NORTHSTAR REALTY FINANCE CORP. (Form: 10-Q, Received: 05/10/2016 17:01:26)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Commission File Number: 001-32330

NORTHSTAR REALTY FINANCE CORP.

(Exact Name of Registrant as Specified in its Charter)



Maryland (State or Other Jurisdiction of Incorporation or Organization)	02-0732285 (IRS Employer Identification No.)

399 Park Avenue, 18th Floor, New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2600

(Registrant’s Telephone Number, Including Area Code)

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

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

The Company has one class of common stock, $0.01 par value per share, 180,514,984 shares outstanding as of May 5, 2016.

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NORTHSTAR REALTY FINANCE CORP.

FORM 10-Q

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Index		Page
Part I.	Financial Information	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	5
	Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015	7
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2016 and 2015	8
	Consolidated Statements of Equity for the three months ended March 31, 2016 (unaudited) and the year ended December 31, 2015	9
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015	10
	Notes to Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	95
Item 4.	Controls and Procedures	97
Part II.		98
Item 1.	Legal Proceedings	98
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 5.	Other	98
Item 6.	Exhibits	98
Signatures		103

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to the operating performance of our investments, our liquidity and financing needs, the effects of our current strategies and investment activities, our ability to manage our portfolio following the spin-off of our asset management business in accordance with the long-term management contract with an affiliate of NorthStar Asset Management Group Inc., or NSAM, the spin-off of our European real estate business (excluding our European healthcare properties), NorthStar Realty Europe Corp., or NorthStar Europe, and our ability to raise and effectively deploy capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements. These factors include, but are not limited to:


•	adverse domestic or international economic conditions and the impact on the commercial real estate industry;


•	the effect of economic conditions on the valuation of our investments;


•	volatility, disruption or uncertainty in the financial markets;


•	access to debt and equity capital and our liquidity;


•	our substantial use of leverage and our ability to comply with the terms of our borrowing arrangements;


•	our ability to monetize our assets on favorable terms or at all;


•	illiquidity of properties in our portfolio;


•	our entering into exclusive discussions with Colony Capital, Inc. and NSAM regarding a potential tri-party business combination, as well as our ability to enter into a definitive agreement or consummate a strategic transaction, if any, and the impact of the same on our business;


•	the spin-off of our asset management business may not have the full strategic and financial benefits that we expect;

•

the effects of being an externally-managed company, including our reliance on NSAM and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial base management and incentive fees to our manager, the allocation of investments by NSAM among us and the manager’s other sponsored or managed companies and strategic vehicles and various conflicts of interest in our relationship with NSAM;


•	a change in the ownership, board or management of NSAM;


•	the effectiveness of NSAM’s portfolio management techniques and strategies;


•	the spin-off of NorthStar Europe may not have the full or any strategic and financial benefits that we expect;


•	whether we determine to undergo future restructurings, including internalization of our management company and/or spin-offs of additional assets and businesses in the future, our ability to complete such transactions and the impact of such transactions on our business and financial condition;


•	risks associated with joint ventures, including our reliance on joint venture partners, lack of sole decision making authority and the financial condition of our joint venture partners;


•	our ability to successfully integrate assets or companies acquired into our business and operations, maintain consistent standards and controls and realize the anticipated benefits of the acquisitions;


•	performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments and available for distribution;


•	the impact of adverse conditions affecting a specific asset class in which we have investments, such as healthcare, hotel, manufactured housing, multi-tenant office and limited partnership interests in real estate private equity funds;

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•	the impact of economic conditions on the tenants/operators/residents/guests of the real property that we own as well as on the borrowers of the commercial real estate debt we originate and acquire and the commercial mortgage loans underlying the commercial mortgage-backed securities in which we invest;


•	the ability and willingness of our tenants/operators/managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;


•	any failure in our due diligence to identify all relevant facts in our underwriting process or otherwise;


•	the financial weakness of tenants/operators/managers or borrowers, including defaults or bankruptcy;


•	our ability to manage our costs in line with our expectations and the impact on our cash available for distribution;


