected for the three-month periods ended March 31, 2014 and 2013 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of the CDO notes payable for which the fair value option was elected was due to repayments at par because of OC failures when the CDO notes have a fair value of less than par. The changes in the fair value of derivatives for which the fair value option was elected for the three-month periods ended March 31, 2014 and 2013 was mainly due to changes in interest rates.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 9: VARIABLE INTEREST ENTITIES

The following table presents the assets and liabilities of our consolidated VIEs as of each respective date. As of March 31, 2014 and December 31, 2013, our consolidated VIEs were: Taberna VIII, Taberna IX, RAIT I, RAIT II, IRT, Willow Grove and Cherry Hill.


	As of March 31, 2014			As of December 31, 2013
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,806,603		$	1,816,507
Allowance for losses		(13,511	)		(17,250	)

Total investments in mortgages and loans		1,793,092			1,799,257
Investments in real estate, net of accumulated depreciation of $20,023 and 18,538, respectively		323,619			194,648
Investments in securities and security-related receivables, at fair value		572,708			566,577
Cash and cash equivalents		24,850			3,599
Restricted cash		24,395			40,793
Accrued interest receivable		75,010			68,456
Deferred financing costs, net of accumulated amortization of $18,034 and $17,107, respectively		10,011			10,263
Intangible assets, net of accumulated amortization of $1,299 and $568, respectively		1,827			517

Total assets	$	2,825,512		$	2,684,110

Liabilities and Equity
Indebtedness (including $399,448 and $377,235 at fair value, respectively)	$	2,022,617		$	1,946,536
Accrued interest payable		76,414			73,122
Accounts payable and accrued expenses		8,833			5,771
Derivative liabilities		102,596			113,323
Deferred taxes, borrowers’ escrows and other liabilities		7,230			5,805

Total liabilities		2,217,690			2,144,557
Equity:
Shareholders’ equity:
Accumulated other comprehensive income (loss)		(52,699	)		(59,684	)
RAIT investment		331,968			311,635
Retained earnings (deficit)		245,011			258,270

Total shareholders’ equity		524,280			510,221
Noncontrolling interests		83,542			29,332

Total liabilities and equity	$	2,825,512		$	2,684,110

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with our other subsidiaries that maintain investments in the debt or equity securities issued by these entities. We do not have any contractual obligation to provide the VIEs listed above with any financial support. We have not and do not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

NOTE 10: SERIES D PREFERRED SHARES

On October 1, 2012, we entered into a Securities Purchase Agreement, or the purchase agreement, with ARS VI Investor I, LLC, or the investor, an affiliate of Almanac Realty Investors, LLC, or Almanac. Under the purchase agreement, we are required to issue and sell to the investor on a private placement basis from time to time in a period up to two years, and the investor will be obligated to purchase from us, for an aggregate purchase price of $100,000, or the total commitment, the following securities, in the aggregate: (i) 4,000,000 Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, of RAIT, or the Series D Preferred Shares, (ii) common share purchase warrants, or the warrants, exercisable for 9,931,000 of our common shares, or the common shares, and (iii) common share appreciation rights, or the investor SARs with respect to up to 6,735,667 common shares. These securities will be issued on a pro rata basis based on the percentage of the total commitment drawn down at the relevant closing under the purchase agreement.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

The warrants and investor SARs had an initial strike price of $6.00 per common share, subject to adjustment. As of the filing of this report, the strike price has adjusted to $5.87.

The warrants and investor SARs were both determined to be classified as liabilities and had a combined fair value of $41,004 as of March 31, 2014. The initial fair value of the warrants and investor SARs are recorded as a liability and re-measured at each reporting period until the warrants and investor SARs are settled. Changes in fair value will be recorded in earnings as a component of the change in fair value of financial instruments in the consolidated statement of operations.

During the period from the effective date of the purchase agreement through March 31, 2014, we sold the following securities to the investor for an aggregate purchase price of $100.0 million: (i) 4,000,000 Series D Preferred Shares, (ii) warrants exercisable for 9,931,000 common shares (which have subsequently adjusted to 10,153,168 shares as of the date of filing this report); and (iii) investor SARs exercisable with respect to 6,735,667 common shares (which have subsequently adjusted to 6,886,351.2 shares as of the date of filing this report). The following table summarizes the sales activity of the Series D Preferred Shares from the effective date of the agreement through March 31, 2014:


Aggregate purchase price			$	100,000
Initial value of warrants and investor SARs issued to-date	(22,874	)
Costs incurred	(6,352	)

Total discount				(29,226	)
Discount amortization to-date				2,527

Carrying amount of Series D Preferred Shares			$	73,301

NOTE 11: SHAREHOLDERS’ EQUITY

Preferred Shares

Dividends:

On January 29, 2014, our board of trustees declared a first quarter 2014 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares, $0.5546875 per share on our 8.875% Series C Preferred Shares and $0.4687500 per share on our Series D Preferred Shares. The dividends were paid on March 31, 2014 to holders of record on March 3, 2014 and totaled $5,329.

At Market Issuance Sales Agreement (ATM):

On January 10, 2014, we agreed with MLV & Co. LLC, or MLV, to terminate the Preferred ATM agreement. We did not incur any termination penalties as a result of the termination of the Preferred ATM agreement.

Common Shares

Dividends:

On March 18, 2014, the board of trustees declared a $0.17 dividend on our common shares to holders of record as of April 4, 2014. The dividend was paid on April 30, 2014 and totaled $13,914.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

Equity Compensation:

During the three-month period ended March 31, 2014, 20,530 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

On January 29, 2014, the compensation committee awarded 42,217 common share awards, valued at $350 using our closing stock price of $8.29, to the board’s non-management trustees. These awards vested immediately. On January 29, 2014, the compensation committee awarded 293,700 restricted common share awards, valued at $2,435 using our closing stock price of $8.29, to our executive officers and non-executive officer employees. These awards generally vest over three-year periods.

On January 29, 2014, the compensation committee awarded 891,600 stock appreciation rights, or SARs, valued at $1,178 based on a Black-Scholes option pricing model at the date of grant, to our executive officers and non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and January 29, 2019, the expiration date of the SARs.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We have a dividend reinvestment and share purchase plan, or DRSPP, under which we registered and reserved for issuance, in the aggregate, 10,500,000 common shares. During the three-month period ended March 31, 2014, we issued a total of 1,736 common shares pursuant to the DRSPP at a weighted-average price of $8.42 per share and we received $15 of net proceeds. As of March 31, 2014, 7,776,084 common shares, in the aggregate, remain available for issuance under the DRSPP.

Capital on Demand™ Sales Agreement (COD):

On November 21, 2012, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 10,000,000 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. Unless the COD sales agreement is earlier terminated by JonesTrading or us, the COD sales agreement automatically terminates upon the issuance and sale of all of the common shares subject to the COD sales agreement. During the three-month period ended March 31, 2014, we issued a total of 425,920 common shares pursuant to this agreement at a weighted-average price of $8.36 per share and we received $3,473 of net proceeds. As of March 31, 2014, 8,134,138 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

Common Share Public Offering:

In January 2014, we issued 10,000,000 common shares in an underwritten public offering. The public offering price was $8.52 per share and we received $82,570 of proceeds.

Noncontrolling Interests

On January 29, 2014, our subsidiary, Independence Realty Trust, Inc., or IRT, completed an underwritten public offering selling 8,050,000 shares of IRT common stock for $8.30 per share raising gross proceeds of $66,815. We purchased 1,204,819 shares of common stock in the offering, at the public offering price, for which no underwriting discounts and commissions were paid to the underwriters. As of March 31, 2014 and December 31, 2013, we held 6,969,719 and 5,764,900 shares, respectively, of IRT common stock representing 39.3% and 59.7%, respectively, of the outstanding shares of IRT common stock. We consolidate IRT as it is a VIE and we are the primary beneficiary. See Note 9 for additional disclosures pertaining to VIEs.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 12: EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three-month periods ended March 31, 2014 and 2013:


	For the Three-Month Periods Ended March 31
	2014			2013
Net income (loss)	$	(7,423	)	$	(85,341	)
(Income) loss allocated to preferred shares		(5,806	)		(5,218	)
(Income) loss allocated to noncontrolling interests		(1,358	)		27

Net income (loss) allocable to common shares	$	(14,587	)	$	(90,532	)

Weighted-average shares outstanding—Basic		79,970,599			60,363,153
Dilutive securities under the treasury stock method		0			0

Weighted-average shares outstanding—Diluted		79,970,599			60,363,153

Earnings (loss) per share—Basic:
Earnings (loss) per share—Basic	$	(0.18	)	$	(1.50	)

Earnings (loss) per share—Diluted:
Earnings (loss) per share—Diluted	$	(0.18	)	$	(1.50	)

For the three-month periods ended March 31, 2014 and 2013, securities convertible into 14,806,114 and 16,021,459 common shares were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

NOTE 13: RELATED PARTY TRANSACTIONS

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

Andrew M. Silberstein serves as a trustee on our board of trustees, as designated pursuant to the purchase agreement. Mr. Silberstein is an equity owner of Almanac and an officer of the investor and holds indirect equity interests in the investor. The transactions pursuant to the purchase agreement are described above in Note 10. Also, Almanac receives fees in connection with its investments made pursuant to the purchase agreement. In addition, our subsidiary receives fees for managing a securitization collateralized, in part, by $25,000 of trust preferred securities issued by Advance Realty Group. An affiliate of Almanac owns an interest in Advance Realty Group and Almanac receives fees in connection with this interest.

NOTE 14: COMMITMENTS AND CONTINGENCIES

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

On March 13, 2012, the staff of the SEC notified us that the SEC had initiated a non-public investigation concerning one of our investment adviser subsidiaries, Taberna Capital Management, LLC, or TCM. Based on the notice and other communications with SEC staff, we believe this matter concerns TCM’s compliance with securities laws in connection with transactions since January 1, 2009 involving various Taberna securitizations for which TCM served as collateral manager. The SEC staff has subpoenaed testimony and information and we are cooperating fully. Because this matter is ongoing, we cannot predict the outcome at this time and, as a result, no conclusion can be reached as to what impact, if any, this matter may have on TCM or us.

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2014

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

NOTE 15: SUBSEQUENT EVENTS

On April 14, 2014, we issued and sold in a public offering $60,000 aggregate principal amount of our 7.625% Senior Notes due 2024, or the 7.625% senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $57,500 of net proceeds. Interest on the 7.625% senior notes is paid quarterly with a maturity date of April 15, 2024. The senior notes are not convertible into equity securities of RAIT. They contain financial covenants that are consistent with our other debt agreements.

On April 29, 2014, we closed a CMBS securitization transaction, or RAIT FL2, structured to be collateralized by $196,052 of floating rate commercial mortgage loans and participation interests, or the FL2 collateral, that we originated. The CMBS securitization transaction is intended to finance the FL2 collateral on a non-recourse basis. In connection with the CMBS securitization transaction, our subsidiaries made certain customary representations, warranties and covenants. RAIT FL2 does not have OC triggers or IC triggers.

On the closing date, our subsidiary, RAIT 2014-FL2 Trust, or the FL2 issuer, issued classes of investment grade senior notes, or the FL2 senior notes, with an aggregate principal balance of approximately $155,861 to investors, representing an advance rate of approximately 79.5%. A RAIT subsidiary received the unrated classes of junior notes, or the FL2 junior notes, including a class with an aggregate principal balance of $40,191, and the equity, or the retained interests, of the FL2 issuer. The FL2 senior notes bear interest at a weighted average rate equal to LIBOR plus 1.79%. The stated maturity of the FL2 notes is May 2031, unless redeemed or repaid prior thereto. Subject to certain conditions, beginning in April 2016 or upon defined tax events, the FL2 issuer may redeem the FL2 senior notes, in whole but not in part, at the direction of defined holders of FL2 junior notes that we hold.

Item 2.

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

Forward-Looking Statements

In addition to historical information, this discussion and analysis contains forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “continue” or similar words. These forward-looking statements are subject to risks and uncertainties, as more particularly set forth in our filings with the Securities and Exchange Commission, including those described in the “Forward Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2013, that could cause actual results to differ materially from those projected in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report, except as may be required by applicable law.

Overview

We are a multi-strategy commercial real estate company. Our vertically integrated platform originates commercial real estate loans, acquires commercial real estate properties and invests in, manages, services and advises on commercial real estate-related assets. We offer a comprehensive set of debt financing options to the commercial real estate industry along with asset and property management services. We also own and manage a portfolio of commercial real estate properties and manage real estate-related assets for third parties. We are positioning RAIT for future growth in the area of its historical core competency, commercial real estate lending and direct ownership of real estate, while diversifying the revenue generated from our commercial real estate loans and properties and reducing or removing other non-core assets and activities.

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

•

expanding RAIT’s commercial real estate revenue by investing in commercial real estate-related assets, managing and servicing investments for our own account or for others, and providing property management services;

•

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

•

maintaining and expanding our sources of liquidity;

•

managing our leverage to provide risk-adjusted returns for our shareholders; and

•

managing our investment portfolios to reposition under-performing assets, increase our cash flows and ultimately recover the value of our assets over time.

We continue to have success in implementing these strategies as demonstrated by our revenue growth and stable credit performance. Each component of our revenue grew in the three-month period ended March 31, 2014. Our net interest margin grew as we originated more loans, particularly floating rate bridge loans, and reduced expenses associated with hedges that expired. During the three-month period ended March 31, 2014, we originated $224.5 million of commercial real estate loans, had conduit loan sales of $72.4 million and loan repayments of $18.3 million, resulting in net loan growth of $133.8 million. Our rental income increased due to the increased number of owned properties in our portfolio and improving occupancy and rental rates. As a result, the rental income at our owned properties increased to $35.2 million during the three-month period ended March 31, 2014. Our asset growth and asset performance resulted in growth in our cash available for distribution to $17.2 million and growth in our operating income to $11.8 million during the three-month period ended March 31, 2014.

While we generated a GAAP net loss allocable to common shares of $14.6 million, or $0.18 per common share-diluted, during the three-month period ended March 31, 2014, we attribute this loss primarily to continued non-cash negative changes in the fair value of various financial instruments. For the three-month period ended March 31, 2014, the net change in fair value of financial instruments decreased net income by $24.1 million. This is comprised of the change in fair value of financial instruments of $34.6 million associated with an increase in the fair value of non-recourse debt, CDO Notes payable issued by Taberna VIII and Taberna IX and the associated interest rate hedges. This non-cash mark-to-market reduction to earnings was partially offset by $6.4 million of non-cash mark-to-market increases in the fair value of trading securities and security related receivables.

Key Statistics

Set forth below are key statistics relating to our business through March 31, 2014 (dollars in thousands, except per share data):


	As of or For the Three-Month Periods Ended
	March 31, 2014			December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013
Financial Statistics:
Assets under management	$	5,119,805		$	3,595,530		$	3,567,675		$	3,616,009		$	3,626,523
Debt to equity		3.4x			3.7x			2.8x			2.8x			2.8x
Total revenue	$	67,308		$	67,607		$	62,395		$	58,622		$	58,251
Earnings per share, diluted	$	(0.18	)	$	(1.90	)	$	(0.24	)	$	(0.94	)	$	(1.50	)
Funds from operations per share, diluted	$	(0.07	)	$	(1.74	)	$	(0.12	)	$	(0.81	)	$	(1.37	)
Adjusted funds from operations per share, diluted	$	0.29		$	0.34		$	0.33		$	0.32		$	0.31
Cash available for distribution per share, diluted	$	0.22		$	0.27		$	0.23		$	0.20		$	0.18
Common dividend declared	$	0.17		$	0.16		$	0.15		$	0.13		$	0.12
Commercial Real Estate (“CRE”) Loan Portfolio (a):
Reported CRE Loans—unpaid principal	$	1,228,452		$	1,115,949		$	1,103,272		$	1,154,306		$	1,118,519
Non-accrual loans—unpaid principal	$	28,019		$	37,073		$	45,337		$	65,597		$	68,257
Non-accrual loans as a % of reported loans		2.3	%		3.3	%		4.1	%		5.7	%		6.1	%
Reserve for losses	$	14,279		$	22,955		$	23,317		$	24,222		$	26,206
Reserves as a % of non-accrual loans		51.0	%		61.9	%		51.4	%		36.9	%		38.4	%
Provision for losses	$	1,000		$	1,500		$	500		$	500		$	500
CRE Property Portfolio:
Reported investments in real estate, net	$	1,205,995		$	1,004,186		$	986,296		$	949,649		$	914,919
Net operating income	$	17,093		$	13,919		$	13,712		$	12,947		$	12,759
Number of properties owned		71			62			61			60			59
Multifamily units owned		12,014			9,372			8,940			8,535			8,206
Office square feet owned		2,097,022			2,009,852			2,015,524			2,015,576			2,015,524
Retail square feet owned		1,420,909			1,421,059			1,421,059			1,421,059			1,422,572
Acres of land owned		21.92			21.92			21.92			21.92			21.92
Average physical occupancy data:
Multifamily properties		93.3	%		92.2	%		92.5	%		92.6	%		92.6	%
Office properties		74.8	%		75.6	%		74.1	%		74.3	%		70.3	%
Retail properties		66.6	%		69.0	%		68.9	%		68.7	%		68.9	%
Average effective rent per unit/square foot (c)
Multifamily (d)	$	767		$	763		$	761		$	743		$	736
Office (e)	$	18.70		$	18.40		$	19.45		$	18.77		$	18.91
Retail (e)	$	12.44		$	12.11		$	12.05		$	11.78		$	11.95

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

(b)	Includes 17 apartment properties owned by IRT with 4,970 units and a book value of $303.4 million as of March 31, 2014.

(c)	Based on properties owned as of March 31, 2014.

(d)	Average effective rent is rent per unit per month.

(e)	Average effective rent is rent per square foot per year.

Investors should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, or the Annual Report, for a detailed discussion of the following items:

•

Credit, capital markets and liquidity risk.

•

Interest rate environment.

•

Prepayment rates.

•

Commercial real estate performance.

Our Investment Portfolio

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

Commercial mortgages, mezzanine loans, other loans and preferred equity interests. We originate and own senior long-term mortgage loans, including conduit loans, short-term bridge loans, subordinated, or “mezzanine,” financing and preferred equity interests. These assets are in most cases “non-recourse” or limited recourse loans secured by commercial real estate assets or real estate entities. This means that we look primarily to the assets securing the loan for repayment, subject to certain standard exceptions. We originate loans that are eligible to be sold to securitizations issuing commercial mortgage backed securities, or CMBS, which we refer to as conduit loans. We may from time to time acquire existing commercial real estate loans from third parties who have originated such loans, including banks, other institutional lenders or third-party investors. Where possible, we seek to maintain direct lending relationships with borrowers, as opposed to investing in loans controlled by third party lenders.

The tables below describe certain characteristics of our commercial mortgages, mezzanine loans, other loans and preferred equity interests as of March 31, 2014 (dollars in thousands):


	Book Value		Weighted- Average Coupon			Range of Maturities		Number of Loans
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	909,861		6.3	%		May 2014 to Apr. 2024		73
Mezzanine loans		254,824		9.5	%		Jun. 2014 to Jan. 2029		77
Preferred equity interests		41,695		7.7	%		May 2015 to Aug. 2025		10

Total CRE Loans		1,206,380		7.0	%				160
Other loans		30,691		4.3	%		Jun. 2014 to Oct. 2016		2

Total investments in loans	$	1,237,071		6.9	%				162

During the three-month period ended March 31, 2014, we originated $224.5 million of new loans and had conduit loan sales of $72.4 million and loan repayments of $18.3 million, resulting in net loan growth of $133.8 million.

The charts below describe the property types and the geographic breakdown of our commercial mortgages, mezzanine loans, other loans, and preferred equity interests as of March 31, 2014:

(a)	Based on book value.

Investments in real estate. We invest in real estate properties, primarily multi-family properties, throughout the United States. The table below describes certain characteristics of our investments in real estate as of March 31, 2014 (dollars in thousands, except average effective rent):


	Investments in Real Estate (a)		Average Physical Occupancy			Units/ Square Feet/ Acres		Number of Properties		Average Effective Rent (a)
Multi-family real estate properties (b)(c)	$	914,330		93.3	%		12,014		45	$	767
Office real estate properties (d)		294,091		74.8	%		2,097,022		12		18.70
Retail real estate properties (d)		83,767		66.6	%		1,420,909		4		12.44
Parcels of land		49,683		N/A			21.9		10		N/A

Total	$	1,341,871							71

(a)	Based on properties owned as of March 31, 2014.

(b)	Includes 17 apartment properties owned by IRT with 4,970 units and a book value of $303.4 million as of March 31, 2014.

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

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

The charts below describe the property types and the geographic breakdown of our investments in real estate as of March 31, 2014:

(a)	Based on book value.

Investment in debt securities—TruPS and Subordinated Debentures. Historically, we provided REITs and real estate operating companies the ability to raise subordinated debt capital through TruPS and subordinated debentures. TruPS are long-term instruments, with maturities ranging from 5 to 30 years, which are priced based on short-term variable rates, such as the three-month London Inter-Bank Offered Rate, or LIBOR. TruPS are unsecured and generally contain minimal financial and operating covenants. We financed most of our debt securities portfolio in a series of non-recourse securitizations which provided long-dated, interest-only, match funded financing to the TruPS and subordinated debenture investments. As of March 31, 2014, we retained a controlling interest in two such securitizations—Taberna VIII and Taberna IX, which are consolidated entities. We present all of the collateral assets for the debt securities and the related non-recourse securitization financing obligations at fair value in our consolidated financial statements. During the three-month period ended March 31, 2014, due to the credit performance of the underlying collateral, we received only our senior collateral management fees from these two securitizations. We do not expect to add investments in this asset category for the foreseeable future due to market conditions.

The table below describes our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of March 31, 2014 (dollars in thousands):


						Issuer Statistics
Industry Sector	Estimated Fair Value		Weighted- Average Coupon			Weighted Average Ratio of Debt to Total Capitalization			Weighted Average Interest Coverage Ratio
Commercial Mortgage	$	107,145		1.5	%		43.5	%		5.0x
Office		132,765		6.7	%		62.3	%		2.3x
Residential Mortgage		50,786		2.5	%		72.5	%		3.3x
Specialty Finance		84,097		4.3	%		80.5	%		1.7x
Homebuilders		18,750		8.0	%		86.5	%		1.5x
Retail		76,933		2.4	%		60.6	%		2.7x
Hospitality		24,662		8.7	%		148.9	%		0.7x

Total	$	495,138		3.7	%		67.4	%		2.8x

The chart below describes the equity capitalization of our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of March 31, 2014:

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

(b)	Based on estimated fair value.