•	our ability to satisfy and manage our capital requirements;


•	our ability to obtain mortgage financing on our real estate portfolio on favorable terms or at all;


•	the impact of fluctuations in interest rates;


•	our ability to comply with, as well as the impact of changes in, laws or regulations governing various aspects of our business, including in particular potential reforms in labor regulation and healthcare regulation, such as changes in reimbursement policies, rates and procedures;


•	the impact of shareholder activism, if any;


•	environmental and regulatory requirements, compliance costs and liabilities relating to owning and operating properties in our portfolio and to our business in general;


•	effect of regulatory actions, litigation and contractual claims against us and our affiliates, including the potential settlement and litigation of such claims;


•	the possibility that the net asset value of interests in certain real estate private equity funds we acquired do not necessarily reflect the fair value of such fund interests or that the actual amount of our future capital commitments underlying such fund interests varies materially from our expectations;


•	the loss of our exemption from the definition of an “investment company” under the Investment Company Act of 1940, as amended;


•	NSAM’s ability to hire and retain qualified personnel and potential changes to key personnel providing management services to us;


•	our ability to grow and profit from our commercial real estate origination activities;


•	the impact of damage to our brand and reputation resulting from internal or external causes;


•	the potential failure to maintain effective internal controls and disclosure controls and procedures; and


•	compliance with the rules governing real estate investment trusts.

The foregoing list of factors is not exhaustive. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in our filings with the United States Securities and Exchange Commission, or the SEC, included in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 under the heading “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

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PART I. Financial Information

Item 1. Financial Statements

NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)



	March 31, 2016 (Unaudited)			December 31, 2015
	March 31, 2016 (Unaudited)			December 31, 2015
Assets
Cash and cash equivalents	$	450,617		$	224,101
Restricted cash	239,488			299,288
Operating real estate, net	8,627,239			8,702,259
Real estate debt investments, net (refer to Note 4)	411,568			501,474
Real estate debt investments, held for sale (refer to Note 4)	88,972			224,677
Investments in private equity funds, at fair value (refer to Note 5)	869,470			1,101,650
Investments in unconsolidated ventures (refer to Note 6)	152,624			155,737
Real estate securities, available for sale (refer to Note 7)	592,977			702,110
Receivables, net of allowance of $4,625 and $4,318 as of March 31, 2016 and December 31, 2015, respectively	113,477			66,197
Receivables, related parties	1,537			2,850
Unbilled rent receivable, net of allowance of $116 as of March 31, 2016 and December 31, 2015	52,985			46,262
Derivative assets, at fair value	22			116
Intangible assets, net	505,675			527,277
Assets of properties held for sale (refer to Note 3)	1,913,083			2,742,635
Other assets	172,135			107,768
Total assets ⁽¹⁾	$	14,191,869		$	15,404,401
Liabilities
Mortgage and other notes payable	$	7,167,828		$	7,164,576
Credit facilities and term borrowings	443,298			654,060
CDO bonds payable, at fair value	289,338			307,601
Exchangeable senior notes	28,574			29,038
Junior subordinated notes, at fair value	175,130			183,893
Accounts payable and accrued expenses	136,827			170,120
Due to related party (refer to Note 9)	46,450			50,903
Derivative liabilities, at fair value	218,856			103,293
Intangible liabilities, net	144,442			149,642
Liabilities of properties held for sale (refer to Note 3)	1,564,851			2,209,689
Other liabilities	160,090			165,856
Total liabilities ⁽²⁾	10,375,684			11,188,671
Commitments and contingencies
Equity
NorthStar Realty Finance Corp. Stockholders’ Equity
Preferred stock, $986,640 aggregate liquidation preference as of March 31, 2016 and December 31, 2015	939,118			939,118
Common stock, $0.01 par value, 500,000,000 shares authorized, 180,491,564 and 183,239,708 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively	1,805			1,832
Additional paid-in capital	5,104,367			5,149,349
Retained earnings (accumulated deficit)	(2,530,522		)	(2,309,564		)
Accumulated other comprehensive income (loss)	(15,094		)	18,485
Total NorthStar Realty Finance Corp. stockholders’ equity	3,499,674			3,799,220
Non-controlling interests	316,511			416,510
Total equity	3,816,185			4,215,730
Total liabilities and equity	$	14,191,869		$	15,404,401

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in Thousands)



		March 31, 2016 (Unaudited)		December 31, 2015
		March 31, 2016 (Unaudited)		December 31, 2015
⁽¹⁾	Assets of consolidated VIEs included in the total assets above:
	Restricted cash	$	7,574	$	11,362
	Real estate debt investments, net	22,009		22,145
	Real estate securities, available for sale	374,109		385,421
	Receivables	1,703		1,577
	Other assets	903		590
	Total assets of consolidated VIEs	$	406,298	$	421,095
⁽²⁾	Liabilities of consolidated VIEs included in the total liabilities above:
	CDO bonds payable, at fair value	$	289,338	$	307,601
	Accounts payable and accrued expenses	1,269		1,255
	Derivative liabilities, at fair value	5,069		7,321
	Other liabilities	280		575
	Total liabilities of consolidated VIEs	$	295,956	$	316,752

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)



	Three Months Ended March 31,
	2016 ⁽¹⁾			2015 ⁽¹⁾
Property and other revenues
Rental and escalation income	$	191,434		$	165,041
Hotel related income	193,743			168,727
Resident fee income	72,777			63,373
Other revenue	5,440			3,483
Total property and other revenues	463,394			400,624
Net interest income
Interest income (refer to Note 9)	42,933			65,637
Interest expense on debt and securities	2,160			1,977
Net interest income on debt and securities	40,773			63,660
Expenses
Management fee, related party (refer to Note 9)	46,528			48,231
Interest expense—mortgage and corporate borrowings	124,502			113,009
Real estate properties—operating expenses	238,410			201,141
Other expenses	7,016			4,473
Transaction costs	3,215			5,585
Impairment losses	5,073			—
Provision for (reversal of) loan losses, net	7,242			483
General and administrative expenses
Salaries and related expense	1,999			3,127
Equity-based compensation expense	6,285			10,830
Other general and administrative expenses	4,984			3,246
Total general and administrative expenses	13,268			17,203
Depreciation and amortization	88,003			108,982
Total expenses	533,257			499,107
Other income (loss)
Unrealized gain (loss) on investments and other	(135,481		)	(30,574		)
Realized gain (loss) on investments and other	377			13,003
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(164,194		)	(52,394		)
Equity in earnings (losses) of unconsolidated ventures	44,655			53,643
Income tax benefit (expense)	(7,843		)	(1,664		)
Income (loss) from continuing operations	(127,382		)	(415		)
Income (loss) from discontinued operations (refer to Note 3)	—			(13,861		)
Net income (loss)	(127,382		)	(14,276		)
Net (income) loss attributable to non-controlling interests	3,177			3,733
Preferred stock dividends	(21,059		)	(21,059		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)
Earnings (loss) per share: ⁽²⁾
Income (loss) per share from continuing operations	$	(0.79	)	$	(0.11	)
Income (loss) per share from discontinued operations	—			(0.09		)
Basic	$	(0.79	)	$	(0.20	)
Diluted	$	(0.79	)	$	(0.20	)
Weighted average number of shares: ⁽²⁾
Basic	182,808,556			154,268,233
Diluted	184,674,784			154,626,118
Dividends per share of common stock ⁽²⁾	$	0.40		$	0.80

____________________


(1)	The consolidated financial statements for the three months ended March 31, 2016 represent the Company’s results of operations following the NRE Spin-off on October 31, 2015. The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.


(2)	Adjusted for the one-for-two reverse stock split completed on November 1, 2015. Refer to Note 11. “Stockholders’ Equity” for additional disclosure.