Investment in debt securities—Other Real Estate Related Debt Securities. We have invested, and expect to continue to invest, in CMBS, unsecured REIT notes and other real estate-related debt securities.

Unsecured REIT notes are publicly traded debentures issued by large public reporting REITs and other real estate companies. These debentures generally pay interest semi-annually.

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

The table and the chart below describe certain characteristics of our real estate-related debt securities as of March 31, 2014 (dollars in thousands):


Investment Description	Estimated Fair Value		Weighted- Average Coupon			Weighted- Average Years to Maturity		Book Value
Unsecured REIT note receivables	$	33,066		6.7	%		2.9	$	30,000
CMBS receivables		44,469		5.6	%		30.1		65,905
Other securities		1,066		2.6	%		34.5		49,032

Total	$	78,601		4.6	%		26.7	$	144,937

LOGO

(a)	S&P Ratings as of March 31, 2014.

Securitization Summary

Overview. We have used securitizations to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our portfolios for the long-term. A securitization is a structure in which multiple classes of debt and equity are issued by a special purpose entity to finance a portfolio of assets. Cash flow from the portfolio of assets is used to repay the securitization liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB–” and therefore can be issued at yields that are lower than the average yield of the securities backing the securitization. The debt tranches are typically rated based on portfolio quality, diversification and structural subordination. The equity securities issued by the securitization are the “first loss” piece of the capital structure, but they are entitled to all residual amounts available for payment after the obligations to the debt holders have been satisfied.

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

As of the most recent payment information, the Taberna I, Taberna VIII and Taberna IX securitizations that we manage were not passing all of their required IC triggers or OC triggers and we received only senior asset management fees. All applicable IC triggers and OC triggers continue to be met for our two commercial real estate securitizations, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these securitizations.

A summary of the investments in our consolidated securitizations as of the most recent payment information is as follows:

•

RAIT I —RAIT I has $902.7 million of total collateral at par value, of which $18.1 million is defaulted. The current overcollateralization, or OC, test is passing at 127.0% with an OC trigger of 116.2%. We currently own $67.0 million of the securities that were originally rated investment grade and $200.0 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $36.8 million of the securities we own issued by RAIT I as collateral for a senior secured note we issued.

•

RAIT II —RAIT II has $782.7 million of total collateral at par value, of which $19.9 million is defaulted. The current OC test is passing at 118.8% with an OC trigger of 111.7%. We currently own $108.5 million of the securities that were originally rated investment grade and $140.7 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $87.6 million of the securities we own issued by RAIT II as collateral for a senior secured note we issued.

•

RAIT FL1— RAIT FL1 has $123.1 million of total collateral at par value. RAIT FL1 does not have OC triggers or IC triggers. RAIT FL1, has issued classes of investment grade senior notes with an aggregate principal balance of approximately $89.3 million to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $33.8 million, and the equity, or the retained interests, of RAIT FL1.

•

Taberna VIII —Taberna VIII has $478.0 million of total collateral at par value, of which $47.8 million is defaulted. The current OC test is failing at 79.9% with an OC trigger of 103.5%. We currently own $40.0 million of the securities that were originally rated investment grade and $93.0 million of the non-investment grade securities issued by this securitization. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

•

Taberna IX —Taberna IX has $506.0 million of total collateral at par value, of which $111.9 million is defaulted. The current OC test is failing at 66.9% with an OC trigger of 105.4%. We currently own $89.0 million of the securities that were originally rated investment grade and $97.5 million of the non-investment grade securities issued by this securitization. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

RAIT 2014-FL2 Securitization

On April 29, 2014, we closed a CMBS securitization transaction, or RAIT FL2, structured to be collateralized by $196.0 million of floating rate commercial mortgage loans and participation interests, or the FL2 collateral, that we originated. The CMBS securitization transaction is intended to finance the FL2 collateral on a non-recourse basis. In connection with the CMBS securitization transaction, our subsidiaries made certain customary representations, warranties and covenants. RAIT FL2 does not have OC triggers or IC triggers.

On the closing date, our subsidiary, RAIT 2014-FL2 Trust, or the FL2 issuer, issued classes of investment grade senior notes, or the FL2 senior notes, with an aggregate principal balance of approximately $155.9 million to investors, representing an advance rate of approximately 79.5%. A RAIT subsidiary received the unrated classes of junior notes, or the FL2 junior notes, including a class with an aggregate principal balance of $40.2 million, and the equity, or the retained interests, of the FL2 issuer. The FL2 senior notes bear interest at a weighted average rate equal to LIBOR plus 1.79%. The stated maturity of the FL2 notes is May 2031, unless redeemed or repaid prior thereto. Subject to certain conditions, beginning in April 2016 or upon defined tax events, the FL2 issuer may redeem the FL2 senior notes, in whole but not in part, at the direction of defined holders of FL2 junior notes that we hold.

Independence Realty Trust, Inc.

The IRT common stock trades on the NYSE MKT under the symbol “IRT” with a closing price of $8.92 as of May 9, 2014. We currently hold 6,969,719 shares of IRT common stock representing 39.3% percent of the outstanding shares of IRT common stock as of May 9, 2014. We continue to consolidate IRT in our financial results as of March 31, 2014. For the three-month period ended March 31, 2014, we reflected IRT’s operating results in our financial results, including $2.9 million of net income. As of March 31, 2014, IRT owned 17 multi-family properties with 4,970 units and a book value of $303.4 million were reflected on our balance sheet. For the three-month period ended March 31, 2014, we earned $0.1 million for fees from IRT under our advisory agreement with IRT and received $1.1 million for distributions declared on our IRT common stock, both of which are eliminated in consolidation.

Assets Under Management

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

The table below summarizes our AUM as of March 31, 2014 and December 31, 2013 (dollars in thousands):


	AUM as of March 31, 2014		AUM as of December 31, 2013
Commercial real estate portfolio (1)	$	2,401,401	$	2,092,810
U.S. TruPS portfolio (2)		1,488,200		1,502,720
Property management (3)		1,230,204		0

Total	$	5,119,805	$	3,595,530

(1)

As of March 31, 2014 and December 31, 2013, our commercial real estate portfolio was comprised of $774.9 million and $798.8 million of assets collateralizing RAIT I and RAIT II, $1.2 billion and $1.0 billion, respectively, of investments in real estate and $297.4 million and $158.0 million, respectively, of commercial mortgages, mezzanine loans and preferred equity interests that were not securitized. As of March 31, 2014 and December 31, 2013, our commercial real estate portfolio was also comprised of $123.1 million and $131.8 million, respectively, of assets collateralizing RAIT 2013-FL1.

(2)	Our U.S. TruPS portfolio is comprised of assets collateralizing Taberna I, Taberna VIII, and Taberna IX, and includes TruPS and subordinated debentures, unsecured REIT note receivables, CMBS receivables, other securities, commercial mortgages and mezzanine loans.

(3)	We expanded our third party property management platform and now own a retail property management firm, which managed 62 properties representing 16,744,360 square feet in 26 states as of March 31, 2014.

Non-GAAP Financial Measures

Cash Available for Distribution

Cash available for distribution, or CAD, is a non-GAAP financial measure. We believe that CAD provides investors and management with a meaningful indicator of operating performance. Management also uses CAD, among other measures, to evaluate profitability and our board of trustees considers CAD in determining our quarterly cash distributions. We also believe that CAD is useful because it adjusts for a variety of noncash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on assets, provision for loan losses and non-cash interest income and expense items). Furthermore, CAD removes the effect from our consolidation of the legacy Taberna securitizations.

We calculate CAD by subtracting from or adding to net income (loss) attributable to common shareholders the following items: depreciation and amortization items including, depreciation and amortization, straight-line rental income or expense, amortization of in place leases, amortization of deferred financing costs, amortization of discount on financings and equity-based compensation; changes in the fair value of our financial instruments, including such changes reflected in our consolidated Taberna securitizations; net interest income from consolidated Taberna securitizations; realized gain (loss) on assets and other; provision for loan losses; impairment on depreciable property; acquisition gains or losses and transaction costs; and one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items.

CAD should not be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

Set forth below is a reconciliation of CAD to net income (loss) allocable to common shares for the three-month periods ended March 31, 2014 and 2013 (dollars in thousands, except share information):


	For the Three-Month Period Ended March 31, 2014						For the Three-Month Period Ended March 31, 2013
	Amount			Per Share (1)			Amount			Per Share (2)
Cash Available for Distribution:
Net income (loss) allocable to common shares	$	(14,587	)	$	(0.18	)	$	(90,532	)	$	(1.50	)
Adjustments:
Depreciation and amortization expense		12,042			0.15			8,570			0.14
Change in fair value of financial instruments		24,139			0.30			99,757			1.65
(Gains) losses on assets		(2,224	)		(0.03	)		3			0.00
(Gains) losses on extinguishment of debt		(2,421	)		(0.03	)		0			0.00
Taberna VIII and Taberna IX securitizations, net effect		(7,060	)		(0.09	)		(8,476	)		(0.14	)
Straight-line rental adjustments		(115	)		0.00			(288	)		0.00
Share-based compensation		1,449			0.02			723			0.01
Origination fees and other deferred items		4,551			0.06			678			0.01
Provision for losses		1,000			0.01			500			0.01
Noncontrolling interest effect of certain adjustments		460			0.01			0			0.00

Cash Available for Distribution	$	17,234		$	0.22		$	10,935		$	0.18

(1)	Based on 79,970,599 weighted-average shares outstanding-diluted for the three-month period ended March 31, 2014.

(2)	Based on 60,363,153 weighted-average shares outstanding-diluted for the three-month period ended March 31, 2013.

Funds from Operations and Adjusted Funds from Operations

We believe 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 and us in particular. 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 allocated to common shares (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles.

AFFO is a computation made by analysts and investors to measure a real estate company’s cash flow generated by operations. We calculate AFFO by adding to or subtracting from FFO: change in fair value of financial instruments; gains or losses on debt extinguishment; capital expenditures, net of any direct financing associated with those capital expenditures; straight-line rental effects; amortization of various deferred items and intangible assets; and share-based compensation.

Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash items, such as changes in fair value of financial instruments, real estate depreciation, share-based compensation and various other items required by GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. 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 FFO and AFFO to net income (loss) allocable to common shares for the three-month periods ended March 31, 2014 and 2013 (dollars in thousands, except share information):


	For the Three-Month Period Ended March 31, 2014						For the Three-Month Period Ended March 31, 2013
	Amount			Per Share (1)			Amount			Per Share (2)
Funds From Operations:
Net income (loss) allocable to common shares	$	(14,587	)	$	(0.18	)	$	(90,532	)	$	(1.50	)
Adjustments:
Real estate depreciation and amortization		8,819			0.11			7,973			0.13
(Gains) losses on the sale of real estate		321			0.00			0			0.00

Funds From Operations	$	(5,447	)	$	(0.07	)	$	(82,559	)	$	(1.37	)

Adjusted Funds From Operations:
Funds From Operations	$	(5,447	)	$	(0.07	)	$	(82,559	)	$	(1.37	)
Adjustments:
Change in fair value of financial instruments		24,139			0.30			99,757			1.65
(Gains) losses on debt extinguishment		(2,421	)		(0.03	)		0			0.00
Capital expenditures, net of direct financing		(647	)		(0.01	)		(172	)		0.00
Straight-line rental adjustments		(115	)		0.00			(288	)		0.00
Amortization of deferred items and intangible assets		6,417			0.08			1,133			0.02
Share-based compensation		1,449			0.02			723			0.01

Adjusted Funds From Operations	$	23,375		$	0.29		$	18,594		$	0.31

(1)	Based on 79,970,599 weighted-average shares outstanding-diluted for the three-month period ended March 31, 2014.

(2)	Based on 60,363,153 weighted-average shares outstanding-diluted for the three-month period ended March 31, 2013.

Adjusted Book Value

Management views adjusted book value as a useful and appropriate supplement to shareholders’ equity and book value. The measure serves as an additional performance measure of our value because it facilitates evaluation of us without the effects of various items that we are required to record in accordance with GAAP but which have limited economic impact on our business. Those adjustments primarily reflect the effect of consolidated securitizations where we do not currently receive cash flows on our retained interests, accumulated depreciation and amortization, the valuation of long-term derivative instruments and a valuation of our recurring collateral and property management fees. Adjusted book value is a non-GAAP financial measurement, and does not purport to be an alternative to reported shareholders’ equity, determined in accordance with GAAP, as a measure of book value. Adjusted book value should be reviewed in connection with shareholders’ equity as set forth in our consolidated balance sheets, to help analyze our value to investors. Adjusted book value may be defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted book value to that of other REITs.

Set forth below is a reconciliation of adjusted book value to shareholders’ equity as of March 31, 2014 (dollars in thousands, except share information):


	As of March 31, 2014
	Amount			Per Share (1)
Total shareholders’ equity	$	665,019		$	8.08
Liquidation value of preferred shares characterized as equity(2)		(199,946	)		(2.43	)

Book value		465,073			5.65
Adjustments:
Taberna VIII and Taberna IX securitizations, net effect		(203,644	)		(2.47	)
RAIT I and RAIT II derivative liabilities		36,490			0.44
Change in fair value for warrants and investor SARs		18,038			0.22
Accumulated depreciation and amortization		169,050			2.05
Valuation of recurring collateral and property management fees		50,335			0.61

Total adjustments		70,269			0.85

Adjusted book value	$	535,342		$	6.50

(1)	Based on 82,289,029 common shares outstanding as of March 31, 2014.

(2)	Based on 4,069,288 Series A preferred shares, 2,288,465 Series B preferred shares, and 1,640,100 Series C preferred shares outstanding as of March 31, 2014, all of which have a liquidation preference of $25.00 per share.

Results of Operations

Three-Month Period Ended March 31, 2014 Compared to the Three-Month Period Ended March 31, 2013

Revenue

Net interest margin . Net interest margin increased $4.0 million, or 16.8%, to $27.8 million for the three-month period ended March 31, 2014 from $23.8 million for the three-month period ended March 31, 2013. Investment interest income has increased, when compared to the three-month period ended March 31, 2013, as a result of an increase in our average investments in loans and securities. This increase was primarily caused by the origination of new loans since March 31, 2013. During the three-month period ended March 31, 2014, we originated $224.5 million of commercial real estate loans, had conduit loan sales of $72.4 million and loan repayments of $18.3 million, resulting in net loan growth of $133.8 million. In addition, investment interest expense decreased for the three-month period ended March 31, 2014 as compared to the three-month period ended March 31, 2013 primarily attributable to $0.8 million of reduced interest rate hedging costs from the expiration of interest rate swap agreements associated with our consolidated RAIT I and RAIT II securitizations since March 31, 2013 and $0.5 million of reduced interest expense from repurchases and repayments of our CDO notes payable. This was partially offset by $1.1 million of increased investment interest expense from the RAIT 2013-FL1 securitization issued in July 2013 and from increased activity in our warehouse facilities as compared to 2013.

Rental income. Rental income increased $8.0 million to $35.2 million for the three-month period ended March 31, 2014 from $27.2 million for the three-month period ended March 31, 2013. The increase is attributable to $7.4 million of rental income from 14 new properties acquired or consolidated since March 31, 2013 and $0.8 million from improved occupancy and rental rates in 2014 as compared to 2013 in the remaining properties. The increase was partially offset by $0.2 million of rental income related to two properties that were disposed of after March 31, 2013.

Fee and other income. Fee and other income decreased $2.9 million to $4.4 million for the three-month period ended March 31, 2014 from $7.3 million for the three-month period ended March 31, 2013. The $2.9 million decrease is attributable to conduit fee income generated during the three-month period ended March 31, 2014 as compared to the same period in 2013. Property management fees increased $2.8 million during the three-month period ended March 31, 2014 as compared to the three-month period ended March 31, 2013; however, this was partially offset by a decrease of $2.7 million in other income associated with legal settlements.

Expenses

Interest expense . Interest expense increased $1.9 million, or 19.6%, to $11.6 million for the three-month period ended March 31, 2014 from $9.7 million for the three-month period ended March 31, 2013. The increase is primarily attributable to $1.5 million of interest expense due to an increase in our loans payable on real estate and $0.4 million due to an increase in the amortization of deferred financing costs related to the 4% convertible senior notes.

Real estate operating expense. Real estate operating expense increased $3.7 million to $18.1 million for the three-month period ended March 31, 2014 from $14.4 million for the three-month period ended March 31, 2013. Operating expenses increased $3.5 million primarily due to 14 properties acquired or consolidated since March 31, 2013. In our existing portfolio, operating expenses increased $0.6 million primarily due to $0.5 million of one-time charges related to real estate tax increases and increased utilities and other severe winter weather related expenses that occurred during the three month period ended March 31, 2014. The increase was partially offset by $0.4 million of real estate operating expenses related to two properties that were disposed of after March 31, 2013.

Compensation expense. Compensation expense increased $1.7 million, or 24.6%, to $8.6 million for the three-month period ended March 31, 2014 from $6.9 million for the three-month period ended March 31, 2013. This increase was primarily attributable to a $0.7 million increase in stock-based compensation and a $1.8 million increase in salary and benefits for new employees hired since March 31, 2013. This increase was partially offset by a decrease in severance of $1.1 million during the three-month period ended March 31, 2013.

General and administrative expense . General and administrative expense increased $0.4 million, or 10.5%, to $4.2 million for the three-month period ended March 31, 2014 from $3.8 million for the three-month period ended March 31, 2013. This increase was primarily attributable to an increase of $0.4 million in acquisition expenses due to ten properties acquired in the three-month period ended March 31, 2014 as there were no property acquisitions in the three-month period ended March 31, 2013 .

Depreciation and amortization expense. Depreciation and amortization expense increased $3.4 million to $12.0 million for the three-month period ended March 31, 2014 from $8.6 million for the three-month period ended March 31, 2013. The increase is attributable to $2.4 million of depreciation expense from 14 new properties acquired or consolidated since March 31, 2013, $0.7 million from our other consolidated properties and an increase in corporate depreciation of $0.4 million. The increase was partially offset by $0.1 million of depreciation expense related to two properties that were disposed of after March 31, 2013.

Other income (expense)

Gain s (losses) on assets. During the three-month period ended March 31, 2014, gains (losses) on assets included a $5.5 million gain on the property acquisitions as the fair value of the property acquired exceeded the purchase price. This was partially offset by a $3.0 million charge off for certain assets that were disposed of and a $0.3 million loss related to the disposition of a real estate property.

Gains (losses) on extinguishment of debt. During the three-month period ended March 31, 2014, gains (losses) on extinguishment of debt is due to the repurchase of $5.8 million principal amount of RAIT I debt notes from the market for $3.4 million of cash.

Change in fair value of financial instruments. During the three-month period ended March 31, 2014, the change in fair value of financial instruments reduced our net income by $24.1 million. The fair value adjustments we recorded were as follows (dollars in thousands):


Description	For the Three- Month Period Ended March 31, 2014			For the Three- Month Period Ended March 31, 2013
Change in fair value of trading securities and security-related receivables	$	6,442		$	15,113
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(26,354	)		(109,874	)
Change in fair value of derivatives		(4,227	)		(4,996	)

Change in fair value of financial instruments	$	(24,139	)	$	(99,757	)

Changes in the fair value of our financial instruments occur when market conditions change, including interest rates and/or the credit profile of the underlying issuers change. In addition, a change in fair value of a financial instrument will occur when principal repayments occur where the carrying amount of the financial instrument, prior to the principal repayment, did not equal the principal amount repaid. We have had and expect to continue to have changes in the fair value of our financial instruments as market conditions change and as principal repayments occur in either the securities or liabilities that are subject to fair value accounting under FASB ASC Topic 825, “Financial Instruments.”

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends and other general business needs. We are seeking to expand our sales of our securities, sales of conduit loans to CMBS securitizations, short term financing and secured lines of credit while developing other financing resources that will permit us to originate or acquire new investments to generate attractive returns while preserving our capital, such as loan participations and joint venture financing arrangements.

We believe our available cash and restricted cash balances, other financing arrangements, and cash flows from operations will be sufficient to fund our liquidity requirements for the next 12 months.

Our primary cash requirements are as follows:

•

to make investments and fund the associated costs;

•

to repay our indebtedness, including repurchasing, redeeming or retiring our debt before it becomes due;

•

to pay our expenses, including compensation to our employees;

•

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

•

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

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

•

the use of our cash and cash equivalent balances of $110.1 million as of March 31, 2014;

•

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

•

proceeds from the sales of assets;

•

proceeds from future borrowings, including our CMBS facilities and loan participations; and

•

proceeds from future offerings of our securities, including DRSPP and ATM.

During the period April 1, 2014 through December 31, 2014, interest rate swap agreements relating to RAIT I and RAIT II with a notional amount of $67.3 million and a weighted average strike rate of 5.25% as of March 31, 2014, will terminate in accordance with their terms. We expect this will result in increased cash flow to us of $2.9 million during the remainder of 2014.

Cash Flows

As of March 31, 2014 and 2013, we maintained cash and cash equivalents of approximately $110.1 million and $63.9 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):


	For the Three-Month Periods Ended March 31
	2014			2013
Cash flow from operating activities	$	22,281		$	9,606
Cash flow from investing activities		(184,133	)		(49,183	)
Cash flow from financing activities		183,077			3,390

Net change in cash and cash equivalents		21,225			(36,187	)
Cash and cash equivalents at beginning of period		88,847			100,041

Cash and cash equivalents at end of period	$	110,072		$	63,854

The cash outflow for investing activities for the three-month period ended March 31, 2014 is substantially due to new investments in loans of $225.4 million which exceeded loan repayments and conduit loan sales of $90.7 million. We also had cash outflows of $87.8 million due to the acquisition of real estate properties and capital expenditures in our owned real estate assets. The cash outflow for investing activities for the three-month period ended March 31, 2013 is substantially due to new investments in loans of $97.1 million which exceeded loan repayments and conduit loan sales of $47.0 million.

Cash flow from operating activities for the three-month period ended March 31, 2014, as compared to the same period in 2013, has increased due to reduced interest expense and the timing of payments for various accounts payable and accrued liabilities. This was partially offset by an increase in other assets, including prepaid expenses for insurance and real estate taxes, as the size of our portfolio of real estate properties has grown.