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
Net income (loss)	$	(127,382	)	$	(14,276	)
Other comprehensive income (loss):
Unrealized gain (loss) on real estate securities, available for sale, net	(33,132		)	(18,546		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	223			265
Foreign currency translation adjustment, net	(1,180		)	(2,356		)
Total other comprehensive income (loss)	(34,089		)	(20,637		)
Comprehensive income (loss)	(161,471		)	(34,913		)
Comprehensive (income) loss attributable to non-controlling interests	3,687			4,033
Comprehensive income (loss) attributable to NorthStar Realty Finance Corp.	$	(157,784	)	$	(30,880	)

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)



	Preferred Stock			Common Stock					Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total NorthStar Stockholders’ Equity			Non-controlling Interests
	Preferred Stock			Common Stock																				Total Equity
	Shares	Amount		Shares		Amount																		Total Equity
Balance as of December 31, 2014	39,466	$	939,118	150,842		$	1,508		$	4,828,928		$	(1,422,399	)	$	49,540		$	4,396,695		$	316,961		$	4,713,656
Net proceeds from offering of common stock	—	—		38,000		380			1,325,860			—			—			1,326,240			—			1,326,240
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			126,484			126,484
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(36,661		)	(36,661		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)	—	—		—		—			(14,548		)	—			—			(14,548		)	14,548			—
Dividend reinvestment plan	—	—		7		—			194			—			—			194			—			194
Amortization of equity-based compensation	—	—		—		—			13,757			—			—			13,757			11,935			25,692
Conversion of exchangeable senior notes	—	—		829		8			13,582			—			—			13,590			—			13,590
Other comprehensive income (loss)	—	—		—		—			—			—			(16,713		)	(16,713		)	(529		)	(17,242		)
Conversion of Deferred LTIP Units to LTIP Units	—	—		—		—			(18,730		)	—			—			(18,730		)	18,730			—
Retirement of shares of common stock	—	—		(6,470	)	(64		)	(117,983		)	—			—			(118,047		)	—			(118,047		)
Issuance of restricted stock, net of tax withholding	—	—		32		—			(3,602		)	—			—			(3,602		)	—			(3,602		)
Spin-off of NorthStar Europe (refer to Note 3)	—	—		—		—			(878,109		)	—			(14,342		)	(892,451		)	(7,450		)	(899,901		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(559,668		)	—			(559,668		)	(3,500		)	(563,168		)
Dividends on preferred stock	—	—		—		—			—			(84,238		)	—			(84,238		)	—			(84,238		)
Net income (loss)	—	—		—		—			—			(243,259		)	—			(243,259		)	(24,008		)	(267,267		)
Balance as of December 31, 2015	39,466	$	939,118	183,240		$	1,832		$	5,149,349		$	(2,309,564	)	$	18,485		$	3,799,220		$	416,510		$	4,215,730
Non-controlling interests—contributions	—	—		—		—			—			—			—			—			101			101
Non-controlling interests—distributions	—	—		—		—			—			—			—			—			(6,986		)	(6,986		)
Non-controlling interest – sale of subsidiary	—	—		—		—			—			—			—			—			(88,604		)	(88,604		)
Non-controlling interests—reallocation of interest in Operating Partnership (refer to Note 12)	—	—		—		—			1,846			—			—			1,846			(1,846		)	—
Dividend reinvestment plan	—	—		4		—			46			—			—			46			—			46
Amortization of equity-based compensation	—	—		—		—			4,411			—			—			4,411			1,533			5,944
Conversion of exchangeable senior notes	—	—		73		1			503			—			—			504			—			504
Other comprehensive income (loss)	—	—		—		—			—			—			(33,579		)	(33,579		)	(510		)	(34,089		)
Retirement of shares of common stock	—	—		(3,890	)	(39		)	(49,994		)	—			—			(50,033		)	—			(50,033		)
Issuance of restricted stock, net of tax withholding	—	—		1,065		11			(1,794		)	—			—			(1,783		)	—			(1,783		)
Dividends on common stock and equity-based awards (refer to Note 10)	—	—		—		—			—			(75,694		)	—			(75,694		)	(510		)	(76,204		)
Dividends on preferred stock	—	—		—		—			—			(21,059		)	—			(21,059		)	—			(21,059		)
Net income (loss)	—	—		—		—			—			(124,205		)	—			(124,205		)	(3,177		)	(127,382		)
Balance as of March 31, 2016 (unaudited)	39,466	$	939,118	180,492		$	1,805		$	5,104,367		$	(2,530,522	)	$	(15,094	)	$	3,499,674		$	316,511		$	3,816,185