The cash inflow from our financing activities during the three-month period ended March 31, 2014 is primarily due to the issuance of our preferred shares and common shares, proceeds from our repurchase agreements, and the issuance of our 4.0% convertible senior notes. These cash inflows were partially offset by the outflows from the repayments and repurchases of our CDO notes payable and the repayment of one of our secured credit facilities during the three-month period ended March 31, 2014.

As a REIT, we evaluate our dividend coverage based on our cash flow from operating activities before changes in assets and liabilities. During the three-month period ended March 31, 2014, we paid distributions to our preferred and common shareholders of $16.7 million and generated cash flows from operating activities, before changes in assets and liabilities, of $27.9 million. The cash flow from operating activities of $22.3 million during three-month period ended March 31, 2014 exceeded these distributions paid to our shareholders by $5.6 million. The source of funds used to pay these distributions was cash flows from operations before changes in assets and liabilities, as mentioned above.

Capitalization


Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	34,066	$	33,058		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		141,750		132,419		4.0	%	Oct. 2033
Secured credit facilities		5,000		5,000		3.5	%	Oct. 2016
Junior subordinated notes, at fair value (3)		18,671		12,515		0.5	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		2.7	%	Apr. 2037
CMBS facilities		22,133		22,133		2.7	%	Nov. 2014 to Oct. 2015
Commercial mortgage facilities		76,951		76,951		2.4	%	Dec. 2014 to Jan. 2016

Total recourse indebtedness (4)		323,671		307,176		3.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,162,992		1,161,735		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		857,616		399,448		0.9	%	2037 to 2038
CMBS securitization (8)		89,331		89,331		2.2	%	Jan. 2029
Loans payable on real estate		297,100		299,548		5.1	%	Sep. 2015 to Mar. 2024

Total non-recourse indebtedness		2,407,039		1,950,062		1.3	%

Total indebtedness	$	2,730,710	$	2,257,238		1.6	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

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

(4)	Excludes senior secured notes issued by us with an aggregate principal amount equal to $84.0 million with a weighted average coupon of 7.0%, which are eliminated in consolidation.

(5)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(6)

Collateralized by $1.7 billion principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(7)

Collateralized by $1.0 billion principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of March 31, 2014 was $741.7 million. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(8)

Excludes the FL1 junior notes purchased by us which are eliminated in consolidation. Collateralized by $123.1 million principal amount of commercial mortgages loans and participation interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

The following table summarizes our total recourse and non-recourse indebtedness as of December 31, 2013: (dollars in thousands)


Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	34,066	$	32,938		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		125,000		116,184		4.0	%	Oct. 2033
Secured credit facilities		11,129		11,129		3.2	%	Oct. 2016 to Dec. 2016
Junior subordinated notes, at fair value (3)		18,671		11,911		0.5	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		2.7	%	Apr. 2037
CMBS facilities		30,618		30,618		2.7	%	Nov. 2014 to Oct. 2015
Commercial mortgage facility		7,131		7,131		2.8	%	Dec. 2014

Total recourse indebtedness (4)		251,715		235,011		3.8	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,204,117		1,202,772		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		865,199		377,235		0.9	%	2037 to 2038
CMBS securitization (8)		100,139		100,139		2.1	%	Jan. 2029
Loans payable on real estate		171,244		171,244		5.3	%	Sep. 2015 to Dec. 2023

Total non-recourse indebtedness		2,340,699		1,851,390		1.1	%

Total indebtedness	$	2,592,414	$	2,086,401		1.4	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

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

(4)	Excludes senior secured notes issued by us with an aggregate principal amount equal to $86.0 million with a weighted average coupon of 7.0%, which are eliminated in consolidation.

(5)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(6)

(7)

Collateralized by $989.8 million principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of December 31, 2013 was $746.9 million. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(8)

Excludes the FL1 junior notes purchased by us which are eliminated in consolidation. Collateralized by $131.8 million principal amount of commercial mortgages loans and participation interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

The current status or activity in our financing arrangements occurring as of or during the three-month period ended March 31, 2014 is as follows:

Recourse Indebtedness

7.0% convertible senior notes. The 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 149.7815 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $6.68 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 7.0% convertible senior notes in diluted earnings per share using the if-converted method if the conversion value in excess of the par amount is considered in the money during the respective periods.

4.0% convertible senior notes. The 4.0% Convertible Senior Notes due 2033, or the 4.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 99.2356 common shares per $1,000 principal amount of 4.0% convertible senior notes (equivalent to a current conversion price of $10.08 per common share). Upon conversion of 4.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 4.0% convertible senior notes in diluted earnings per share using the if-converted method if the conversion value in excess of the par amount is considered in the money during the respective periods.

In January 2014, the underwriters exercised the overallotment option with respect to an additional $16.8 million aggregate principal amount of the 4.0% convertible senior notes and we received total net proceeds of $16.3 million after deducting underwriting fees and adjusting for accrued interim interest. In the aggregate, we issued $141.8 million aggregate principal amount of the 4.0% convertible senior notes in the offering and raised total net proceeds of approximately $137.2 million after deducting underwriting fees and offering expenses.

According to FASB ASC Topic 470, “Debt”, we recorded a discount on our issued and outstanding 4.0% convertible senior notes of $1.2 million. This discount reflects the fair value of the embedded conversion option within the 4.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 4.0% convertible senior notes agreement by a discount rate that represents management’s estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 4.0% convertible senior notes were issued. The discount will be amortized to interest expense through October 1, 2018, the date at which holders of our 4.0% convertible senior notes could require repayment.

Secured credit facilities. As of March 31, 2014, we have $2.5 million outstanding under the Independence Realty Operating Partnership, LP, or IROP, credit agreement. The IROP credit agreement has a 3-year term, bears interest at LIBOR plus 2.75% and contains customary financial covenants for this type of revolving credit agreement.

In January 2014, we repaid the outstanding $6.1 million under our other secured credit facility, including any accrued interest.

CMBS facilities. We maintain CMBS facilities with two investment banks with total borrowing capacity of $250.0 million. The CMBS facilities are repurchase agreements that provide for margin calls in the event the conduit loans financed by the facilities change in value. As of March 31, 2014, we had $22.1 million of outstanding borrowings under the CMBS facilities. As of March 31, 2014, $227.9 million in aggregate principal amount remained available under the CMBS facilities. As of March 31, 2014, we were in compliance with all financial covenants contained in both CMBS facilities.

Commercial Mortgage Facilities. We maintain a commercial mortgage facility with an investment bank with total borrowing capacity of $150.0 million, or the $150.0 million commercial mortgage facility. The $150.0 million commercial mortgage facility is a repurchase agreement that provides for margin calls in the event the commercial mortgages financed by the facility change in value. As of March 31, 2014, we had $26.4 million of outstanding borrowings under the $150.0 million commercial mortgage facility. As of March 31, 2014, $123.6 million in aggregate principal amount remained available under the $150.0 million commercial mortgage facility. As of March 31, 2014, we were in compliance with all financial covenants contained in the $150.0 million commercial mortgage facility.

On January 27, 2014, we entered into a two year $75.0 million commercial mortgage facility, or the $75.0 million commercial mortgage facility, pursuant to which we may sell, and later repurchase, commercial mortgage loans and other assets meeting defined eligibility criteria which are approved by the purchaser in its sole discretion. The aggregate principal amount of the $75.0 million commercial mortgage facility is $75.0 million and incurs interest at LIBOR plus 200 basis points. The $75.0 million commercial mortgage facility contains standard margin call provisions and financial covenants. As of March 31, 2014, we had $50.6 million of outstanding borrowings under the $75.0 million commercial mortgage facility. As of March 31, 2014, $24.4 million in aggregate principal amount remained available under the $75.0 million commercial mortgage facility. As of March 31, 2014, we were in compliance with all financial covenants contained in the $75.0 million commercial mortgage facility.

Senior Notes. On April 14, 2014, we issued and sold in a public offering $60.0 million aggregate principal amount of our 7.625% Senior Notes due 2024, or the 7.625% senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $57.5 million of net proceeds. Interest on the 7.625% senior notes is paid quarterly with a maturity date of April 15, 2024. The senior notes are not convertible into equity securities of RAIT. They contain financial covenants that are consistent with our other debt agreements.

Non-Recourse Indebtedness

During the three-month period ended March 31, 2014, we repurchased, from the market, a total of $5.8 million in aggregate principal amount of CDO notes payable issued by RAIT I. The aggregate purchase price was $3.4 million and we recorded a gain on extinguishment of debt of $2.4 million.

CDO notes payable, at fair value. Both of our consolidated securitizations collateralized primarily by TruPS, Taberna VIII and Taberna IX, are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC test failures are due to defaulted collateral assets and credit risk securities. During the three month period ended March 31, 2014, $7.6 million of cash flows, which is comprised of $1.5 million that was re-directed from our retained interests in these securitizations and $6.1 million that was from principal collections on the underlying collateral, were used to repay the most senior holders of our CDO notes payable.

CMBS securitization. During the three month period ended March 31, 2014, $10.8 million that was from principal collections on the underlying collateral were used to repay the investment grade senior notes issued by the trust.

Loans payable on real estate. As of March 31, 2014 and December 31, 2013, we had $297.1 million and $171.2 million, respectively, of other indebtedness outstanding relating to loans payable on consolidated real estate. These loans are secured by specific consolidated real estate and commercial loans included in our consolidated balance sheets.

During the three-month period ended March 31, 2014, we obtained or assumed five first mortgages on our investments in real estate from third party lenders that have a total aggregate principal balance of $126.6 million, maturity dates ranging from April 2016 to March 2024, and have interest rates ranging from 3.8% to 5.6%.

Series D Preferred Shares

On October 1, 2012, we entered into a Securities Purchase Agreement, or the purchase agreement, with ARS VI Investor I, LLC, or the investor, an affiliate of Almanac Realty Investors, LLC, or Almanac. Under the purchase agreement, we are required to issue and sell to the investor on a private placement basis from time to time in a period up to two years, and the investor will be obligated to purchase from us, for an aggregate purchase price of $100.0 million, or the total commitment, the following securities, in the aggregate: (i) 4,000,000 Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, of RAIT, or the Series D Preferred Shares, (ii) common share purchase warrants, or the warrants, exercisable for 9,931,000 of our common shares, or the common shares, and (iii) common share appreciation rights, or the investor SARs with respect to up to 6,735,667 common shares. These securities will be issued on a pro rata basis based on the percentage of the total commitment drawn down at the relevant closing under the purchase agreement.

The warrants and investor SARs had an initial strike price of $6.00 per common share, subject to adjustment. As of the filing of this report, the strike price has adjusted to $5.87.

The warrants and investor SARs were both determined to be classified as liabilities and had a combined fair value of $41.0 million as of March 31, 2014. The initial fair value of the warrants and investor SARs are recorded as a liability and re-measured at each reporting period until the warrants and investor SARs are settled. Changes in fair value will be recorded in earnings as a component of the change in fair value of financial instruments in the consolidated statement of operations.


Aggregate purchase price	$	100,000
Initial value of warrants and investor SARs issued to-date		(22,874	)
Costs incurred		(6,352	)


Total discount					(29,226	)
Discount amortization to-date					2,527

Carrying amount of Series D Preferred Shares				$	73,301

Preferred Shares

Dividends:

At Market Issuance Sales Agreement (ATM):

Common Shares

Dividends:

On March 18, 2014, the board of trustees declared a $0.17 dividend on our common shares to holders of record as of April 4, 2014. The dividend was paid on April 30, 2014 and totaled $13.9 million.

Equity Compensation:

On January 29, 2014, the compensation committee awarded 42,217 common share awards, valued at $0.4 million using our closing stock price of $8.29, to the board’s non-management trustees. These awards vested immediately. On January 29, 2014, the compensation committee awarded 293,700 restricted common share awards, valued at $2.4 million using our closing stock price of $8.29, to our executive officers and non-executive officer employees. These awards generally vest over three-year periods.

On January 29, 2014, the compensation committee awarded 891,600 stock appreciation rights, or SARs, valued at $1.2 million based on a Black-Scholes option pricing model at the date of grant, to our executive officers and non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and January 29, 2019, the expiration date of the SARs.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We have a dividend reinvestment and share purchase plan, or DRSPP, under which we registered and reserved for issuance, in the aggregate, 10,500,000 common shares. During the three-month period ended March 31, 2014, we issued a total of 1,736 common shares pursuant to the DRSPP at a weighted-average price of $8.42 per share and we received $0.1 million of net proceeds. As of March 31, 2014, 7,776,084 common shares, in the aggregate, remain available for issuance under the DRSPP.

Capital on Demand™ Sales Agreement (COD):

shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. Unless the COD sales agreement is earlier terminated by JonesTrading or us, the COD sales agreement automatically terminates upon the issuance and sale of all of the common shares subject to the COD sales agreement. During the three-month period ended March 31, 2014, we issued a total of 425,920 common shares pursuant to this agreement at a weighted-average price of $8.36 per share and we received $3.5 million of net proceeds. As of March 31, 2014, 8,134,138 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

Common Share Public Offering:

In January 2014, we issued 10,000,000 common shares in an underwritten public offering. The public offering price was $8.52 per share and we received $82.6 million of proceeds.

Off-Balance Sheet Arrangements and Commitments

There have been no material changes in off-balance sheet arrangements or commitments during the three-month period ended March 31, 2014 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2013. Reference is made to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Critical Accounting Estimates and Policies

Our Annual Report on Form 10-K for the year ended December 31, 2013 contains a discussion of our critical accounting policies. On January 1, 2013 we adopted a new accounting pronouncement and revised our accounting policies as described below. See Note 2 in our unaudited consolidated financial statements as set forth herein. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.

Recent Accounting Pronouncements

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in quantitative and qualitative market risks during the three-month period ended March 31, 2014 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2013. Reference is made to Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three-month period ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

There have not been any material changes from the risk factors previously disclosed in Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

We withheld the following common shares to satisfy tax withholding obligations during the quarter ending March, 31, 2014 arising from the vesting of restricted share awards made pursuant to the RAIT Financial Trust 2012 Incentive Award Plan. These common shares may be deemed to be “issuer purchases” of common shares that are required to be disclosed pursuant to the item.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased			Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
01/01/2014 to 01/31/2014		54,756	(1)	$	8.29	(1)		54,756		0
02/01/2014 to 02/28/2014		0			0			0		0
03/01/2014 to 03/31/2014		0			0			0		0
Total		54,756	(1)	$	8.29	(1)		54,756		0

(1)	The price reported is the price paid per share using our closing stock price on the New York Stock Exchange on the vesting date of the relevant award.

Item 5.

Other Information

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

On May 8, 2014 and effective January 29, 2014, we entered into an amendment to the employment agreement of our chairman and chief executive officer, Scott F. Schaeffer, which documented Mr. Schaeffer’s consent to surrendering the title of president in connection with his proposal on January 29, 2014, and our board’s approval of such proposal, to promote Scott L.N. Davidson to serve as our president and to have Mr. Schaeffer continue to serve as our chairman of the board and chief executive officer.

Item 6.

Exhibits

(a)

Exhibits

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

SIGNATURES

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


	RAIT FINANCIAL TRUST (Registrant)

Date: May 12, 2014	By:	/s/ Scott F. Schaeffer
		Scott F. Schaeffer, Chairman of the Board and Chief Executive Officer
		(On behalf of the registrant and as its Principal Executive Officer)

Date: May 12, 2014	By:	/s/ James J. Sebra
		James J. Sebra, Chief Financial Officer and Treasurer
		(On behalf of the registrant and as its Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Description of Documents

3.1.1		Amended and Restated Declaration of Trust of RAIT Financial Trust (“RAIT”). (1)

3.1.2		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. (2)

3.1.3		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. (3)

3.1.4		Certificate of Correction to the Amended and Restated Declaration of RAIT. (4)

3.1.5		Articles of Amendment to Amended and Restated Declaration of RAIT. (5)

3.1.6		Articles of Amendment to Amended and Restated Declaration of RAIT. (6)

3.1.7		Articles Supplementary (the “Series A Articles Supplementary”) relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) of RAIT. (7)

3.1.8		Certificate of Correction to the Series A Articles Supplementary. (7)

3.1.9		Articles Supplementary relating to the 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series B Preferred Shares”) of RAIT. (8)

3.1.10		Articles Supplementary relating to the 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series C Preferred Shares”) of RAIT. (9)

3.1.11		Articles Supplementary relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. (10)

3.1.12		Certificate of Correction relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. (11)

3.1.13		Articles Supplementary (the “Series D Articles Supplementary”) relating to the Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series D Preferred Shares”) of RAIT. (12)

3.1.14		Articles Supplementary relating to the Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series E Preferred Shares”) of RAIT. (13)

3.1.15		Amendment dated November 30, 2012 to the Series D Articles Supplementary. (13)

3.2		By-laws of RAIT. (14).

4.1.1		Form of Certificate for Common Shares of Beneficial Interest. (6)

4.1.2		Form of Certificate for the Series A Preferred Shares. (15)

4.1.3		Form of Certificate for the Series B Preferred Shares. (8)

4.1.4		Form of Certificate for the Series C Preferred Shares. (9)

4.1.5		Form of Certificate for Series D Preferred Shares. (16)

4.1.6		Form of Certificate for Series E Preferred Shares. (16)

4.2.1		Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (17)


Exhibit Number		Description of Documents

4.2.2		Supplemental Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (17)

4.2.3		Form of RAIT 4.00% Convertible Senior Note due 2033 (included in Exhibit 4.2.2).

4.3.1		Base Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (18)

4.3.2		Supplemental Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (18)

4.4		Indenture dated as of October 5, 2011 between RAIT and Wilmington Trust, National Association, as trustee. (19)

4.5.1		Registration Rights Agreement dated as of October 1, 2012 by and among RAIT and ARS VI Investor I, LP (f/k/a ARS VI Investor I, LLC) (“ARS VI”). (12)

4.5.2		Amendment No. 1 to Registration Rights Agreement dated as of April 25, 2014 by and among RAIT and ARS VI. (20)

4.5.3		Common Share Purchase Warrant No. 1 dated October 17, 2012 issued by RAIT to ARS VI. (16)

4.5.4		Common Share Appreciation Right No. 1 dated October 17, 2012 issued by RAIT to ARS VI. (16)

4.5.5		Common Share Purchase Warrant No. 2 dated November 15, 2012 issued by RAIT to ARS VI. (21)

4.5.6		Common Share Appreciation Right No. 2 dated November 15, 2012 issued by RAIT to ARS VI. (21)

4.5.7		Common Share Purchase Warrant No. 3 dated December 18, 2012 issued by RAIT to ARS VI. (22)

4.5.8		Common Share Appreciation Right No. 3 dated December 18, 2012 issued by RAIT to ARS VI. (22)

4.5.9		Common Share Purchase Warrant No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. (23)

4.5.10		Common Share Appreciation Right No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. (23).

4.6.1		Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (24)

4.6.2		Supplemental Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. (24)

4.6.3		Form of RAIT 4.00% Convertible Senior Note due 2033 (included in Exhibit 4.6.2). (24)

4.6.4		Second Supplemental Indenture, dated as of April 14, 2014, between RAIT Financial Trust, as issuer, and Wells Fargo Bank, National Association, as trustee. (25)

4.6.5		Form of 7.625% Senior Notes due 2024 (included as Exhibit A to Exhibit 4.6.4 hereto).

		Certain Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.

10.1		Master Repurchase Agreement dated as of January 24, 2014 among RAIT CRE Conduit II, LLC, as seller, RAIT, as guarantor, and UBS Real Estate Securities Inc., as buyer. (26)


Exhibit Number		Description of Documents

10.2		Guaranty Agreement, dated as of January 24, 2014, of RAIT in favor of UBS Real Estate Securities Inc. (26)

10.3		Employment Agreement dated as of January 29, 2014 between RAIT and Scott L.N. Davidson. (27)

10.4		IAP Form of Share Award Grant Agreement for non-management trustees adopted January 29, 2014.9(28)

10.5.1		Capped Call Confirmation dated February 28, 2014 between RAIT and Barclays Bank PLC (“Barclays”). Portions of this exhibit have been omitted pursuant to a grant of confidential treatment. The omitted portions have been filed with the Securities and Exchange Commission. (29)

10.5.2		Amendment Agreement dated February 28, 2014 between RAIT and Barclays to the Capped Call Confirmation dated December 4, 2013 between RAIT and Barclays.*

10.6.1		First Amendment to Master Repurchase Agreement and other transaction documents dated as of June 30, 2013 among RAIT CMBS Conduit I, LLC (“RAIT CMBS I”), Citibank N.A., (“Citibank”) and RAIT. *

10.6.2		Third Amendment to Master Repurchase Agreement dated as of December 9, 2013 among RAIT CMBS I, Citibank and RAIT. *

10.7.1		First Amendment to Master Repurchase Agreement dated as of December 27, 2011 between Barclays and RAIT CMBS Conduit II, LLC (“RAIT CMBS II”). *

10.7.2		Second Amendment to Master Repurchase Agreement dated as of February 16, 2012 between Barclays and RAIT CMBS II. *

10.8		Amendment No. 1 to Master Repurchase Agreement dated as of March 20, 2014 among Column Financial, Inc. (“Column”) and RAIT CRE Conduit I, LLC (“RAIT CRE I”) and RAIT. *

10.9.1		Amendment No. 1 to Master Repurchase Agreement dated as of March 17, 2014 among UBS Real Estate Securities Inc. (“UBS”), RAIT CRE CONDUIT II, LLC (“RAIT CRE II”) and RAIT. *

10.9.2		Amendment No. 2 to Master Repurchase Agreement dated as of March 27, 2014 among UBS, RAIT CRE II and RAIT. *

10.10		Amendment 2014-1 dated May 8, 2014 and effective January 29, 2014 to the Third Amended and Restated Employment Agreement dated as of August 4, 2011 between RAIT and Scott F. Schaeffer.*

12.1		Statements regarding computation of ratios as of March 31, 2013. *

31.1		Rule 13a-14(a) Certification by the Chief Executive Officer of RAIT. *

31.2		Rule 13a-14(a) Certification by the Chief Financial Officer of RAIT. *

32.1		Section 1350 Certification by the Chief Executive Officer of RAIT. *

32.2		Section 1350 Certification by the Chief Financial Officer of RAIT. *

101		Pursuant to Rule 405 of Regulation S-T, the following financial information from RAIT’s Quarterly Report on Form 10-Q for the period ended March 31, 2014 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three month periods ended March 31, 2014 and 2013; (ii) Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2014 and 2013; (iv) Consolidated Statements of Cash Flows for the three month periods ended March 31, 2014 and 2013; and (v) Notes to Unaudited Consolidated Financial Statements. *

*	Filed herewith

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

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

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

(4)	Incorporated by reference to RAIT’s Form 10-Q for the Quarterly Period ended March 31, 2002 (File No. 1-14760).

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

(6)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July, 1 2011 (File No. 1-14760).

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

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

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

(10)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on May 25, 2012 (File No. 1-14760).

(11)	Incorporated by reference to RAIT’s Form 10-Q for the quarterly period ended June 30, 2012 (File No. 1-14760).

(12)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 4, 2012 (File No. 1-14760).

(13)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 4, 2012 (File No.1-14760).

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

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

(16)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760).

(17)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

(18)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760).

(19)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760).

(20)	Incorporated by reference to RAIT’s Registration Statement on Form S-3 (Registration No. 333-195547).

(21)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on November 21, 2012 (File No. 1-14760).

(22)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 18, 2012 (File No. 1-14760).

(23)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 27, 2014 (File No. 1-14760).

(24)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

(25)	Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on April 14, 2014. (File No. 1-14760).

(26)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on January 31, 2014 (File No. 1-14760).

(27)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on February 4, 2014 (File No. 1-14760).

(28)	Incorporated by reference to RAIT’s Form 10-K for the fiscal year ended December 31, 2013 (File No. 1-14760).

(29)	Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on February 28, 2014 (File No. 1-14760).

Exhibit 10.5.2

Execution Version

AMENDMENT AGREEMENT

THIS AMENDMENT AGREEMENT (this “ Amendment ”) is made as of February 28, 2014, between Barclays Bank PLC (“ Barclays ”), through its agent Barclays Capital Inc. (the “ Agent ”), and RAIT Financial Trust (“ Counterparty ”)

WHEREAS, Barclays and Counterparty entered into a Confirmation for a Base Capped Call Option Transaction (the “ Transaction ”) relating to the common stock, par value USD 0.03 per share, of Counterparty on December 4, 2013 (the “ Confirmation ”); and

NOW, THEREFORE, in consideration of their mutual covenants herein contained, the parties hereto agree as follows:

Section 1. Terms Used but Not Defined Herein . Terms used but not defined herein shall have the respective meanings given to them in the Confirmation.

Section 2. Amendments to the Confirmation .

(a)

Section 5(b)(ii) of the Confirmation is hereby amended by inserting the following sentence after the last sentence thereof: “Notwithstanding the foregoing, privately negotiated off-exchange repurchases of Shares on any Expiration Date (or any security convertible into Shares) that are not reasonably expected to result in purchases of Shares (or any security convertible into Shares, as the case may be) in the market shall not be subject to this Section 5(b)(ii).”

(b)

Clause (y) of Section 5(c) of the Confirmation is hereby amended by deleting it in its entirety and replacing it with:

“(y) on any Expiration Date, (A) the Shares or securities that are convertible into, or exchangeable or exercisable for Shares, are not, and shall not be, subject to a “restricted period,” as defined in Regulation M and (B) Counterparty shall not engage in any “distribution,” as such term is defined in Regulation M, other than a distribution meeting the requirements of the exceptions set forth in sections 101 (b)( 10), 102(b)(4), 102 (b)(7), and 102(c) of Regulation M, until the second Exchange Business Day following the final Expiration Date.”

Section 3. Representations and Warranties . Counterparty represents and warrants to Barclays as follows:

(a)

On the date of this Amendment, Counterparty is not aware of any material nonpublic information regarding Counterparty or the Shares.

(b)

The representations and warranties of Counterparty set forth in Section 3 of the Agreement referenced in the Confirmation are true and correct and are hereby deemed to be repeated to Barclays with respect to the Confirmation.

Section 4. Effectiveness . This Amendment shall become effective upon execution by the parties hereto.

Section 5. Counterparts . This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all of the signatures thereto and hereto were upon the same instrument.

Section 6. Governing Law . This Amendment shall be governed by the laws of the State of New York (without reference to its choice of law doctrine, other than Title 14 of the New York General Obligations Law).

Section 7. Effectiveness of Confirmation . Except as amended hereby, all the terms of the Confirmation shall remain and continue in full force and effect and are hereby confirmed in all respects.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have signed this Amendment Agreement as of the date and year first above written.


BARCLAYS CAPITAL INC., Acting solely as Agent in connection with the Transaction

By:	/s/ Shobha Vaidyanath

	Name:	SHOBHA VAIDYANATH
	Title:	AVP Structured Derivatives


Confirmed as of the date first above written:

RAIT FINANCIAL TRUST

By:		/s/ James J. Sebra

		Name: James J. Sebra
		Title: CFO & Treasurer

Exhibit 10.6.1

FIRST AMENDMENT TO

MASTER REPURCHASE AGREEMENT

AND OTHER TRANSACTION DOCUMENTS

THIS FIRST AMENDMENT TO MASTER REPURCHASE AGREEMENT AND OTHER TRANSACTION DOCUMENTS , dated as of June 30, 2013 (the “ Effective Date ”) (this “ Amendment No. 1 ”), is entered into by and among RAIT CMBS CONDUIT I, LLC , a Delaware limited liability company, as seller (together with its permitted successors and assigns in such capacity, “ Seller ”), CITIBANK, N.A. , a national banking association, as buyer (together with its successors and assigns in such capacity, “ Buyer ”), and RAIT FINANANCIAL TRUST , a Maryland real estate investment trust, as guarantor (together with its successors and permitted assigns, in such capacity, “ Guarantor ”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Repurchase Agreement (as defined below).

R E C I T A L S

WHEREAS, Seller and Buyer are parties to that certain Master Repurchase Agreement, dated as of October 27, 2011 (the “ Existing Repurchase Agreement ”);

WHEREAS, Guarantor is a party to that certain Guaranty, dated as of October 27, 2011 made for the benefit of Buyer (as amended by this Amendment No. 1, and as further amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time, the “ Guaranty ”); and

WHEREAS, the parties hereto desire to make certain amendments and modifications to the Existing Repurchase Agreement and the Guaranty. The Existing Repurchase Agreement, as amended by this Amendment No. 1, and as further amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time, shall be referred to herein as the “ Repurchase Agreement .”

NOW THEREFORE , in consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Section 1.

Amendments to Repurchase Agreement .

Effective as of the Effective Date, the following definitions in Article II of the Repurchase Agreement are each added or, if already present in the Existing Repurchase Agreement, amended and restated in its entirety, as follows:

“ First Amendment ” shall mean that certain First Amendment to Master Repurchase Agreement and Other Transaction Documents dated as of June 30, 2013 by and among Buyer, Seller and Sponsor.”

“ Guaranty ” shall mean the Guaranty, dated as of the date hereof, made by Sponsor for the benefit of Buyer, as amended by the First Amendment and from time to

time thereafter, of amounts due under this Agreement to Buyer, plus any actual, out-of-pocket costs reasonably incurred in connection with the enforcement, and pursuant to the terms, of such Guaranty.”

Section 2.

Amendment to Guaranty .

(a) Effective as of the Effective Date, the following definitions are each added to Section 1 of the Guaranty, as follows:

“ Adjusted Book Value ” means, as of a particular date, (i) Total Assets of Guarantor and its consolidated Subsidiaries, less (ii) Total Liabilities of Guarantor and its consolidated Subsidiaries, plus (iii) Special Book Value Adjustments as of such date.”

“ Special Book Value Adjustments ” means, as of a particular date, (A) the following adjustments, made on a cumulative basis: (i) the GAAP adjustment to Guarantor’s book value that reflects the cost of long-term interest rate hedges maintained for RAIT CRE CDO I, Ltd. and RAIT Preferred Funding II, Ltd., plus (ii) the amount of depreciation and amortization accumulated against real estate assets owned or consolidated with Guarantor, plus (iii) the value of the recurring fees paid for collateral management and property management by Guarantor and its consolidated Subsidiaries which were not already included in Guarantor’s Total Assets, minus (iv) the impact, if any, on Guarantor’s Total Assets of consolidating Taberna Preferred Funding VIII, Ltd. and/or Taberna Preferred Funding IX, Ltd. with Guarantor, or (B) such other adjustments to Guarantor’s book value as shall be adopted by Guarantor within the definition of “Adjusted Book Value” as such term is used from time to time in Guarantor’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as filed under the Securities Exchange Act of 1934 for the period corresponding to such date.”

(b) Effective as of the Effective Date, the term “Consolidated Net Worth” and its definition in Section 1 of the Guaranty is hereby deleted in its entirety.

(c) Effective as of the Effective Date, the first financial covenant of Section 5 of the Guaranty is amended and restated in its entirety as follows:

“ Minimum Adjusted Book Value . Adjusted Book Value to be less than the sum of (x) $450 million plus (y) 75% of the net proceeds received by Guarantor in connection with any issuance of Equity Interests in Guarantor, minus (z) 100% of the amount paid by Guarantor for the repurchase of any Equity Interests in Guarantor, in each case subsequent to the date of this Guaranty;”

Section 3.

Transaction Documents in Full Force and Effect as Modified .

Except as specifically modified hereby, the Transaction Documents shall remain in full force and effect in accordance with their terms and are hereby ratified and confirmed. All references to the Transaction Documents shall be deemed to mean the Transaction Documents as modified by this Amendment No. 1. This Amendment No. 1 shall not constitute a novation of

the Transaction Documents, but shall constitute modifications thereof. The parties hereto agree to be bound by the terms and conditions of the Transaction Documents, as modified by this Amendment No. 1, as though such terms and conditions were set forth herein.

Section 4.

Representations .

Seller and Guarantor each represents and warrants, as of the Effective Date, as follows:

(a) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization and is duly qualified in each jurisdiction necessary to conduct business as presently conducted;

(b) the execution, delivery and performance by it of this Amendment No. 1 are within its corporate, company or partnership powers, has been duly authorized and does not contravene (i) its organizational documents or its applicable resolutions, (ii) any Requirements of Law or (iii) any contractual obligation to which it is a party;

(c) other than applicable resolutions, no consent, license, permit, approval or authorization of, or registration, filing or declaration with, any Governmental Authority or other Person is required in connection with the execution, delivery, performance, validity or enforceability by or against it of this Amendment No. 1 or the Transaction Documents;

(d) this Amendment No. 1 has been duly executed and delivered by it;

(e) each of this Amendment No. 1 and the Transaction Documents constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, other limitations on creditors’ rights generally and general principles of equity; and

(f) after giving effect to this Amendment No. 1, it is in compliance with its covenants set forth in the Transaction Documents and no Default or Event of Default exists;

Section 5.

Miscellaneous .

(a) This Amendment No. 1 may be executed in any number of counterparts (including by facsimile), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement. The parties intend that faxed signatures and electronically imaged signatures such as PDF files shall constitute as original signatures and are binding on all parties.

(b) The descriptive headings of the various sections of this Amendment No. 1 are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

(c) This Amendment No. 1 (together with the other Transaction Documents, as amended hereby) represents the final agreement among the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the parties. There are no unwritten oral agreements between the parties.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed by their respective officers thereunto duly authorized, as of the date first above written.


SELLER:

RAIT CMBS CONDUIT I, LLC
a Delaware limited liability company

By:	RAIT Funding, LLC, a Delaware limited liability company, its sole Member

	By:	Taberna Realty Finance Trust, a
		Maryland real estate investment trust, its sole Member

		By:	/s/ James Sebra
		Name:	James Sebra
		Title:	Chief Financial Officer

[SIGNATURES CONTINUE ON FOLLOWING PAGES]

First Amendment to

Master Repurchase Agreement

And Other Transaction Documents

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]


BUYER:

CITIBANK, N.A.
a national banking association

By:		/s/ Richard B. Schlenger
Name:		Richard B. Schlenger
Title:		Authorized Signatory

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

First Amendment to

Master Repurchase Agreement

And Other Transaction Documents

[SIGNATURES CONTINUED FROM PREVIOUS PAGES]


GUARANTOR:

RAIT FINANCIAL TRUST
a Maryland real estate investment trust

By:		/s/ James Sebra
Name:		James Sebra
Title:		Chief Financial Officer

First Amendment to

Master Repurchase Agreement

And Other Transaction Documents

Exhibit 10.6.2

THIRD AMENDMENT TO MASTER REPURCHASE AGREEMENT

THIS THIRD AMENDMENT TO MASTER REPURCHASE AGREEMENT (this “ Amendment ”), dated as of December 19, 2013 (the “ Effective Date ”), is made by and among CITIBANK, N.A. (together with its successors and/or assigns, “ Buyer ”), RAIT CMBS CONDUIT I, LLC , a Delaware limited liability company (“ Seller ”) and, for the purpose of acknowledging and agreeing to the provision set forth in Section 3 hereof, RAIT FINANCIAL TRUST. , a Maryland real estate investment trust (“ Guarantor ”).

W I T N E S S E T H :

WHEREAS , Seller and Buyer have entered into that certain Master Repurchase Agreement, dated as of October 27, 2011, as amended by that certain First Amendment to Master Repurchase Agreement and Other Transaction Documents, dated as of June 30, 2013, as further amended by that certain Second Amendment to Master Repurchase Agreement, dated as of October 11, 2013 (as the same may be further amended, supplemented, extended, restated, replaced or otherwise modified from time to time, the “ Repurchase Agreement ”);

WHEREAS , all capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Repurchase Agreement;

WHEREAS , Seller and Buyer desire to modify certain terms and provisions of the Repurchase Agreement as set forth herein.

NOW, THEREFORE , in consideration of ten dollars ($10) and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Seller and Buyer covenant and agree as follows as of the Effective Date, and Guarantor acknowledges and agrees as to the provision set forth in Section 3 as of the Effective Date:

1. Modification of Repurchase Agreement . The Repurchase Agreement is hereby modified as of the Effective Date as follows:

(a) Sections 5(d) and 5(e) of the Repurchase Agreement are hereby deleted in their entirety and replaced with the following:

“(d) So long as no Event of Default shall have occurred and be continuing, all Income received by the Depository in respect of the Purchased Loans and the associated Hedging Transactions (other than Principal Payments in full (whether scheduled or unscheduled) and net sale proceeds) and any deposits to reserve accounts made pursuant to the terms of the Purchased Loan Documents during each Collection Period shall be remitted by the Depository on the next Business Day to the account of Seller specified in the Confirmation.”

“(e) So long as no Event of Default shall have occurred and be continuing, all Principal Payments in full in respect of each Purchased Loan (whether scheduled or unscheduled)

received by the Depository during each Collection Period shall be paid to Buyer on the next Remittance Date first in the amount necessary to reduce the Purchase Price of such Purchased Loan to zero and then to the extent necessary to cause the Purchase Price with respect to each other Purchased Loan to equal the product of the related Market Value and the applicable Purchase Percentage. Any Principal Payments not paid to Buyer pursuant to the preceding sentence on each Remittance Date shall be remitted to Seller.”

2. Seller’s Representations . Seller has taken all necessary action to authorize the execution, delivery and performance of this Amendment. This Amendment has been duly executed and delivered by or on behalf of Seller and constitutes the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms subject to bankruptcy, insolvency, and other limitations on creditors’ rights generally and to equitable principles. No Event of Default has occurred and is continuing, and no Event of Default will occur as a result of the execution, delivery and performance by Seller of this Amendment. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Seller of this Amendment has been obtained and is in full force and effect (other than consents, approvals, authorizations, orders, registrations or qualifications that if not obtained, are not reasonably likely to have a Material Adverse Effect).

3. Reaffirmation of Guaranty . Guarantor has executed this Amendment for the purpose of acknowledging and agreeing that, notwithstanding the execution and delivery of this Amendment and the amendment of the Repurchase Agreement hereunder, all of Guarantor’s obligations under the Guaranty remain in full force and effect and the same are hereby irrevocably and unconditionally ratified and confirmed by Guarantor in all respects.

4. Conditions Precedent . This Amendment and its provision shall become effective upon the execution and delivery of this Amendment by a duly authorized officer of each of Seller, Buyer and Guarantor.

5. Agreement Regarding Expenses . Seller agrees to pay Buyer’s reasonable out of pocket expenses (including reasonable legal fees) incurred in connection with the preparation and negotiation of this Amendment promptly (and after Buyer or Buyer’s counsel gives Seller an invoice for such expenses).

6. Full Force and Effect . Except as expressly modified hereby, all of the terms, covenants and conditions of the Repurchase Agreement and the other Transaction Documents remain unmodified and in full force and effect and are hereby ratified and confirmed by Seller. Any inconsistency between this Amendment and the Repurchase Agreement (as it existed before this Amendment) shall be resolved in favor of this Amendment, whether or not this Amendment specifically modifies the particular provision(s) in the Repurchase Agreement inconsistent with this Amendment. All references to the “Agreement” in the Repurchase Agreement or to the “Repurchase Agreement” in any of the other Transaction Documents shall mean and refer to the Repurchase Agreement as modified and amended hereby.

7. No Waiver . The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Buyer under the Repurchase Agreement, the Guaranty, any of the other Transaction Documents or any other document, instrument or agreement executed and/or delivered in connection therewith.

8. Headings . Each of the captions contained in this Amendment are for the convenience of reference only and shall not define or limit the provisions hereof.

9. Counterparts . This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute the same agreement. Signatures delivered by email (in PDF format) shall be considered binding with the same force and effect as original signatures.

10. Governing Law . This Amendment shall be governed in accordance with the terms and provisions of Section 20 of the Repurchase Agreement.

[No Further Text on this Page; Signature Pages Follow]

IN WITNESS WHEREOF , the parties hereto have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written and effective as of the Effective Date.


SELLER :

RAIT CMBS CONDUIT I, LLC a Delaware limited liability company

By:	RAIT Funding, LLC, a Delaware limited liability company, its sole Member

	By:	Taberna Realty Finance Trust, a Maryland real estate investment trust, its sole Member

		By:	/s/ Kenneth R. Frappier
		Name:	Kenneth R. Frappier
		Title:	Executive Vice President

GUARANTOR:

RAIT FINANCIAL TRUST a Maryland real estate investment trust

By:	/s/ Kenneth R. Frappier
Name:	Kenneth R. Frappier
Title:	Executive Vice President

[SIGNATURE PAGES CONTINUE ON NEXT PAGE]


BUYER:

CITIBANK, N.A.

By:	/s/ Richard B. Schienger
	Name:	Richard B. Schienger
	Title:	Authorized Signatory

Exhibit 10.7.1

EXECUTION VERSION

FIRST AMENDMENT TO

MASTER REPURCHASE AGREEMENT

FIRST AMENDMENT TO MASTER REPURCHASE AGREEMENT , dated as of December 27, 2011 (this “ Amendment ”), by and between Barclays Bank PLC , a public limited company organized under the laws of England and Wales (including any successor thereto, “ Purchaser ”) and RAIT CMBS Conduit II, LLC , a limited liability company organized under the laws of the State of Delaware (“ Seller ”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Repurchase Agreement (as defined below and as amended hereby).

RECITALS

WHEREAS , Seller and Purchaser are parties to that certain Master Repurchase Agreement, dated as of November 23, 2011 (the “ Repurchase Agreement ”), and other Transaction Documents; and

WHEREAS , Seller and Purchaser desire to make certain modifications to the Repurchase Agreement.

NOW THEREFORE , in consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

ARTICLE 1

AMENDMENT TO REPURCHASE AGREEMENT

The first sentence set forth in Article 3(m)(i) of the Repurchase Agreement is hereby deleted in its entirety and replaced with the following:

“(m) (i) Upon written request of Seller, provided that all of the extension conditions listed in clause (ii) below (collectively, the “ Termination Date Extension Conditions ”) shall have been satisfied, Purchaser may, at its sole discretion, extend the Termination Date, for a period not to exceed three hundred sixty-four (364) additional days (an “ Extension Period ”) by giving notice to Seller of such extension and of the new Termination Date.”

ARTICLE 2

REPRESENTATIONS

Each of Seller and Purchaser represents and warrants (as to itself) to the other, as of the date of this Amendment, as follows:

(a) all representations and warranties made by it in the Repurchase Agreement are true and correct;

(b) it is duly authorized to execute and deliver this Amendment and has taken all necessary action to authorize such execution, delivery and performance;

(d) the execution, delivery and performance of this Amendment will not violate any Requirement of Law applicable to it or its organizational documents or any agreement by which it is bound or by which any of its assets are affected; and

(e) this Amendment has been duly executed and delivered by it.

ARTICLE 3

GOVERNING LAW

THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS, AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE (OTHER THAN SECTION 5-140 1 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).

ARTICLE 4

MISCELLANEOUS

(a) Except as expressly amended or modified hereby, the Repurchase Agreement and the other Transaction Documents shall each be and shall remain in full force and effect in accordance with their terms.

(b) The Amendment may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

(c) The headings in this Amendment are for convenience of reference only and shall not affect the interpretation or construction of this Amendment.

(d) This Amendment may not be amended or otherwise modified, waived or supplemented except as provided in the Repurchase Agreement.

(e) This Amendment contains a final and complete integration of all prior expressions by the parties with respect to the subject matter hereof and shall constitute the entire agreement among the parties with respect to such subject matter, superseding all prior oral or written understandings.

(f) This Amendment is a Transaction Document executed pursuant to the Repurchase Agreement and shall be construed, administered and applied in accordance with the terms and provisions of the Repurchase Agreement.

[SIGNATURES FOLLOW]

IN WITNESS WHEREOF , the parties have caused this Amendment to be duly executed as of the date first above written.


PURCHASER :

BARCLAYS BANK PLC , a public limited company organized under the laws of England and Wales

By:	/s/ Larry J. Kravetz

	Name:	LARRY J. KRAVETZ
	Title:	MANAGING DIRECTOR

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

[Signature Page to First Amendment to Master Repurchase Agreement]


SELLER :

RAIT CMBS CONDUIT II, LLC , a Delaware limited liability company

By:	RAIT FUNDING, LLC , a Delaware limited liability company, its sole member and manager

	By:	TABERNA REALTY FINANCE TRUST , a Maryland real estate investment trust, its sole member

		By:	/s/ James J. Sebra

			Name:	JAMES J. SEBRA
			Title:	SVP & CAO

[Signature Page to First Amendment to Master Repurchase Agreement]

Exhibit 10.7.2

EXECUTION VERSION

SECOND AMENDMENT TO

MASTER REPURCHASE AGREEMENT

SECOND AMENDMENT TO MASTER REPURCHASE AGREEMENT , dated as of February 16, 2012 (this “ Amendment ”), by and between Barclays Bank PLC , a public limited company organized under the laws of England and Wales (including any successor thereto, “ Purchaser ”) and RAIT CMBS Conduit II, LLC , a limited liability company organized under the laws of the State of Delaware (“ Seller ”). Capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Repurchase Agreement (as defined below and as amended hereby).