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(127,382	)	$	(14,276	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of PE Investments	(37,552		)	(48,186		)
Equity in (earnings) losses of unconsolidated ventures	(7,103		)	(5,457		)
Depreciation and amortization	88,003			109,726
Amortization of premium/accretion of discount on investments	(14,094		)	(19,499		)
Interest accretion on investments	(168		)	(4,071		)
Amortization of deferred financing costs	14,450			13,615
Amortization of equity-based compensation	5,944			10,296
Unrealized (gain) loss on investments and other	132,937			32,983
Realized (gain) loss on investments and other	(377		)	(14,924		)
Impairment losses	5,073			—
Distributions from PE Investments (refer to Note 5)	33,106			48,186
Distributions from unconsolidated ventures	1,848			196
Distributions from equity investments	2,808			8,685
Amortization of capitalized above/below market leases	1,460			2,660
Straight line rental income, net	(6,807		)	(8,159		)
Deferred income taxes, net	3,333			(451		)
Provision for (reversal of) loan losses, net	7,242			483
Allowance for uncollectible accounts	1,064			582
Other	—			829
Changes in assets and liabilities:
Restricted cash	(1,189		)	(661		)
Receivables	(5,765		)	17,917
Receivables, related parties	1,313			230
Other assets	(6,126		)	1,703
Accounts payable and accrued expenses	(22,961		)	(23,130		)
Due to related party	(4,453		)	(4,256		)
Other liabilities	(351		)	419
Net cash provided by (used in) operating activities	64,253			105,440
Cash flows from investing activities:
Acquisition of operating real estate	—			(95,807		)
Acquisition of manufactured homes, held for sale	(2,916		)	(1,469		)
Improvements of real estate	(44,245		)	(23,581		)
Improvements of real estate, held for sale	(3,168		)	—
Proceeds from sale of real estate	145,962			3,681
Origination of or fundings for real estate debt investments	(12,300		)	(10,777		)
Proceeds from sale of real estate debt investments	224,013			—
Repayment of real estate debt investments	3,585			104,014
Investment in PE Investments (refer to Note 5)	(1,015		)	(1,096		)
Distributions from PE Investments (refer to Note 5)	48,036			25,292
Proceeds from sale of PE Investment (refer to Note 5)	144,143			—
Investment in unconsolidated ventures	(1,337		)	—
Distributions from unconsolidated ventures	229			2,054
Proceeds from the sale of real estate securities, available for sale	53,886			60,963
Repayment of real estate securities, available for sale	10,305			4,282
Change in restricted cash	37,314			18,436
Payment of leasing costs	(956		)	(790		)
Investment deposits and pending deal costs	(243		)	(568,351		)
Other assets	2,493			(6,716		)
Net cash provided by (used in) investing activities	603,786			(489,865		)

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Dollars in Thousands)

(Unaudited)



	Three Months Ended March 31,
	2016			2015
Cash flows from financing activities:
Borrowings from mortgage and other notes payable	$	59,326		$	67,254
Repayment of mortgage and other notes payable	(60,359		)	(27,727		)
Repayment of CDO bonds	(15,737		)	(16,146		)
Repayment of securitization bonds payable	—			(41,831		)
Borrowings from credit facilities	—			420,000
Repayment of credit facilities	(212,075		)	(241,877		)
Payment of financing costs	(1,819		)	(70,654		)
Purchase of derivative instruments	—			(42		)
Payment of cash collateral on derivatives	(62,318		)	—
Change in restricted cash	7,763			1,562
Net proceeds from common stock offering	—			555,455
Repurchase of common stock	(47,020		)	—
Proceeds from dividend reinvestment plan	46			38
Dividends	(96,931		)	(150,858		)
Repurchase of shares related to equity-based awards and tax withholding	(5,428		)	—
Contributions from non-controlling interests	101			11,789
Distributions to non-controlling interests	(6,986		)	(10,885		)
Net cash provided by (used in) financing activities	(441,437		)	496,078
Effect of foreign currency translation on cash and cash equivalents	(86		)	(3,414		)
Net increase (decrease) in cash and cash equivalents	226,516			108,239
Cash and cash equivalents—beginning of period	224,101			296,964
Cash and cash equivalents—end of period	$	450,617		$	405,203