RECITALS

WHEREAS , Seller and Purchaser are parties to that certain Master Repurchase Agreement, dated as of November 23, 2011, as amended by that certain First Amendment to the Master Repurchase Agreement, dated as of December 27, 2011, by and between Seller and Purchaser (the “ Repurchase Agreement ”), and other Transaction Documents; and

WHEREAS , Seller and Purchaser desire to make certain modifications to the Repurchase Agreement.

ARTICLE 1

AMENDMENT TO REPURCHASE AGREEMENT

(a) The definition of Market Value set forth in Article 2 of the Repurchase Agreement is hereby amended by deleting the second paragraph thereof in its entirety.

(b) The following definitions shall be added to Article 2 of the Repurchase Agreement in the appropriate alphabetical order:

“ Global Netting Agreement ” shall mean the Global Netting Agreement, dated as of February 16, 2012, by and between Purchaser and Seller, as same may be amended, modified and/or restated from time to time, and/or any replacement agreement.

“ Hedging Agreement ” shall mean the ISDA Master Agreement, dated as of February 16, 2012, by and between Purchaser and Seller, including the Schedule and ISDA Credit Support Annex related thereto and any Confirmation thereunder, as same may be amended, modified and/or restated from time to time, and/or any replacement agreement.

(c) The definition of Transaction Documents set forth in Article 2 of the Repurchase Agreement is hereby amended by deleting it in its entirety and replacing it with the following:

“ Transaction Documents ” shall mean, collectively, this Agreement, any applicable Exhibits to this Agreement, the Fee Letter, the Guaranty, the Custodial Agreement, the Interim Servicing Agreement, the Account Control Agreement, the Global Netting Agreement, the Hedging Agreement and all Confirmations and assignment documentation executed pursuant to this Agreement in connection with specific Transactions, and all other documents executed in connection with this Agreement or any Transaction.

(d) Article 13(a) of the Repurchase Agreement is hereby amended by adding the following provision as subclause (xxii) thereof:

“(xxii) The occurrence of an Event of Default or Termination Event (each as defined in the Hedging Agreement), with Seller as the Defaulting Party or Affected Party (each as defined in the Hedging Agreement), respectively.

ARTICLE 2

REPRESENTATIONS

Each of Seller and Purchaser represents and warrants (as to itself) to the other, as of the date of this Amendment, as follows:

(a) all representations and warranties made by it in the Repurchase Agreement are true and correct;

(b) it is duly authorized to execute and deliver this Amendment and has taken all necessary action to authorize such execution, delivery and performance;

(e) this Amendment has been duly executed and delivered by it.

ARTICLE 3

GOVERNING LAW

ARTICLE 4

MISCELLANEOUS

(b) The Amendment may be executed in counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

(c) The headings in this Amendment are for convenience of reference only and shall not affect the interpretation or construction of this Amendment.

(d) This Amendment may not be amended or otherwise modified, waived or supplemented except as provided in the Repurchase Agreement.

[SIGNATURES FOLLOW]

IN WITNESS WHEREOF , the parties have caused this Amendment to be duly executed as of the date first above written.


PURCHASER :

BARCLAYS BANK PLC , a public limited company organized under the laws of England and Wales

By:	/s/ Larry Kravetz
	Name:	Larry Kravetz
	Title:	Managing Director

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

[Signature Page to Second Amendment to Master Repurchase Agreement]


SELLER :

RAIT CMBS CONDUIT II, LLC , a Delaware limited liability company

By:	RAIT FUNDING, LLC , a Delaware limited liability company, its sole member and manager

	By:	TABERNA REALTY FINANCE TRUST , a Maryland real estate investment trust, its sole member

		By:	/s/ James J. Sebra
			Name:	JAMES J. SEBRA
			Title:	SVP & CAO

[Signature Page to Second Amendment to Master Repurchase Agreement]

Exhibit 10.8

EXECUTION

AMENDMENT NO. 1

TO MASTER REPURCHASE AGREEMENT

Amendment No. 1, dated as of March 20, 2014 (this “ Amendment ”), among COLUMN FINANCIAL, INC. (the “ Buyer ”). RAIT CRE CONDUIT I, LLC (the “ Seller ”) and RAIT FINANCIAL TRUST (the “ Guarantor ”).

RECITALS

The Buyer, the Seller and the Guarantor are parties to that certain Master Repurchase Agreement, dated as of December 14, 2012 (the “ Existing Repurchase Agreement ”; and as amended by this Amendment, the “ Repurchase Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement.

The Buyer and the Seller have agreed, subject to the terms and conditions of this Amendment, that the Existing Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Repurchase Agreement. As a condition precedent to amending the Existing Repurchase Agreement, the Buyer has required the Guarantor to ratify and affirm the Guaranty on the date hereof.

Accordingly, the Buyer, the Seller and the Guarantor hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Repurchase Agreement is hereby amended as follows:

SECTION 1. Definitions . Section 2 of the Existing Repurchase Agreement is hereby amended by:

1.1 deleting the definitions of “ PML ” and “ Title Exceptions ” in their entirety and replacing them with the following:

“ PML ” has the meaning set forth in paragraph (r) of Schedule 1(a) .

“ Title Exceptions ” has the meaning set forth in paragraph (e) of Schedule 1(a) .

1.2 adding the following definitions in their appropriate alphabetical order:

“ ASTM ” has the meaning set forth in paragraph (mm) of Schedule 1(a) .

“ Crossed Mortgage Loan ” has the meaning set forth in paragraph (f) of Schedule 1(a) .

“ Embargoed Person ” has the meaning set forth in paragraph (ss) of Schedule 1(a) .

“ ESA ” has the meaning set forth in paragraph (mm) of Schedule 1(a) .

“ MAI ” has the meaning set forth in paragraph (nn) of Schedule 1(a) .

“ Permitted Encumbrances ” has the meaning set forth in paragraph (f) of Schedule 1(a) .

“ SEL ” has the meaning set forth in paragraph (r) of Schedule 1(a) .

“ Standard Qualifications ” has the meaning set forth in paragraph (b) of Schedule 1(a) .

“ Title Policy ” has the meaning set forth in paragraph (f) of Schedule 1(a) .

“ TRIA ” has the meaning set forth in paragraph (bb) of Schedule 1(a) .

“ Zoning Regulations ” has the meaning set forth in paragraph (w) of Schedule 1(a) .

SECTION 2. Representations and Warranties . Schedule 1 of the Existing Repurchase Agreement is hereby amended by deleting such Schedule in its entirety and replacing it with the Schedule 1 attached as Annex I hereto

SECTION 3. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:

3.1 Delivered Documents . On the Amendment Effective Date, the Buyer shall have received, in form and substance satisfactory to the Buyer, this Amendment, executed and delivered by the Buyer, the Seller and the Guarantor.

3.2 Legal Fees . Seller shall have paid to Buyer’s counsel legal fees incurred in connection with this Amendment.

SECTION 4. Representations and Warranties . The Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 13 of the Repurchase Agreement.

SECTION 5. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Repurchase Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms and the execution of this Amendment.

SECTION 6. Severability . 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.

SECTION 7. Counterparts . This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute one and the same instrument. Delivery by electronic mail of an executed counterpart of a signature page of this Amendment in Portable Document Format (PDF) or by facsimile shall be effective as delivery of a manually executed original counterpart of this Amendment.

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SECTION 8. GOVERNING LAW . THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

SECTION 9. Reaffirmation of Guaranty . The Guarantor hereby ratifies and affirms all of the terms, covenants, conditions and obligations of the Guaranty and acknowledges and agrees that the term “Obligations” as used in the Guaranty shall apply to all of the Obligations of Seller to Buyer under the Repurchase Agreement, as amended hereby.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the date first above written.


COLUMN FINANCIAL, INC., as Buyer

By:	/s/ Teresa Zien
	Name:	Teresa Zien
	Title:	V.P

RAIT CRE CONDUIT I, LLC, as Seller

By: RAIT Partnership, L.P., its sole member and manager

	By: RAIT General, Inc., its general partner

		By:	/s/ Kenneth R. Frappier
			Name:	Kenneth R. Frappier
			Title:	Executive Vice President

RAIT FINANCIAL TRUST, as Guarantor

By:	/s/ Kenneth R. Frappier
	Name:	Kenneth R. Frappier
	Title:	Executive Vice President

Signature Page to Amendment No. 1 to Master Repurchase Agreement

Annex I to

Amendment No. 1 to

Master Repurchase Agreement

SCHEDULE 1(a)

REPRESENTATIONS AND WARRANTIES

RE: PURCHASED ASSETS CONSISTING OF COMMERCIAL MORTGAGE LOANS

Seller represents and warrants to Buyer, with respect to each Commercial Mortgage Loan, that as of the Purchase Date and on each day while the Program Agreements and the related Transaction hereunder is in full force and effect, except as set forth on the Schedule of Exceptions, the following are true and correct. With respect to those representations and warranties which are made to the best of Seller’s knowledge, if it is discovered by Seller or Buyer that the substance of such representation and warranty is inaccurate, notwithstanding the lack of knowledge with respect to the substance of such representation and warranty, such inaccuracy shall be deemed a breach of the applicable representation and warranty.

(a)

Whole Loan; Ownership of Commercial Mortgage Loans . Each Commercial Mortgage Loan is a whole loan and not a participation interest in a Commercial Mortgage Loan. At the time of the sale, transfer and assignment to Buyer, no Mortgage Note or Mortgage was subject to any assignment (other than assignments to the Seller), participation (other than with respect to the Participation Interests) or pledge, and the Seller had good title to, and was the sole owner of, each Commercial Mortgage Loan free and clear of any and all liens, charges, pledges, encumbrances, participations (other than with respect to the Participation Interests), any other ownership interests on, in or to such Commercial Mortgage Loan other than any servicing rights appointment or similar agreement. Seller has full right and authority to sell, assign and transfer each Commercial Mortgage Loan, and the assignment to Buyer constitutes a legal, valid and binding assignment of such Commercial Mortgage Loan free and clear of any and all liens, pledges, charges or security interests of any nature encumbering such Commercial Mortgage Loan.

(b)

Commercial Mortgage Loan document Status . Each related Mortgage Note, Mortgage, Assignment of Leases (if a separate instrument), guaranty and other agreement executed by or on behalf of the related Mortgagor, guarantor or other obligor in connection with such Commercial Mortgage Loan is the legal, valid and binding obligation of the related Mortgagor, guarantor or other obligor (subject to any non-recourse provisions contained in any of the foregoing agreements and any applicable state anti-deficiency, one action, or market value limit deficiency legislation), as applicable, and is enforceable in accordance with its terms, except (i) as such enforcement may be limited by (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (b) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (ii) that certain provisions in such Commercial Mortgage Loan documents (including, without limitation, provisions requiring the payment of default interest, late fees or prepayment/yield maintenance fees, charges and/or premiums) are, or may be, further limited or rendered unenforceable by or under applicable law, but (subject to the limitations set forth in clause (i) above) such limitations or unenforceability will not render such Commercial Mortgage Loan documents invalid as a whole or materially interfere with the mortgagee’s realization of the principal benefits and/or security provided thereby (clauses (i) and (ii) collectively, the “ Standard Qualifications ”). Except as set forth in the immediately preceding

sentences, there is no valid offset, defense, counterclaim or right of rescission available to the related Mortgagor with respect to any of the related Mortgage Notes, Mortgages or other Commercial Mortgage Loan documents, including, without limitation, any such valid offset, defense, counterclaim or right based on intentional fraud by Seller in connection with the origination of the Commercial Mortgage Loan, that would deny the mortgagee the principal benefits intended to be provided by the Mortgage Note, Mortgage or other Commercial Mortgage Loan documents.

(c)

Mortgage Provisions . The Commercial Mortgage Loan documents for each Commercial Mortgage Loan contain provisions that render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or, if applicable, non-judicial foreclosure subject to the limitations set forth in the Standard Qualifications.

(d)

Mortgage Status ; Waivers and Modifications . Since origination and except by written instruments set forth in the related Asset File or as otherwise provided in the related Commercial Mortgage Loan documents (a) the material terms of such Mortgage, Mortgage Note, Commercial Mortgage Loan guaranty, participation agreement, if applicable, and related Commercial Mortgage Loan documents have not been waived, impaired, modified, altered, satisfied, canceled, subordinated or rescinded in any respect that could be reasonably expected to have a material adverse effect on such Commercial Mortgage Loan; (b) no related Mortgaged Property or any portion thereof has been released from the lien of the related Mortgage in any manner which materially interferes with the security intended to be provided by such Mortgage or the use or operation of the remaining portion of such Mortgaged Property; and (c) neither the related Mortgagor nor the related guarantor has been released from its material obligations under the Commercial Mortgage Loan or participation agreement, if applicable. With respect to each Commercial Mortgage Loan, except as contained in a written document included in the Asset File, there have been no modifications, amendments or waivers, that could be reasonably expected to have a material adverse effect on such Commercial Mortgage Loan consented to by Seller on or after the Purchase Date.

(e)

Lien; Valid Assignment . Subject to the Standard Qualifications, each assignment of Mortgage and assignment of Assignment of Leases to the Buyer constitutes a legal, valid and binding assignment to the Buyer. Each related Mortgage and Assignment of Leases is freely assignable without the consent of the related Mortgagor. Each related Mortgage is a legal, valid and enforceable first lien on the related Mortgagor’s fee or leasehold interest in the Mortgaged Property in the principal amount of such Commercial Mortgage Loan or allocated loan amount (subject only to Permitted Encumbrances (as defined below) and the exceptions to paragraph (f) set forth in the Schedule of Exceptions (each such exception, a “ Title Exception ”)), except as the enforcement thereof may be limited by the Standard Qualifications. Such Mortgaged Property (subject to and excepting Permitted Encumbrances and the Title Exceptions) as of origination was, and as of the Purchase Date, to the Seller’s knowledge, is free and clear of any recorded mechanics’ liens, recorded materialmen’s liens and other recorded encumbrances which are prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender’s title insurance policy (as described below), and, to the Seller’s knowledge and subject to the rights of tenants (as tenants only) (subject to and excepting Permitted Encumbrances and the Title Exceptions), no rights exist which under law could give rise to any such lien or encumbrance that would be prior to or equal with the lien of the related Mortgage, except those which are bonded over, escrowed for or insured against by a lender’s title insurance policy (as described below). Notwithstanding anything herein to the contrary, no representation is made as to the perfection of any security interest in rents or other personal property to the extent that possession or control of such items or actions other than the filing of Uniform Commercial Code financing statements is required in order to effect such perfection.

(f)

Permitted Liens; Title Insurance . Each Mortgaged Property securing a Commercial Mortgage Loan is covered by an ALTA loan title insurance policy or a comparable form of loan title insurance policy approved for use in the applicable jurisdiction (or, if such policy is yet to be issued, by a pro forma policy, a preliminary title policy with escrow instructions or a “marked up” commitment, in each case binding on the title insurer) (the “ Title Policy ”) in the original principal amount of such Commercial Mortgage Loan (or with respect to a Commercial Mortgage Loan secured by multiple properties, an amount equal to at least the allocated loan amount with respect to the Title Policy for each such property) after all advances of principal (including any advances held in escrow or reserves), that insures for the benefit of the owner of the indebtedness secured by the Mortgage, the first priority lien of the Mortgage, which lien is subject only to (a) the lien of current real property taxes, water charges, sewer rents and assessments not yet due and payable; (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record; (c) the exceptions (general and specific) and exclusions set forth in such Title Policy or appearing of record; (d) other matters to which like properties are commonly subject; (e) the rights of tenants (as tenants only) under leases (including subleases) pertaining to the related Mortgaged Property and condominium declarations; and (f) if the related Mortgage Loan is cross-collateralized and cross-defaulted with another Mortgage Loan (each a “ Crossed Mortgage Loan ”). the lien of the Mortgage for another Mortgage Loan that is cross-collateralized and cross-defaulted with such Crossed Mortgage Loan, provided that none of which items (a) through (f), individually or in the aggregate, materially and adversely interferes with the current use of the Mortgaged Property or the security intended to be provided by such Mortgage or the Mortgagor’s ability to pay its obligations when they become due (collectively, the “ Permitted Encumbrances ”). Except as contemplated by clause (f) of the preceding sentence, none of the Permitted Encumbrances are mortgage liens that are senior to or coordinate and co-equal with the lien of the related Mortgage. Such Title Policy (or, if it has yet to be issued, the coverage to be provided thereby) is in full force and effect, all premiums thereon have been paid and no claims have been made by the Seller thereunder and no claims have been paid thereunder. Neither the Seller, nor to the Seller’s knowledge, any other holder of the Commercial Mortgage Loan, has done, by act or omission, anything that would materially impair the coverage under such Title Policy. The insurer issuing such Title Policy is (x) a nationally recognized title insurance company and (y) to Seller’s knowledge, qualified to do business in the jurisdiction in which the related Mortgaged Property is located to the extent required; such Title Policy contains no material exclusions for, or affirmatively insures (except for any Mortgaged Property located in a jurisdiction where such insurance is not available) (i) access to a public road or (ii) against any loss due to encroachments of any material portion of the improvements thereon.

(g)

Junior Liens . It being understood that B-Notes secured by the same Mortgage as a Commercial Mortgage Loan are not subordinate mortgages or junior liens, except for any Crossed Mortgage Loan, there are, as of origination, and to the Seller’s knowledge, as of the Purchase Date, no subordinate mortgages or junior liens securing the payment of money encumbering the related Mortgaged Property (other than Permitted Encumbrances and the Title Exceptions, taxes and assessments, mechanics and materialmen’s liens (which are the subject of the representation in paragraph (e) above), and equipment and other personal property financing). The Seller has no knowledge of any mezzanine debt secured directly by interests in the related Mortgagor other than as disclosed in the related Asset File.

(h)	Assignment of Leases . There exists as part of the related Asset File an Assignment of Leases (either as a separate instrument or incorporated into the related Mortgage). Subject to the

Permitted Encumbrances and the Title Exceptions, each related Assignment of Leases creates a valid first-priority collateral assignment of, or a valid first-priority lien or security interest in, rents and certain rights under the related lease or leases, subject only to a license granted to the related Mortgagor to exercise certain rights and to perform certain obligations of the lessor under such lease or leases, including the right to operate the related leased property, except as the enforcement thereof may be limited by the Standard Qualifications. The related Mortgage or related Assignment of Leases, subject to applicable law, provides that, upon an event of default under the Commercial Mortgage Loan, a receiver is permitted to be appointed for the collection of rents or for the related mortgagee to enter into possession to collect the rents or for rents to be paid directly to the mortgagee.

(i)

Qualified Mortgage . The Commercial Mortgage Loan is a “qualified mortgage” within the meaning of Section 860G(a)(3)(A) of the Code (but determined without regard to the rule in Treasury Regulations Section 1.860G-2(f)(2) that treats certain defective mortgage loans as qualified mortgages), and, accordingly, either: (A) such Commercial Mortgage Loan is secured by an interest in real property (within the meaning of Treasury Regulations Sections 1.856-3(c) and 1.856-3(d)) having a fair market value (1) at the date the Commercial Mortgage Loan was originated at least equal to 80% of the adjusted issue price of the Commercial Mortgage Loan on such date or (2) at the Purchase Date at least equal to 80% of the adjusted issue price of the Commercial Mortgage Loan on such date, provided that for purposes hereof, the fair market value of the real property interest must first be reduced by (x) the amount of any lien on the real property interest that is senior to the Commercial Mortgage Loan and (y) a proportionate amount of any lien on the real property interest that is in parity with the Commercial Mortgage Loan; or (B) substantially all of the proceeds of such Commercial Mortgage Loan were used to acquire, improve or protect the real property which served as the only security for such Commercial Mortgage Loan (other than a recourse feature or other third-party credit enhancement within the meaning of Treasury Regulations Section 1.860G-2(a)(l)(ii)). If the Commercial Mortgage Loan was “significantly modified” prior to the Purchase Date so as to result in a taxable exchange under Section 1001 of the Code, it either (x) was so modified as a result of the default or reasonably foreseeable default of such Commercial Mortgage Loan or (y) meets the requirements described in sub-clause (A)(1) above (substituting the date of the last such modification for the date the Commercial Mortgage Loan was originated) or sub-clause (A)(2) above. Any prepayment premium and yield maintenance charges applicable to the Commercial Mortgage Loan constitute “customary prepayment penalties” within the meaning of Treasury Regulations Section 1.860G-1(b)(2). All terms used in this paragraph shall have the same meanings as set forth in the related Treasury Regulations.

(j)	Condition of Property . Seller or the originator of the Commercial Mortgage Loan inspected or caused to be inspected each related Mortgaged Property within six months of origination of the Commercial Mortgage Loan and within twelve months of the Purchase Date.

An engineering report or property condition assessment was prepared in connection with the origination of each Commercial Mortgage Loan no more than twelve months prior to the Purchase Date. To the Seller’s knowledge, based solely upon due diligence customarily performed in connection with the origination of comparable mortgage loans, as of the Purchase Date, each related Mortgaged Property was free and clear of any material damage (other than (i) any damage or deficiency that is estimated to cost less than $50,000 to repair, (ii) any deferred maintenance for which escrows were established at origination and (iii) any damage fully covered by insurance) that would affect materially and adversely the use or value of such Mortgaged Property as security for the Commercial Mortgage Loan.

(k)

Taxes and Assessments . All real estate taxes, governmental assessments and other similar outstanding governmental charges (including, without limitation, water and sewage charges), or installments thereof, that could be a lien on the related Mortgaged Property that would be of equal or superior priority to the lien of the Mortgage and that prior to the Purchase Date have become delinquent in respect of each related Mortgaged Property have been paid, or an escrow of funds has been established in an amount sufficient to cover such payments and reasonably estimated interest and penalties, if any, thereon. For purposes of this representation and warranty, real estate taxes and governmental assessments and other outstanding governmental charges and installments thereof shall not be considered delinquent until the earlier of (a) the date on which interest and/or penalties would first be payable thereon and (b) the date on which enforcement action is entitled to be taken by the related taxing authority.

(l)

Condemnation . As of the date of origination and to the Seller’s knowledge as of the Purchase Date, there is no proceeding pending, and, to the Seller’s knowledge as of the date of origination and as of the Purchase Date, there is no proceeding threatened, for the total or partial condemnation of such Mortgaged Property that would have a material adverse effect on the value, use or operation of the Mortgaged Property.

(m)

Actions Concerning Commercial Mortgage Loan . To the Seller’s knowledge, based on evaluation of the Title Policy (as defined in paragraph (f)), an engineering report or property condition assessment as described in paragraph 0, applicable local law compliance materials as described in paragraph (w), reasonable and customary bankruptcy, civil records, UCC-1, and judgment searches of the Mortgagors and guarantors, and the ESA (as defined in paragraph (mm)), on and as of the date of origination and as of the Purchase Date, there was no pending or filed action, suit or proceeding, involving any Mortgagor, guarantor, or Mortgagor’s interest in the Mortgaged Property, an adverse outcome of which would reasonably be expected to materially and adversely affect (a) such Mortgagor’s title to the Mortgaged Property, (b) the validity or enforceability of the Mortgage, (c) such Mortgagor’s ability to perform under the related Commercial Mortgage Loan, (d) such guarantor’s ability to perform under the related guaranty, (e) the principal benefit of the security intended to be provided by the Commercial Mortgage Loan documents or (f) the current principal use of the Mortgaged Property.

(n)

Escrow Deposits . All escrow deposits and payments required to be escrowed with lender pursuant to each Commercial Mortgage Loan are in the possession, or under the control, of the Seller or its servicer, and there are no deficiencies (subject to any applicable grace or cure periods) in connection therewith, and all such escrows and deposits (or the right thereto) that are required to be escrowed with lender under the related Commercial Mortgage Loan documents are being conveyed by the Seller to Buyer or its servicer.

(o)

No Holdbacks . The principal balance as of the Purchase Date of the Commercial Mortgage Loan set forth on the mortgage loan schedules has been fully disbursed as of the Purchase Date and there is no requirement for future advances thereunder (except in those cases where the full amount of the Commercial Mortgage Loan has been disbursed but a portion thereof is being held in escrow or reserve accounts pending the satisfaction of certain conditions relating to leasing, repairs or other matters with respect to the related Mortgaged Property, the Mortgagor or other considerations determined by Seller to merit such holdback).

(p)

Insurance . Each related Mortgaged Property is, and is required pursuant to the related Mortgage to be, insured by a property insurance policy providing coverage for loss in accordance with coverage found under a “special cause of loss form” or “all risk form” that includes replacement cost valuation issued by an insurer meeting the requirements of the related Commercial Mortgage

Loan documents and the Insurance Rating Requirements, in an amount (subject to a customary deductible) not less than the lesser of (1) the original principal balance of the Commercial Mortgage Loan and (2) the full insurable value on a replacement cost basis of the improvements, furniture, furnishings, fixtures and equipment owned by the Mortgagor and included in the Mortgaged Property (with no deduction for physical depreciation), but, in any event, not less than the amount necessary or containing such endorsements as are necessary to avoid the operation of any coinsurance provisions with respect to the related Mortgaged Property.

Each related Mortgaged Property is also covered, and required to be covered pursuant to the related Commercial Mortgage Loan documents, by business interruption or rental loss insurance which (subject to a customary deductible) covers a period of not less than twelve (12) months (or with respect to each Commercial Mortgage Loan on a single asset with a principal balance of $50 million or more, eighteen (18) months).

If any material part of the improvements, exclusive of a parking lot, located on a Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, the related Mortgagor is required to maintain insurance in the maximum amount available under the National Flood Insurance Program.

If the Mortgaged Property is located within twenty-five (25) miles of the coast of the Gulf of Mexico or the Atlantic coast of Florida, Georgia, South Carolina or North Carolina, the related Mortgagor is required to maintain coverage for windstorm and/or windstorm related perils and/or “named storms” issued by an insurer meeting the Insurance Rating Requirements or endorsement covering damage from windstorm and/or windstorm related perils and/or named storms in an amount at least equal to the lesser of (i) the outstanding principal balance of such Commercial Mortgage Loan, (ii) 100% of the full insurable value, or 100% of the replacement cost, of the improvements located on the related Mortgaged Property, or (iii) such other amounts (expressly indicated in the Commercial Mortgage Loan documents) as shall not be less than limits which would be considered prudent by an institutional commercial and/or multifamily mortgage lender with respect to a Commercial Mortgage Loan in the amount of the Commercial Mortgage Loan and secured by property similar to the Mortgaged Property.

The Mortgaged Property is covered, and required to be covered pursuant to the related Commercial Mortgage Loan documents, by a commercial general liability insurance policy issued by an insurer meeting the Insurance Rating Requirements including coverage for property damage, contractual damage and personal injury (including bodily injury and death) in amounts as are generally required by the Seller for loans originated for securitization, and in any event not less than $1 million per occurrence and $2 million in the aggregate.

An architectural or engineering consultant has performed an analysis of each of the Mortgaged Properties located in seismic zones 3 or 4 in order to evaluate the structural and seismic condition of such property, for the sole purpose of assessing either the scenario expected limit (“ SEL ”) or the probable maximum loss (“ PML ”) for the Mortgaged Property in the event of an earthquake. In such instance, the SEL or PML, as applicable, was based on a 475-year return period, an exposure period of fifty (50) years and a 10% probability of exceedance. If the resulting report concluded that the SEL or PML, as applicable, would exceed 20% of the amount of the replacement costs of the improvements, earthquake insurance on such Mortgaged Property was obtained by an insurer meeting the Insurance Rating Requirements in an amount not less than 100% of the SEL or PML, as applicable.

The Commercial Mortgage Loan documents require insurance proceeds in respect of a property loss to be applied either (a) to the repair or restoration of all or part of the related Mortgaged Property, with respect to all property losses in excess of 5% of the then outstanding principal amount of the related Commercial Mortgage Loan, the lender (or a trustee appointed by it) having the right to hold and disburse such proceeds as the repair or restoration progresses, or (b) to the reduction of the outstanding principal balance of such Commercial Mortgage Loan together with any accrued interest thereon.

All premiums on all insurance policies referred to in this section required to be paid as of the Purchase Date have been paid, and such insurance policies name the lender under the Commercial Mortgage Loan and its successors and assigns as a loss payee under a mortgagee endorsement clause or, in the case of the general liability insurance policy, as named or additional insured. Such insurance policies will inure to the benefit of the Buyer. Each related Commercial Mortgage Loan obligates the related Mortgagor to maintain all such insurance and, at such Mortgagor’s failure to do so, authorizes the lender to maintain such insurance at the Mortgagor’s cost and expense and to charge such Mortgagor for related premiums. All such insurance policies (other than commercial liability policies) require at least ten (10) days’ prior notice to the lender of termination or cancellation arising because of nonpayment of a premium and at least thirty (30) days prior notice to the lender of termination or cancellation (or such lesser period, not less than ten (10) days, as may be required by applicable law) arising for any reason other than non-payment of a premium and no such notice has been received by Seller.

(q)

Access; Utilities; Separate Tax Lots . Each Mortgaged Property (a) is located on or adjacent to a public road and has direct legal access to such road, or has access via an irrevocable easement or irrevocable right of way permitting ingress and egress to/from a public road, (b) is served by or has uninhibited access rights to public or private water and sewer (or well and septic) and all required utilities, all of which are appropriate for the current use of the Mortgaged Property, and (c) constitutes one or more separate tax parcels which do not include any property which is not part of the Mortgaged Property or is subject to an endorsement under the related Title Policy insuring the Mortgaged Property, or in certain cases, an application has been, or will be, made to the applicable governing authority for creation of separate tax lots, in which case the Commercial Mortgage Loan requires the Mortgagor to escrow an amount sufficient to pay taxes for the existing tax parcel of which the Mortgaged Property is a part until the separate tax lots are created or the non-recourse carveout guarantor under the Commercial Mortgage Loan has indemnified the mortgagee for any loss suffered in connection therewith.

(r)

No Encroachments . To Seller’s knowledge based solely on surveys obtained in connection with origination (which may have been a previously existing “as built” survey) and the lender’s Title Policy (or, if such policy is not yet issued, a pro forma title policy, a preliminary title policy with escrow instructions or a “marked up” commitment) obtained in connection with the origination of each Commercial Mortgage Loan, all material improvements that were included for the purpose of determining the appraised value of the related Mortgaged Property at the time of the origination of such Commercial Mortgage Loan are within the boundaries of the related Mortgaged Property, except encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No improvements on adjoining parcels encroach onto the related Mortgaged Property except for encroachments that do not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements were obtained under the Title Policy. No material improvements encroach upon any easements except for encroachments the removal of which would not materially and adversely affect the value or current use of such Mortgaged Property or for which insurance or endorsements have been obtained under the Title Policy.

(s)	No Contingent Interest or Equity Participation . No Commercial Mortgage Loan has a shared appreciation feature, any other contingent interest feature or a negative amortization feature or an equity participation by Seller.

(t)

Compliance with Usury Laws . The interest rate (exclusive of any default interest, late charges, yield maintenance charges, exit fees, or prepayment premiums) of such Commercial Mortgage Loan complied as of the date of origination with, or was exempt from, applicable state or federal laws, regulations and other requirements pertaining to usury.

(u)

Authorized to do Business . To the extent required under applicable law, as of the Purchase Date and as of each date that Seller held the Mortgage Note, the originator of such Commercial Mortgage Loan was authorized to transact and do business in the jurisdiction in which each related Mortgaged Property is located, or the failure to be so authorized does not materially and adversely affect the enforceability of such Commercial Mortgage Loan by the Buyer.

(v)

Trustee under Deed of Trust . With respect to each Mortgage which is a deed of trust, as of the date of origination and, to the Seller’s knowledge, as of the Purchase Date, a trustee, duly qualified under applicable law to serve as such, currently so serves and is named in the deed of trust or has been substituted in accordance with the Mortgage and applicable law or may be substituted in accordance with the Mortgage and applicable law by the related mortgagee.

(w)

Local Law Compliance . To the Seller’s knowledge, based upon any of a letter from any governmental authorities, a legal opinion, an architect’s letter, a zoning consultant’s report, an endorsement to the related Title Policy, or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily and manufactured housing community mortgage loans intended for securitization, with respect to the improvements located on or forming part of each Mortgaged Property securing a Commercial Mortgage Loan as of the date of origination of such Commercial Mortgage Loan and as of the Purchase Date, there are no material violations of applicable zoning ordinances, building codes and land laws (collectively “ Zoning Regulations ”) other than those which (i) constitute a legal non-conforming use or structure, as to which the Mortgaged Property may be restored or repaired to the full extent necessary to maintain the use of the structure immediately prior to a casualty or the inability to restore or repair to the full extent necessary to maintain the use or structure immediately prior to the casualty would not materially and adversely affect the use or operation of the Mortgaged Property, (ii) are insured by the Title Policy or other insurance policy, (iii) are insured by law and ordinance insurance coverage in amounts customarily required by the Seller for loans originated for securitization that provides coverage for additional costs to rebuild and/or repair the property to current Zoning Regulations or (iv) would not have a material adverse effect on the Commercial Mortgage Loan. The terms of the Commercial Mortgage Loan documents require the Mortgagor to comply in all material respects with all applicable governmental regulations, zoning and building laws.

(x)

Licenses and Permits . Each Mortgagor covenants in the Commercial Mortgage Loan documents that it shall keep all material licenses, permits and applicable governmental authorizations necessary for its operation of the Mortgaged Property in full force and effect, and to the Seller’s knowledge based upon a letter from any government authorities or other affirmative investigation of local law compliance consistent with the investigation conducted by the Seller for similar commercial, multifamily and manufactured housing community mortgage loans intended for

securitization, all such material licenses, permits and applicable governmental authorizations are in effect. The Commercial Mortgage Loan requires the related Mortgagor to be qualified to do business in the jurisdiction in which the related Mortgaged Property is located.

(y)

Recourse Obligations . The Commercial Mortgage Loan documents for each Commercial Mortgage Loan provide that such Commercial Mortgage Loan is non-recourse to the related parties thereto except that (a) the related Mortgagor and at least one individual or entity shall be fully liable for actual losses, liabilities, costs and damages arising from certain acts of the related Mortgagor and/or its principals specified in the related Commercial Mortgage Loan documents, which acts generally include the following: (i) acts of fraud or intentional material misrepresentation, (ii) misappropriation of rents (following an Event of Default), insurance proceeds or condemnation awards, (iii) intentional material physical waste of the Mortgaged Property, and (iv) any breach of the environmental covenants contained in the related Commercial Mortgage Loan documents, and (b) the Commercial Mortgage Loan shall become full recourse to the related Mortgagor and at least one individual or entity, upon the occurrence of certain events or acts specified in the related Commercial Mortgage Loan documents, including the filing by the related Mortgagor of a voluntary petition under federal or state bankruptcy or insolvency law.

(z)

Mortgage Releases . The terms of the related Mortgage or related Commercial Mortgage Loan documents do not provide for release of any material portion of the Mortgaged Property from the lien of the Mortgage except (a) a partial release, accompanied by principal repayment of not less than a specified percentage at least equal to the lesser of (i) 110% of the related allocated loan amount of such portion of the Mortgaged Property and (ii) the outstanding principal balance of the Commercial Mortgage Loan, (b) upon payment in full of such Commercial Mortgage Loan, (c) releases of out-parcels that are unimproved or other portions of the Mortgaged Property which will not have a material adverse effect on the underwritten value of the Mortgaged Property and which were not afforded any material value in the appraisal obtained at the origination of the Commercial Mortgage Loan and are not necessary for physical access to the Mortgaged Property or compliance with zoning requirements, or (d) as required pursuant to an order of condemnation.

(aa)

Financial Reporting and Rent Rolls . The Commercial Mortgage Loan documents for each Commercial Mortgage Loan require the Mortgagor to provide the owner or holder of the Mortgage with quarterly (other than for single-tenant properties) and annual operating statements, and quarterly (other than for single-tenant properties) rent rolls for properties that have leases contributing more than 5% of the in-place base rent and annual financial statements, which annual financial statements with respect to each Commercial Mortgage Loan with more than one Mortgagor are in the form of an annual combined balance sheet of the Mortgagor entities (and no other entities), together with the related combined statements of operations, members’ capital and cash flows, including a combining balance sheet and statement of income for the Mortgaged Properties on a combined basis.

(bb)

Acts of Terrorism Exclusion . With respect to each Commercial Mortgage Loan over $20 million, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) do not specifically exclude Acts of Terrorism, as defined in the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (collectively referred to as “ TRIA ”), from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each other Commercial Mortgage Loan, the related special-form all-risk insurance policy and business interruption policy (issued by an insurer meeting the Insurance Rating Requirements) did not, as of the date of origination of the Commercial Mortgage Loan,

and, to Seller’s knowledge, do not, as of the Purchase Date, specifically exclude Acts of Terrorism, as defined in TRIA, from coverage, or if such coverage is excluded, it is covered by a separate terrorism insurance policy. With respect to each Commercial Mortgage Loan, the related Commercial Mortgage Loan documents do not expressly waive or prohibit the mortgagee from requiring coverage for Acts of Terrorism, as defined in TRIA, or damages related thereto except to the extent that any right to require such coverage may be limited by commercial availability on commercially reasonable terms; provided , however , that if TRIA or a similar or subsequent statute is not in effect, then, provided that terrorism insurance is commercially available, the Mortgagor under each Commercial Mortgage Loan is required to carry terrorism insurance, but in such event the Mortgagor shall not be required to spend on terrorism insurance coverage more than two times the amount of the insurance premium that is payable in respect of the property and business interruption/rental loss insurance required under the related Commercial Mortgage Loan documents (without giving effect to the cost of terrorism and earthquake components of such casualty and business interruption/rental loss insurance) at the time of the origination of the Commercial Mortgage Loan, and if the cost of terrorism insurance exceeds such amount, the Mortgagor is required to purchase the maximum amount of terrorism insurance available with funds equal to such amount.

(cc)

Due on Sale or Encumbrance . Subject to specific exceptions set forth below, each Commercial Mortgage Loan contains a “due on sale” or other such provision for the acceleration of the payment of the unpaid principal balance of such Commercial Mortgage Loan if, without the consent of the holder of the Mortgage (which consent, in some cases, may not be unreasonably withheld) and/or complying with the requirements of the related Commercial Mortgage Loan documents (which provide for transfers without the consent of the lender which are customarily acceptable to the Seller lending on the security of property comparable to the related Mortgaged Property, including, without limitation, transfers of worn-out or obsolete furnishings, fixtures, or equipment promptly replaced with property of equivalent value and functionality and transfers by leases entered into in accordance with the Commercial Mortgage Loan documents), (a) the related Mortgaged Property, or any equity interest of greater than 50% in the related Mortgagor, is directly or indirectly pledged, transferred or sold, other than as related to (i) family and estate planning transfers or transfers upon death or legal incapacity, (ii) transfers to certain affiliates as defined in the related Commercial Mortgage Loan documents, (iii) transfers that do not result in a change of Control of the related Mortgagor or transfers of passive interests so long as the guarantor retains Control, (iv) transfers to another holder of direct or indirect equity in the Mortgagor, a specific Person designated in the related Commercial Mortgage Loan documents or a Person satisfying specific criteria identified in the related Commercial Mortgage Loan documents, such as a qualified equityholder, (v) transfers of stock or similar equity units in publicly traded companies or (vi) a substitution or release of collateral within the parameters of paragraph (z) herein, or (vii) by reason of any mezzanine debt that existed at the origination of the related Commercial Mortgage Loan, or (b) the related Mortgaged Property is encumbered with a subordinate lien or security interest against the related Mortgaged Property, other than (i) any subordinate debt that existed at origination and is permitted under the related Commercial Mortgage Loan documents, (ii) purchase money security interests, (iii) any Crossed Mortgage Loan or (iv) Permitted Encumbrances. The Mortgage or other Commercial Mortgage Loan documents provide that to the extent any rating agency fees are incurred in connection with the review of and consent to any transfer or encumbrance, the Mortgagor is responsible for such payment along with all other reasonable fees and expenses incurred by the Mortgagee relative to such transfer or encumbrance. For purposes of the foregoing representation, “Control” means the power to direct the management and policies of an entity, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise.

(dd)

Single-Purpose Entity . Each Commercial Mortgage Loan requires the Mortgagor to be a Single-Purpose Entity for at least as long as the Commercial Mortgage Loan is outstanding. Both the Commercial Mortgage Loan documents and the organizational documents of the Mortgagor with respect to each Commercial Mortgage Loan with an outstanding principal balance in excess of $5 million provide that the Mortgagor is a Single-Purpose Entity, and each Commercial Mortgage Loan with an outstanding principal balance of $20 million or more has a counsel’s opinion regarding non-consolidation of the Mortgagor. For this purpose, a “ Single-Purpose Entity ” shall mean an entity, other than an individual, whose organizational documents (or if the Commercial Mortgage Loan has an outstanding principal balance equal to $5 million or less, its organizational documents or the related Commercial Mortgage Loan documents) provide substantially to the effect that it was formed or organized solely for the purpose of owning and operating one or more of the Mortgaged Properties securing the Commercial Mortgage Loans and prohibit it from engaging in any business unrelated to such Mortgaged Property or Properties, and whose organizational documents further provide, or which entity represented in the related Commercial Mortgage Loan documents, substantially to the effect that it does not have any assets other than those related to its interest in and operation of such Mortgaged Property or Properties, or any indebtedness other than as permitted by the related Mortgage(s) or the other related Commercial Mortgage Loan documents, that it has its own books and records and accounts separate and apart from those of any other person (other than a Mortgagor for a Crossed Mortgage Loan), and that it holds itself out as a legal entity, separate and apart from any other person or entity.

(ee)

No Fraudulent Acts . To Seller’s knowledge, no fraudulent acts were committed by Seller in connection with the Seller’s acquisition or origination of such Commercial Mortgage Loan nor, to Seller’s knowledge, were any fraudulent acts committed by any other Person in connection with the origination of such Commercial Mortgage Loan nor, to Seller’s knowledge, were any fraudulent acts committed by any other Person after the date of origination with respect to any Commercial Mortgage Loan.

(ff)	Floating Interest Rates . The interest rate of each Commercial Mortgage Loan that bears interest at a floating rate of interest is based on LIBOR plus a margin (which interest rate may be subject to a minimum or “floor” rate).

(gg)

Ground Leases . With respect to any Commercial Mortgage Loan where the Commercial Mortgage Loan is secured by a leasehold estate under a Ground Lease in whole or in part, and the related Mortgage does not also encumber the related lessor’s fee interest in such Mortgaged Property, based upon the terms of the Ground Lease and any estoppel or other agreement received from the ground lessor in favor of Seller, its successors and assigns, Seller represents and warrants that:

(a)

The Ground Lease or a memorandum regarding such Ground Lease has been duly recorded or submitted for recordation in a form that is acceptable for recording in the applicable jurisdiction. The Ground Lease or an estoppel or other agreement received from the ground lessor permits the interest of the lessee to be encumbered by the related Mortgage and does not restrict the use of the related Mortgaged Property by such lessee, its successors or assigns in a manner that would materially adversely affect the security provided by the related Mortgage;

(b)

The lessor under such Ground Lease has agreed in a writing included in the related Asset File (or in such Ground Lease) that the Ground Lease may not be amended or modified, or canceled or terminated by agreement of lessor and lessee, without the prior written consent of the lender (except termination or cancellation if (i) notice of a default under

the Ground Lease is provided to lender and (ii) such default is curable by lender as provided in the Ground Lease but remains uncured beyond the applicable cure period), and no such consent has been granted by the Seller since the origination of the Commercial Mortgage Loan except as reflected in any written instruments which are included in the related Asset File;

(c)

The Ground Lease has an original term (or an original term plus one or more optional renewal terms, which, under all circumstances, may be exercised, and will be enforceable, by either Mortgagor or the mortgagee) that extends not less than twenty (20) years beyond the stated maturity of the related Commercial Mortgage Loan, or ten (10) years past the stated maturity if such Commercial Mortgage Loan fully amortizes by the stated maturity (or with respect to a Commercial Mortgage Loan that accrues on an actual 360 basis, substantially amortizes);

(d)

The Ground Lease either (i) is not subject to any liens or encumbrances superior to, or of equal priority with, the Mortgage, except for the related fee interest of the ground lessor and the Permitted Encumbrances, or (ii) is subject to a subordination, non-disturbance and attornment agreement to which the mortgagee on the lessor’s fee interest in the Mortgaged Property is subject;

(e)

The Ground Lease does not place commercially unreasonable restrictions on the identity of the Mortgagee and the Ground Lease is assignable to the holder of the Commercial Mortgage Loan and its successors and assigns without the consent of the lessor thereunder, and in the event it is so assigned, it is further assignable by the holder of the Commercial Mortgage Loan and its successors and assigns without the consent of the lessor;

(f)

The Seller has not received any written notice of material default under or notice of termination of such Ground Lease. To the Seller’s knowledge, there is no material default under such Ground Lease and no condition that, but for the passage of time or giving of notice, would result in a material default under the terms of such Ground Lease and to the Seller’s knowledge, such Ground Lease is in full force and effect as of the Purchase Date;

(g)

The Ground Lease or ancillary agreement between the lessor and the lessee requires the lessor to give to the lender written notice of any default, and provides that no notice of default or termination is effective against the lender unless such notice is given to the lender;

(h)

A lender is permitted a reasonable opportunity (including, where necessary, sufficient time to gain possession of the interest of the lessee under the Ground Lease through legal proceedings) to cure any default under the Ground Lease which is curable after the lender’s receipt of notice of any default before the lessor may terminate the Ground Lease;

(i)

The Ground Lease does not impose any restrictions on subletting that would be viewed as commercially unreasonable by the Seller in connection with loans originated for securitization;

(j)

Under the terms of the Ground Lease, an estoppel or other agreement received from the ground lessor and the related Mortgage (taken together), any related insurance proceeds

or the portion of the condemnation award allocable to the ground lessee’s interest (other than (i) de minimis amounts for minor casualties or (ii) in respect of a total or substantially total loss or taking as addressed in clause (k) below) will be applied either to the repair or to restoration of all or part of the related Mortgaged Property with (so long as such proceeds are in excess of the threshold amount specified in the related Commercial Mortgage Loan documents) the lender or a trustee appointed by it having the right to hold and disburse such proceeds as repair or restoration progresses, or to the payment of the outstanding principal balance of the Commercial Mortgage Loan, together with any accrued interest;

(k)

In the case of a total or substantially total taking or loss, under the terms of the Ground Lease, an estoppel or other agreement and the related Mortgage (taken together), any related insurance proceeds, or portion of the condemnation award allocable to ground lessee’s interest in respect of a total or substantially total loss or taking of the related Mortgaged Property to the extent not applied to restoration, will be applied first to the payment of the outstanding principal balance of the Commercial Mortgage Loan, together with any accrued interest; and

(l)

Provided that the lender cures any defaults which are susceptible to being cured, the ground lessor has agreed to enter into a new lease with lender upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in a bankruptcy proceeding.

(hh)	Servicing . The servicing and collection practices used by the Seller with respect to the Commercial Mortgage Loan have been, in all material respects, legal and have met customary industry standards for servicing of similar commercial loans.

(ii)

Origination and Underwriting . The origination practices of the Seller (or the related originator if the Seller was not the originator) with respect to each Commercial Mortgage Loan have been, in all material respects, legal and as of the date of its origination, such Commercial Mortgage Loan and the origination thereof complied in all material respects with, or was exempt from, all requirements of federal, state or local law relating to the origination of such Commercial Mortgage Loan.

(jj)

No Material Default; Payment Record . No Commercial Mortgage Loan has been more than thirty (30) days delinquent, without giving effect to any grace or cure period, in making required payments since origination, and as of the date hereof, no Commercial Mortgage Loan is more than thirty (30) days delinquent (beyond any applicable grace or cure period) in making required payments as of the Purchase Date. To the Seller’s knowledge, there is (a) no material default, breach, violation or event of acceleration existing under the related Commercial Mortgage Loan, or (b) no event (other than payments due but not yet delinquent) which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a material default, breach, violation or event of acceleration, which default, breach, violation or event of acceleration, in the case of either clause (a) or clause (b), materially and adversely affects the value of the Commercial Mortgage Loan or the value, use or operation of the related Mortgaged Property. No person other than the holder of such Commercial Mortgage Loan may declare any event of default under the Commercial Mortgage Loan or accelerate any indebtedness under the Commercial Mortgage Loan documents.

(kk)	Bankruptcy . As of the date of origination of the related Commercial Mortgage Loan and to the Seller’s knowledge as of the Purchase Date, no Mortgagor, guarantor or tenant occupying a single-tenant property is a debtor in state or federal bankruptcy, insolvency or similar proceeding.

(ll)

Organization of Mortgagor . With respect to each Commercial Mortgage Loan, in reliance on certified copies of the organizational documents of the Mortgagor delivered by the Mortgagor in connection with the origination of such Commercial Mortgage Loan, the Mortgagor is an entity organized under the laws of a state of the United States of America, the District of Columbia or the Commonwealth of Puerto Rico. Except with respect to any Crossed Mortgage Loan, no Commercial Mortgage Loan has a Mortgagor that is an Affiliate of another Mortgagor. (An “ Affiliate ” for purposes of this paragraph (11) means a Mortgagor that is under direct or indirect common ownership and control with another Mortgagor.)

(mm)

Environmental Conditions . A Phase I environmental site assessment (or update of a previous Phase I and or Phase II site assessment) and, with respect to certain Commercial Mortgage Loans, a Phase II environmental site assessment (collectively, an “ ESA ”) meeting American Society for Testing and Materials (“ ASTM ”) requirements was conducted by a reputable environmental consultant in connection with such Commercial Mortgage Loan within 12 months prior to its origination date (or an update of a previous ESA was prepared), and such ESA either (i) did not identify the existence of Environmental Conditions at the related Mortgaged Property or the need for further investigation with respect to any Environmental Condition that was identified, or (ii) if the existence of an Environmental Condition or need for further investigation was indicated in any such ESA, then at least one of the following statements is true: (A) an amount reasonably estimated by a reputable environmental consultant to be sufficient to cover the estimated cost to cure any material noncompliance with applicable environmental laws or the Environmental Condition has been escrowed by the related Mortgagor and is held or controlled by the related lender; (B) if the only Environmental Condition relates to the presence of asbestos-containing materials, radon in indoor air, lead based paint or lead in drinking water, and the only recommended action in the ESA is the institution of such a plan, an operations or maintenance plan has been required to be instituted by the related Mortgagor that can reasonably be expected to mitigate the identified risk; (C) the Environmental Condition identified in the related environmental report was remediated or abated in all material respects prior to the date hereof, and, if and as appropriate, a no further action or closure letter was obtained from the applicable governmental regulatory authority (or the Environmental Condition affecting the related Mortgaged Property was otherwise listed by such governmental authority as “closed” or a reputable environmental consultant has concluded that no further action is required); (D) a secured creditor environmental policy or a pollution legal liability insurance policy that covers liability for the Environmental Condition was obtained from an insurer meeting the Insurance Rating Requirements; (E) a party not related to the Mortgagor was identified as the responsible party for such Environmental Condition and such responsible party has financial resources reasonably estimated to be adequate to address the situation; or (F) a party related to the Mortgagor having financial resources reasonably estimated to be adequate to address the situation is required to take action. To Seller’s knowledge, except as set forth in the ESA, there is no Environmental Condition at the related Mortgaged Property.

(nn)

Appraisal . The Credit File contains an appraisal of the related Mortgaged Property with an appraisal date within six (6) months of the Commercial Mortgage Loan origination date, and within twelve (12) months of the Purchase Date. The appraisal is signed by an appraiser who is either a Member of the Appraisal Institute (“ MAI ”) and/or has been licensed and certified to prepare appraisals in the state where the Mortgaged Property is located. Each appraiser has represented in such appraisal or in a supplemental letter that the appraisal satisfies the

requirements of the “Uniform Standards of Professional Appraisal Practice” as adopted by the Appraisal Standards Board of the Appraisal Foundation and has certified that such appraiser had no interest, direct or indirect, in the Mortgaged Property or the Mortgagor or in any loan made on the security thereof, and its compensation is not affected by the approval or disapproval of the Commercial Mortgage Loan.

(oo)	Commercial Mortgage Loan Schedule . The information pertaining to each Commercial Mortgage Loan which is set forth in the mortgage loan schedule is true and correct in all material respects as of the Purchase Date and contains all information required by this Agreement to be contained therein.

(pp)	Cross-Collateralization . Each Commercial Mortgage Loan that is cross-collateralized or cross-defaulted is cross-collateralized or cross-defaulted only with other Commercial Mortgage Loans that are subject to Transactions under this Agreement.

(qq)

Advance of Funds by the Seller . After origination, no advance of funds has been made by Seller to the related Mortgagor other than in accordance with the Commercial Mortgage Loan documents, and, to Seller’s knowledge, no funds have been received from any person other than the related Mortgagor or an affiliate for, or on account of, payments due on the Commercial Mortgage Loan (other than as contemplated by the Commercial Mortgage Loan documents, such as, by way of example and not in limitation of the foregoing, amounts paid by the tenant(s) into a lender-controlled lockbox if required or contemplated under the related lease or Commercial Mortgage Loan documents). Neither Seller nor any affiliate thereof has any obligation to make any capital contribution to any Mortgagor under a Commercial Mortgage Loan, other than contributions made on or prior to the date hereof.

(rr)

Compliance with Anti-Money Laundering Laws . Seller has complied in all material respects with all applicable anti-money laundering laws and regulations, including without limitation the USA Patriot Act of 2001 with respect to the origination of the Commercial Mortgage Loan, the failure to comply with which would have a material adverse effect on the Commercial Mortgage Loan.

(ss)

OFAC . To Seller’s knowledge, at all times throughout the term of the Purchased Asset, including after giving effect to any transfers permitted pursuant to the related Commercial Mortgage Loan documents, (a) none of the funds or other assets of any Mortgagor, guarantor or other indemnitor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq ., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq ., and any Executive Orders or regulations promulgated under any such United States laws (each, an “ Embargoed Person ”), with the result that the Purchased Asset made by the related originator is or would be in violation of law, (b) no Embargoed Person shall have any interest of any nature whatsoever in any Mortgagor, guarantor or other indemnitor, with the result that the Purchased Asset is or would be in violation of law, and (c) none of the funds of any Mortgagor or guarantor or other indemnitor shall be derived from any unlawful activity with the result that the Purchased Asset is or would be in violation of law. No Mortgagor, guarantor or other indemnitor is (or will be) a Person with whom Seller is restricted from doing business under regulations of OFAC (including those persons named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including the September 24, 2001 #13224 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and no such Mortgagor, guarantor or other indemnitor is or shall knowingly engage in any dealings or transactions with such Persons.

Exhibit 10.9.1

EXECUTION

AMENDMENT NO. 1

TO MASTER REPURCHASE AGREEMENT

Amendment No. 1, dated as of March 17, 2014 (this “ Amendment ”), among UBS Real Estates Securities Inc. (the “ Buyer ”), RAIT CRE Conduit II, LLC (the “ Seller ”) and RAIT Financial Trust (“ Guarantor ”).

RECITALS

The Buyer, Seller and Guarantor are parties to (a) that certain Master Repurchase Agreement, dated as of January 24, 2014 (as amended from time to time, the “ Existing Repurchase Agreement ”; as amended by this Amendment, the “ Repurchase Agreement ”) and (b) that certain Pricing Letter, dated as of January 24, 2014 (as amended from time to time, the “ Pricing Letter ”). The Guarantor is a party to that certain Guaranty (as amended from time to time, the “ Program Guaranty ”), dated as of January 24, 2014, made by Guarantor in favor of the Buyer. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement and the Program Guaranty, as applicable.

The Buyer, Seller and Guarantor have agreed, subject to the terms and conditions of this Amendment, that the Existing Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Repurchase Agreement. As a condition precedent to amending the Existing Repurchase Agreement, Buyer has required Guarantor to ratify and affirm the Program Guaranty on the date hereof.

Accordingly, the Buyer, Seller and Guarantor hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Repurchase Agreement is hereby amended as follows:

SECTION 1. Transaction Request and Confirmation . The Existing Repurchase Agreement is hereby amended by deleting Exhibit F in its entirety and replacing it with Schedule 1 hereto.

SECTION 2. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:

2.1 Delivered Documents . On the Amendment Effective Date, the Buyer shall have received the following documents, each of which shall be satisfactory to the Buyer in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of the Buyer, Seller and Guarantor; and

(b) such other documents as the Buyer or counsel to the Buyer may reasonably request.

SECTION 3. Ratification of Agreement . As amended by this Amendment, the Existing Repurchase Agreement is in all respects ratified and confirmed and the Existing Repurchase Agreement as so modified by this Amendment shall be read, taken, and construed as one and the same instrument.

SECTION 4. Representations and Warranties . Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 11 of the Repurchase Agreement.

SECTION 7. Counterparts . This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. The parties agree that this Amendment, any documents to be delivered pursuant to this Amendment and any notices hereunder may be transmitted between them by email and/or by facsimile. Delivery of an executed counterpart of a signature page of this Amendment in Portable Document Format (PDF) or by facsimile shall be effective as delivery of a manually executed original counterpart of this Amendment. The original documents shall be promptly delivered, if requested.

SECTION 8. GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES TO THIS AMENDMENT, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES TO THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW RULES THEREOF. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AMENDMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE EFFECTIVENESS, VALIDITY AND ENFORCEABILITY OF ELECTRONIC CONTRACTS, OTHER RECORDS, ELECTRONIC RECORDS AND ELECTRONIC SIGNATURES USED IN CONNECTION WITH ANY ELECTRONIC TRANSACTION BETWEEN BUYER AND SELLER PARTY SHALL BE GOVERNED BY E-SIGN.

SECTION 9. Reaffirmation of Program Guaranty . The Guarantor hereby (i) agrees that the liability of Guarantor or rights of Buyer under the Program Guaranty shall not be affected as a result of this Amendment, (ii) ratifies and affirms all of the terms, covenants, conditions and obligations of the Program Guaranty and (iii) acknowledges and agrees that such Program Guaranty is and shall continue to be in full force and effect.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.


UBS REAL ESTATE SECURITIES INC., as Buyer

By:	/s/ Jackson Sastri

	Name:	Jackson Sastri
	Title:	Director

By:	/s/ Siho Ham

	Name:	Siho Ham
	Title:	Director

RAIT CRE CONDUIT II, LLC, as Seller

By:	RAIT Partnership, L.P., its sole member and manager

By:	RAIT General, Inc., its sole general partner

By:
	Name:
	Title:

RAIT FINANCIAL TRUST, as Guarantor

By:
	Name:
	Title:

Signature Page to Amendment No. 1 to Master Repurchase Agreement

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.


UBS REAL ESTATE SECURITIES INC., as Buyer

By:
		Name:
		Title:

By:
		Name:
		Title:


RAIT CRE CONDUIT II, LLC, as Seller

By:	RAIT Partnership, L.P., its sole member and manager

By:	RAIT General, Inc., its sole general partner

By:	/s/ Kenneth R. Frappier

	Name:	Kenneth R. Frappier
	Title:	Executive Vice President


RAIT FINANCIAL TRUST, as Guarantor

By:	/s/ Kenneth R. Frappier

	Name:	Kenneth R. Frappier
	Title:	Executive Vice President

Signature Page to Amendment No. 1 to Master Repurchase Agreement

SCHEDULE 1 TO AMENDMENT NO. 1

EXHIBIT F

FORM OF TRANSACTION REQUEST AND CONFIRMATION

, 2014

UBS Real Estate Securities Inc.

1285 Avenue of the Americas, 8 ^th Floor

New York, New York 10019

Attention: David Schell

Re:

Master Repurchase Agreement, dated as of January 24, 2014 (the “Repurchase Agreement”), among RAIT CRE Conduit II, LLC (“Seller”), RAIT Financial Trust (“Guarantor”) and UBS Real Estate Securities Inc. (the “Buyer”).

Eligible Asset:

Original Principal Amount of Note:

Purchase Price:

Ladies and Gentlemen:

Pursuant to the Agreement, Seller hereby requests that Buyer enter into a Transaction to purchase the Eligible Assets listed on the Asset Schedule attached hereto as Annex 1 in accordance with the Agreement.

In connection with this Transaction Request and Confirmation, the undersigned hereby certifies that: (i) each of the Transaction conditions precedent set forth in Section 3 of the Agreement has been satisfied as of the date hereof, or will be satisfied on the proposed Purchase Date (other than the conditions precedent set forth in clauses (i), (vii), (xi) and (xii) of Section 3(b) of the Agreement); (ii) attached hereto as Annex 2 is the Purchase Closing Statement for the Eligible Asset; and (iii) attached hereto is (x) the Summary Diligence Materials relating to the Eligible Asset described on Annex 3 hereto, and (y) with respect to the Eligible Asset, an Asset Schedule attached hereto as Annex 1 .

With respect to the representations and warranties of Seller made pursuant to Section 11 of the Agreement and Schedule 1 thereto, Seller hereby informs Buyer of the exceptions to such representations and warranties, if any, set forth on the Schedule of Exceptions, attached as Annex 4 hereto.

Seller hereby acknowledges that this Transaction Request and Confirmation shall not be binding upon Buyer unless and until Buyer has countersigned this Transaction Request and Confirmation and delivered it to Seller.

Exh. F-1

Buyer confirms its agreement to enter into a Transaction to purchase the Eligible Assets which are Purchased Assets listed in Annex I hereto in accordance with the terms listed in Annex I , pursuant to the Master Repurchase Agreement among Buyer, Seller and Guarantor, dated as of January 24, 2014 (the “ Agreement ”).

[TO BE USED IF PRODUCTS ADDED: From and after the date hereof, all references to the representations and warranties set forth on Schedule 1 to the Agreement with respect to [Product Name] (but only [Product Name] and no other Approved Products shall be deemed modified as follows:

[Insert any changes to the applicable Product]

From and after the date hereof, all references to the following definitions set forth in the Agreement with respect to [Product Name] (but only as to [Product Name] and no other Approved Products) shall be deemed modified as follows:

[Insert any changes for the applicable Product]]

Exh. F-2

All capitalized terms used herein but not otherwise defined shall have the meanings specified in the Agreement. The Agreement is incorporated by reference into this Transaction Request and Confirmation, and is made a part hereof as if it were fully set forth herein and as evidenced hereby until all amounts due in connection with this Transaction are paid in full.


RAIT CRE CONDUIT II, LLC,
a Delaware limited liability company, as Seller

By:		RAIT Partnership, L.P., a Delaware limited partnership, its sole member and manager

By:		RAIT General, Inc., a Maryland corporation, its general partner

By:
Name:
Title:

Exh. F-3

Buyer hereby agrees to purchase the Eligible Assets set forth in this Transaction Request and Confirmation pursuant to the provisions of the Agreement and the terms hereof.

With respect to the representations and warranties of Seller made pursuant to Section 11 of the Agreement and Schedule 1 thereto, Buyer hereby acknowledges and consents to the exceptions to such representations and warranties, if any.


Agreed and Accepted:

UBS REAL ESTATE SECURITIES INC.

By:
Name:
Title:

By:
Name:
Title:

Exh. F-4

Annex 1 to Exhibit F

ASSET SCHEDULE ¹

Property Summary

Loan Name

City

State

# of Prop

Property
Type

Property
Size

Unit of
Measure

Loan Amounts

NCF Dates

Loan Name

Warehoused
Debt

RAIT Loan
Amount

UBS
Allocated
Loan Amt

Note Date

RAIT
Update

RAIT NCF at
Origination

RAIT NCF
Updated

UBS NCF
at Repo
Fin

¹	Any Asset Schedule attached electronically to any Transaction Request and Confirmation shall be attached as a “pdf” file.

Annex 1 to Exhibit F

DSCR/DY Summary

Loan Name

UBS
Update
DSC

RAIT
at
Close
DSCR

RAIT
Update
DSCR

UBS at Repo
Fin DSCR

Facility
Minimum

Cushion

DY on Senior
Debt

65% Adv.
Rate DY

DY to RAIT
Last Dollar

Facility
Minimum

Cushion

LTV/LTC Summary

Loan Name

UBS Updated LTV

RAIT at
Close LTV

UBS at Close
LTV

Facility
Maximum

Cushion

UBS Last $
Out LTV

LTC RAIT
Debt
Positon

Loan Purpose

Annex 1 to Exhibit F

Annex 2 to Exhibit F

PURCHASE CLOSING STATEMENT

UBS Real Estate Securities, Inc.

RAIT Facility

Funding Memorandum


To:		U.S. Real Estate Finance Group

From:		RAIT CRE Conduit II LLC

Date:		[ ]

Subject:		[ASSET NAME]

Please wire the following:

WIRE I:

Funding for:

Loan Amount

Advance Rate

Advance Amount

[ASSET NAME]

[

]

[

]

Total Advance Amount

[

]

[

]

Expenses

[

]

Total Amount of Wire

[

]


Wire Instructions

Bank:		TD Bank NA
ABA No.		036001808
Account Name:		RAIT CRE Conduit II LLC
Account No:		4272237673
Ref:		Funding of RAIT Loans
Notify:		Caleb Kuhnmunch (212-243-9043)

Name:

Title:

RAIT CRE Conduit II LLC

Annex 2 to Exhibit F

Annex 3 to Exhibit F

SUMMARY DUE DILIGENCE MATERIALS

For Commercial Mortgage Loans:

1. Underwriting

2. Appraisal

3. Engineering

4. Environmental

5. Current Financial Statements

6. Current Rent Roll

7. Closing Binder

For Participation Interests:

1. Underwriting

2. Appraisal

3. Engineering

4. Environmental

5. Current Financial Statements

6. Current Rent Roll

7. Closing Binder

8. Documents Evidencing Participation Agreement

9. Participation Certificate (if any)

Annex 3 to Exhibit F

Annex 4 to Exhibit F

SCHEDULE OF EXCEPTIONS

Annex 4 to Exhibit F

Exhibit 10.9.2

EXECUTION

AMENDMENT NO. 2 TO MASTER REPURCHASE AGREEMENT

Amendment No. 2, dated as of March 27, 2014 (this “ Amendment ”), among UBS Real Estates Securities Inc. (the “ Buyer ”), RAIT CRE Conduit II, LLC (the “ Seller ”) and RAIT Financial Trust (“ Guarantor ”).

RECITALS

The Buyer, Seller and Guarantor are parties to (a) that certain Master Repurchase Agreement, dated as of January 24, 2014 (as amended by Amendment No. 1, dated as of March 17, 2014, the “ Existing Repurchase Agreement ”; as further amended by this Amendment, the “ Repurchase Agreement ”) and (b) that certain Pricing Letter, dated as of January 24, 2014 (as amended from time to time, the “ Pricing Letter ”). The Guarantor is a party to that certain Guaranty (as amended from time to time, the “ Program Guaranty ”), dated as of January 24, 2014, made by Guarantor in favor of the Buyer. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement and the Program Guaranty, as applicable.

SECTION 1. Definitions . Section 2 of the Existing Repurchase Agreement is hereby amended by:

1.1 adding the following defined terms in their proper alphabetical order:

“ Approved Bailee ” shall have the meaning assigned to such term in the Custodial Agreement.

“ Bailee Agreement ” shall have the meaning assigned to such term in the Custodial Agreement.

“ Escrow Instruction Letter ” shall mean, with respect to a Table-Funded Asset, an instruction letter delivered to applicable title insurance company substantially in the form of Exhibit L hereto or as otherwise approved by Buyer in its sole good faith discretion.

“ Table-Funded Asset ” for any point in time shall mean an Eligible Asset for which Seller delivered a Transaction Request and Confirmation pursuant to Section 3 hereof, but for which a complete Asset File was not delivered to Custodian prior to such time. For the avoidance of doubt, a Purchased Asset shall not be considered a Table-Funded Asset after the related Asset File is delivered to the Custodian and the Custodian has indicated receipt on a Trust Receipt.

1.2 deleting the definition of “ Bailee Letter ” in its entirety and replacing all references thereto with the defined term “ Bailee Agreement ”.

1.3 deleting the definition of “ One-Month LIBOR ” in its entirety and replacing it with the following:

“ One-Month LIBOR ” shall mean, with respect to each Pricing Rate Period during which a Transaction is outstanding, the rate (calculated by Buyer, expressed as a percentage per annum and rounded upward, if necessary, to the next nearest one one-thousandth of 1%) for deposits in United States Dollars for a one-month period, which appears on Reuters ICE Libor Rates Page LIBOR01 (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices) as of 11:00 a.m., London time, on the Pricing Rate Determination Date or Reset Date, as applicable. If such rate does not appear on Reuters ICE Libor Rates Page LIBOR01 (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices) as of 11:00 a.m., London time on the Pricing Rate Determination Date or Reset Date, as applicable, One-Month LIBOR for the next Pricing Rate Period and such Pricing Rate Determination Date or Reset Date, as applicable, shall be determined as follows. Buyer shall request the principal London office of any four (4) major reference banks in the London interbank market selected by Buyer to provide such reference bank’s offered quotation to prime banks in the London interbank market for deposits in United States dollars for a one (1) month period as of 11:00 a.m., London time, on such Pricing Rate Determination Date or Reset Date, as applicable, in a principal amount of not less than $1,000,000 that is representative for a single transaction in the relevant market at such time. If two (2) or more such offered quotations are so provided, One-Month LIBOR shall be the arithmetic mean of such quotations. If fewer than two (2) such quotations are so provided, Buyer shall request any three (3) major banks in New York City selected by Buyer to provide such bank’s rate for loans in United States dollars to leading European banks for a one (1) month period as of approximately 11:00 a.m., New York City time, on the Pricing Rate Determination Date or Reset Date, as applicable, for deposits in a principal amount of not less than $1,000,000 that is representative for a single transaction in the relevant market at such time. If two (2) or more such rates are so provided, One-Month LIBOR shall be the arithmetic mean of such rates.

SECTION 2. Initiation; Termination . Section 3 of the Existing Repurchase Agreement is hereby amended by:

2.1 deleting clauses (b)(vi), (b)(vii) and (b)(viii) in their entirety and replacing them with the following, respectively:

(vi) Transaction Request and Confirmation . Seller shall have delivered (A) to Buyer, not later than 11:00 a.m., New York time, ten (10) Business Days’ prior to the requested Purchase Date, and to Custodian, in accordance with the timeframes set forth in the Custodial Agreement, (1) a Transaction Request and Confirmation with a requested Purchase Price of not less than (x) $500,000 or (y) such lesser amount as agreed to by Buyer in its sole discretion, and shall be in increments of not less than $10,000, and (2) an Asset Schedule with respect to all Purchased Assets subject to the requested Transaction and (B) in addition, with respect to any Table-Funded Assets, (1) to the Approved Bailee a copy of the related Transaction Request and Confirmation no later than 12:00 noon New York time on the related Purchase Date, to be held in escrow by the Approved Bailee on behalf of Buyer pending finalization of the Transaction and (2) to Buyer copies of the fully executed Bailee Agreement and Escrow Instruction Letter including the appropriate wire instructions for the Purchase Price of the related Purchased Asset no later than 12:00 noon New York time on the related Purchase Date.

(vii) Delivery of Asset File . On or before each Purchase Date with respect to each Purchased Asset, Seller shall deliver or cause to be delivered to Buyer or its designee (initially, the Custodian) the Custodial Delivery Letter in the form attached hereto as Exhibit I . In connection with each sale, transfer, conveyance and assignment of a Purchased Asset, (A) on or prior to each Purchase Date with respect to such Purchased Asset or (B) on or prior to the fifth (5th) Business Day following the Purchase Date with respect to a Table-Funded Asset, Seller shall deliver or cause to be delivered and released to the Custodian the documents set forth in the Asset File, pertaining to each of the Purchased Assets identified in the related Custodial Delivery Letter; it being agreed that any assignment documents related to the transfer of the Purchased Assets to Buyer shall be delivered in blank (the “ Blank Assignment Documents ”) and, provided , that, if Buyer’s diligence review of the related Asset File for a Table-Funded Asset requires the delivery of a document or instrument or the equivalent contained in the Asset File that Seller cannot deliver, or cause to be delivered, to Custodian at the time they are required to be delivered, solely because of a delay caused by the public recording office where such document or instrument has been delivered for recordation, the delivery requirements set forth in this Agreement and the Custodial Agreement shall be deemed to have been satisfied as to such non-delivered document or instrument if a copy thereof (certified by Seller to be a true and complete copy of the original thereof submitted for recording) is delivered to Custodian on or before the date on which such original is required to be delivered, and either the original of such non-delivered document or instrument, or a photocopy thereof, with evidence of recording thereon, is delivered to Custodian within ninety (90) days of the related Purchase Date, and, provided , further , that Buyer may, but is not obligated to, consent to a later date for delivery of any part of the Asset File in its sole discretion.

(viii) Delivery of Trust Receipt . Except in the case of a Table-Funded Asset, Custodian shall have delivered to Buyer, in accordance with the timeframes set forth in the Custodial Agreement, a Trust Receipt (accompanied by a Custodial Asset Transmission) with respect to each Purchased Asset subject to the requested Transaction.

2.2 adding the following subsection (e) at the end thereof:

(e) Table-Funded Assets . Notwithstanding any of the foregoing provisions of this Section 3 or any contrary provisions set forth in the Custodial Agreement, solely with respect to any Table-Funded Asset:

(i) by 12:00 noon New York time on the related Purchase Date, Seller or Approved Bailee shall deliver signed .pdf copies of the documents constituting the Asset File to Custodian via electronic mail, and Seller shall deliver the appropriate written third-party wire transfer instructions to Buyer;

(ii) not later than 12:00 noon New York time on the related Purchase Date, (A) Approved Bailee shall deliver an executed .pdf copy of the Bailee Agreement to Seller, Buyer and Custodian by electronic mail and (B) Buyer shall fund the Purchase Price to the Approved Bailee in accordance with Section 3(c)(iii) hereof; and

(iii) within five (5) Business Days after the applicable Purchase Date with respect to any Table-Funded Asset, Seller shall deliver, or cause to be delivered to Custodian, the complete Asset File with respect to such Table-Funded Asset, pursuant to and in accordance with the terms of the Custodial Agreement; provided, that, if Buyer’s diligence review of the related Asset File requires the delivery of a document or instrument or the equivalent contained in the Asset File that Seller cannot deliver, or cause to be delivered, to Custodian at the time they are required to be delivered, solely because of a delay caused by the public recording office where such document or instrument has been delivered for recordation, the delivery requirements set forth in this Agreement and the Custodial Agreement shall be deemed to have been satisfied as to such non-delivered document or instrument if a copy thereof (certified by Seller to be a true and complete copy of the original thereof submitted for recording) is delivered to Custodian on or before the date on which such original is required to be delivered, and either the original of such non-delivered document or instrument, or a photocopy thereof, with evidence of recording thereon, is delivered to Custodian within ninety (90) days of the related Purchase Date, and, provided, further, that Buyer may, but is not obligated to, consent to a later date for delivery of any part of the Asset File in its sole discretion.

SECTION 3. Escrow Instruction Letter . The Existing Repurchase Agreement is hereby amended by adding the following Exhibit L on Schedule 1 attached hereto at the end thereof.

SECTION 4. Conditions Precedent . This Amendment shall become effective as of the date hereof (the “ Amendment Effective Date ”), subject to the satisfaction of the following conditions precedent:

4.1 Delivered Documents . On the Amendment Effective Date, the Buyer shall have received the following documents, each of which shall be satisfactory to the Buyer in form and substance:

(a) this Amendment, executed and delivered by duly authorized officers of the Buyer, Seller and Guarantor;

(b) Amendment No. 1 to Pricing Letter, dated as of the date hereof, executed and delivered by duly authorized officers of the Buyer, Seller and Guarantor;

(c) Amendment No. 2 to Custodial Agreement, dated as of the date hereof, executed and delivered by duly authorized officers of the Buyer, Seller and Custodian; and

(d) such other documents as the Buyer or counsel to the Buyer may reasonably request.

SECTION 5. Ratification of Agreement . As amended by this Amendment, the Existing Repurchase Agreement is in all respects ratified and confirmed and the Existing Repurchase Agreement as so modified by this Amendment shall be read, taken, and construed as one and the same instrument.

SECTION 6. Representations and Warranties . Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Repurchase Agreement on its part to be observed or performed, and that no Event of Default has occurred or is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 11 of the Repurchase Agreement.

SECTION 7. Limited Effect . Except as expressly amended and modified by this Amendment, the Existing Repurchase Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.

SECTION 8. Severability . 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.

SECTION 9. Counterparts . This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. The parties agree that this Amendment, any documents to be delivered pursuant to this Amendment and any notices hereunder may be transmitted between them by email and/or by facsimile. Delivery of an executed counterpart of a signature page of this Amendment in Portable Document Format (PDF) or by facsimile shall be effective as delivery of a manually executed original counterpart of this Amendment. The original documents shall be promptly delivered, if requested.

SECTION 10. GOVERNING LAW . THIS AMENDMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AMENDMENT, THE RELATIONSHIP OF THE PARTIES TO THIS AMENDMENT, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES TO THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE OF LAW

RULES THEREOF. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AMENDMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE EFFECTIVENESS, VALIDITY AND ENFORCEABILITY OF ELECTRONIC CONTRACTS, OTHER RECORDS, ELECTRONIC RECORDS AND ELECTRONIC SIGNATURES USED IN CONNECTION WITH ANY ELECTRONIC TRANSACTION BETWEEN BUYER AND SELLER PARTY SHALL BE GOVERNED BY E-SIGN.

SECTION 11. Reaffirmation of Program Guaranty . The Guarantor hereby (i) agrees that the liability of Guarantor or rights of Buyer under the Program Guaranty shall not be affected as a result of this Amendment, (ii) ratifies and affirms all of the terms, covenants, conditions and obligations of the Program Guaranty and (iii) acknowledges and agrees that such Program Guaranty is and shall continue to be in full force and effect.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.


UBS REAL ESTATE SECURITIES INC., as Buyer

By:	/s/ Siho Ham

	Name:	Siho Ham
	Title:	Director

By:	/s/ David Nass

	Name:	David Nass
	Title:	Managing Director

RAIT CRE CONDUIT II, LLC, as Seller

By:	RAIT Partnership, L.P., its sole member and manager

By:	RAIT General, Inc., its sole general partner

By:

	Name:
	Title:

RAIT FINANCIAL TRUST, as Guarantor

By:

	Name:
	Title:

Signature Page to Amendment No. 2 to Master Repurchase Agreement

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.


UBS REAL ESTATE SECURITIES INC., as Buyer

By:

	Name:
	Title:

By:

	Name:
	Title:

RAIT CRE CONDUIT II, LLC, as Seller

By:	RAIT Partnership, L.P., its sole member and manager

By:	RAIT General, Inc., its sole general partner

By:	/s/ Kenneth R. Frappier

	Name:	Kenneth R. Frappier
	Title:	Executive Vice President

RAIT FINANCIAL TRUST, as Guarantor

By:	/s/ Kenneth R. Frappier

	Name:	Kenneth R. Frappier
	Title:	Executive Vice President

Signature Page to Amendment No. 2 to Master Repurchase Agreement

SCHEDULE 1 TO AMENDMENT NO. 2 TO MASTER REPURCHASE AGREEMENT

EXHIBIT L

FORM OF ESCROW INSTRUCTION LETTER

[DATE]

[NAME OF TITLE COMPANY] (“ Title Company ”)

[TITLE COMPANY ADDRESS]

Re:

$[ ] Loan (the “ Loan ”) being made by RAIT Partnership, L.P., a Delaware limited partnership (“ Lender ”) to [ ], a [ ] (“ Borrower ”), secured by property commonly known as [ ] (the “ Property ”)

Ladies and Gentlemen:

On or promptly after the date hereof, Title Company shall receive in one or more wire transfers (a) $[ ] from Lender (the “ Lender Proceeds ”) and (b) $ from UBS Real Estate Securities Inc. (the “ UBS Proceeds ”; collectively with the Lender Proceeds, the “ Proceeds ”). The total amount of the Proceeds is equal to $[ ]. The Lender Proceeds shall be wired to Title Company by Lender, and the UBS Proceeds shall be wired to Title Company by UBS Real Estate Securities Inc. (herein, “ Buyer ”) pursuant to the wiring instructions of [ ] attached hereto as Exhibit A .

On or before the date hereof, Title Company has received an executed counterpart of each of the following instruments with respect to the Property (collectively, the “ CRE Conduit II Assignment Documents ”):

(A)

[Assignment of Mortgage] by Lender to RAIT CRE Conduit II, LLC (“ Conduit II ”); and

(B)

[Assignment of Assignment of Leases and Rents from Lender to Conduit II.]

By Title Company’s acceptance of this letter (this “ Side Letter ”), Title Company hereby irrevocably agrees that:

(a) Upon receipt of the Proceeds, Title Company will advise Lender’s Counsel and Buyer’s Counsel (as defined below) in writing (which may be by e-mail transmission) of such receipt; and

(b) Upon written instruction (which may be by e-mail transmission) from both (i) Jeffrey O’Neale (jeffrey.oneale@alston.com) or another attorney at Alston & Bird LLP (herein, “ Buyer’s Counsel ”), on behalf of Buyer, and (ii) or another attorney at (herein, “ Lender’s Counsel ”), on behalf of Lender and Conduit II,

Ex. L-1

Title Company will promptly disburse the Proceeds in accordance with the settlement statement and disbursement instructions provided by Lender’s Counsel as signed by Borrower, in accordance with that certain Escrow Letter dated as of the date hereof by and among Title Company, Borrower and Lender’s Counsel (the “ Escrow Letter ”); and

(c) Promptly upon disbursement of the Proceeds as aforesaid, Title Company will cause the CRE Conduit II Assignment Documents to be recorded in the appropriate jurisdiction of the Property (or otherwise deliver the CRE Conduit II Assignment Documents as directed by Buyer’s Counsel.

Notwithstanding anything to the contrary contained herein, Title Company hereby agrees not to disburse any of the Proceeds until written authorization (which may be by e-mail transmission) has been provided to Title Company by both (i) Buyer’s Counsel and (ii) Lender’s Counsel.

In the event that Title Company has not received written authorization from both (i) Buyer’s Counsel and (ii) Lender’s Counsel on or prior to 2:00 PM (EDT) on [DATE], Title Company hereby agrees to contact both Lender’s Counsel and Buyer’s Counsel for instructions as to the disposition of the Proceeds (and, in the absence of joint instructions, to comply with the instructions of Lender’s Counsel as to the Lender Proceeds and the CRE Conduit II Assignment Documents and to comply with the instructions of Buyer’s Counsel as to the UBS Proceeds).

This Side Letter may be executed in counterparts, all of which when taken together shall constitute one and the same instrument. A signed counterpart of this Side Letter which is telecopied or electronically transmitted shall constitute an original.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

Ex. L-2

Please acknowledge Title Company’s receipt of the CRE Conduit II Assignment Documents and confirm Title Company’s agreement to comply with the foregoing instructions by signing below and emailing a counter-signed copy of this Side Letter to the attention of the undersigned at [ ].


Very truly yours,

[ ]

By:
		[ ]

cc:

[ ]

Ex. L-3


Acknowledged and Agreed:

[ ]

By:
Name:
Title:

[ ]

By:
Name:
Title:

Ex. L-4

Lender’s Counsel hereby signs to indicate its consent to the delivery of the CRE Conduit II Assignment Documents and disbursement of the Proceeds in accordance with this Side Letter.


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By:
		Name:
		Title:

Ex. L-5

Exhibit A

Title Company Wire Instructions

Exh. L-6

Exhibit 10.10

AMENDMENT 2014-1

TO THE

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDMENT , dated as of May 8, 2014, is between RAIT Financial Trust, a Maryland real estate investment trust, (the “ Company ”) and Scott F. Schaeffer (“ Executive ”).

RECITALS

WHEREAS , the Company and Executive previously entered into that certain Third Amended and Restated Employment Agreement, dated as of August 4, 2011, ( the “ Employment Agreement ”), which sets forth the terms and conditions of Executive’s employment with the Company;

WHEREAS , prior to January 29, 2014, Executive served as the Company’s Chairman of the Board, Chief Executive Officer (“ CEO ”) and President and, on January 29, 2014, Executive proposed to the Board of Trustees of the Company (the “ Board ”) that the Board promote Scott L.N. Davidson to serve as the Company’s President and for Executive to continue to serve as Chairman and CEO and the Board approved Executive’s proposals,

WHEREAS , the Executive and the Company desire to amend the Employment Agreement to reflect Executive’s consent to surrendering the title of President,

NOW, THEREFORE, the Company and Executive agree that, effective as of January 29, 2014, the Employment Agreement shall be amended as follows:

Section 1.2 of the Employment Agreement is hereby amended by deleting the words “and President” therein.

Section 1.8 of the Employment Agreement is hereby amended by deleting the words “Chairman, Chief Executive Officer and President” therein and substituting for such words the words “Chairman and Chief Executive Officer.”

Section 4.2(c) of the Employment Agreement is hereby amended by deleting the words “or President” therein

In all respects not modified by this Amendment 2014-1, the Employment Agreement is hereby ratified and confirmed.

IN WITNESS WHEREOF , the Company and Executive agree to the terms of the foregoing Amendment 2014-1, effective as of the date set forth above.


RAIT FINANCIAL TRUST

By:		/s/ James J. Sebra
Name:		James J. Sebra
Title:		Chief Financial Officer and Treasurer

EXECUTIVE

/s/ Scott F. Schaeffer

Scott F. Schaeffer

Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

Our ratio of earnings to fixed charges and our ratio of earnings to fixed charges and preferred share dividends for the periods indicated are set forth below. For purposes of calculating the ratios set forth below, earnings represent net income from continuing operations from our consolidated statements of operations, as adjusted for fixed charges; fixed charges represent interest expense and preferred share dividends represent income or loss allocated to preferred shares from our consolidated statements of operations.

The following table presents our ratio of earnings to fixed charges and our ratio of earnings to fixed charges and preferred share dividends for the three-month period ended March 31, 2014 and for the five years ended December 31, 2013 (dollars in thousands):


	For the Three Month Period Ended			For the Years Ended December 31
	March 31, 2014			2013			2012			2011			2010		2009
Net income (loss) from continuing operations	$	(7,423	)	$	(285,364	)	$	(168,341	)	$	(38,457	)	$	110,590	$	(440,141	)
Add back fixed charges:
Interest expense		18,788			70,892			75,317			89,649			96,690		261,824

Earnings before fixed charges and preferred share dividends		11,365			(214,472	)		(93,024	)		51,192			207,280		(178,317	)
Fixed charges and preferred share dividends:
Interest expense		18,788			70,892			75,317			89,649			96,690		261,824
Preferred share dividends		5,806			22,616			14,660			13,649			13,641		13,641

Total fixed charges and preferred share dividends	$	24,594		$	93,508		$	89,977		$	103,298		$	110,331	$	275,465

Ratio of earnings to fixed charges		—	(1)		—	(1)		—	(1)		—	(1)		2.1x		—	(1)
Ratio of earnings to fixed charges and preferred share dividends		—	(2)		—	(2)		—	(2)		—	(2)		1.9x		—	(2)

(1)	The dollar amount of the deficiency for the three-month period ended March 31, 2014 is $7.4 million and the dollar amount of the deficiency for the years ended December 31, 2013,2012, 2011 and 2009 is $285.4 million, $168.3 million, $38.5 million, and $440.1 million, respectively.

(2)	The dollar amount of the deficiency for the three-month period ended March 31, 2014 is $13.2 million and the dollar amount of the deficiency for the years ended December 31, 2013,2012, 2011 and 2009 is $308.0 million, $183.0 million, $52.1 million, and $453.8 million, respectively.

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, Scott F. Schaeffer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of RAIT Financial Trust;

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;

The registrant’s other certifying officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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

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: May 12, 2014		/s/ Scott F. Schaeffer
	Name:	Scott F. Schaeffer
	Title:	Chairman of the Board and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, James J. Sebra, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of RAIT Financial Trust;

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;

5.	The registrant’s other certifying officer(s) 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 the registrant’s board of directors (or persons performing the equivalent functions):

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: May 12, 2014		/s/ James J. Sebra
	Name:	James J. Sebra
	Title:	Chief Financial Officer and Treasurer

Exhibit 32.1

CERTIFICATION 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 of RAIT Financial Trust (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott F. Schaeffer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, 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.

/s/ Scott F. Schaeffer

Scott F. Schaeffer

Chairman of the Board and Chief Executive Officer

Date: May 12, 2014

Exhibit 32.2

CERTIFICATION 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 of RAIT Financial Trust (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James J. Sebra, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, 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.

/s/ James J. Sebra

James J. Sebra

Chief Financial Officer and Treasurer

Date: May 12, 2014