Refer to accompanying notes to consolidated financial statements.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Business and Organization

NorthStar Realty Finance Corp. is a diversified commercial real estate company (the “Company” or “NorthStar Realty”). The Company invests in multiple asset classes across commercial real estate (“CRE”) that it expects will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic CRE investments. The Company is a Maryland corporation and completed its initial public offering in October 2004. The Company conducts its operations so as to continue to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company is externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

Substantially all of the Company’s assets, directly or indirectly, are held by, and the Company conducts its operations, directly or indirectly, through NorthStar Realty Finance Limited Partnership, a Delaware limited partnership and the operating partnership of the Company (the “Operating Partnership”). All references herein to the Company refer to NorthStar Realty Finance Corp. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.

Strategic Initiatives

The Company continues to execute a series of strategic initiatives with the goal of maximizing long-term shareholder value. These initiatives include: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of the Company’s PE Investments; and (iii) sales and/or accelerated repayments of the Company’s CRE debt and securities investments. Additionally, in connection with the Company’s continuous evaluation of its capital allocation strategy, the Company revised its dividend policy.

Proceeds from such sales initiatives, along with capital retained from the Company’s revised dividend policy, are currently expected to be used for opportunistically repurchasing the Company’s common stock, which the Company believes is currently trading at a significant discount to underlying net asset value and toward repayment of a significant portion of the Company’s corporate recourse borrowing obligations with $425 million currently outstanding (excluding $280 million of trust preferred securities with maturities beginning in 2035).

In addition, the Company’s board of directors formed a special committee, which retained UBS Investment Bank as its financial advisor, to explore a potential recombination transaction with NSAM. The special committee is comprised solely of independent directors that are not on the board of directors of NSAM. In May 2016, the Company also announced that it had entered into exclusive discussions with NSAM and Colony Capital, Inc. (“Colony Capital”) regarding a tri-party business combination. There can be no assurance that the exploration of corporate strategic initiatives, including the Company’s discussions with NSAM and Colony Capital, will result in any definitive agreement, transaction or initiative being announced or consummated.


2.	Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying unaudited consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the Securities and Exchange Commission (the “SEC”).

The three months ended March 31, 2016 include the Company’s results of operations following the spin-off of its European real estate business (the “NRE Spin-off”) into a separate publicly-traded REIT, NorthStar Realty Europe Corp. (“NorthStar Europe”). The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations. As a result, the three months ended March 31, 2016 may not be comparable to the prior period presented. Expenses also included an allocation of indirect expenses of the Company to NorthStar Europe, including salaries and other general and administrative expenses (primarily occupancy and other cost) based on an estimate had the European real estate business been run as an independent entity. This allocation method was principally based on relative headcount and management’s knowledge of the Company’s operations.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIE”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity.

The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

The Company evaluates its CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as its collateralized debt obligations (“CDOs”) and its liabilities to subsidiary trusts issuing preferred securities (“junior subordinated notes”) to determine whether they are a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

The Company may account for an investment in an unconsolidated entity at fair value by electing the fair value option. The Company elected the fair value option for its investments (directly or indirectly in joint ventures) that own limited partnership interests in real estate private equity funds (“PE Investments”) and certain investments in unconsolidated ventures (refer to Note

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6). The Company records the change in fair value for its share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

The Company may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if the Company determines the investment in the unconsolidated entity is insignificant. Under the cost method, equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and other comprehensive income (loss) (“OCI”) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.

Reclassifications

Certain prior period amounts have been reclassified in the consolidated financial statements to conform to current period presentation including amounts related to discontinued operations (refer to Note 3).

Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and OCI. The components of OCI principally include: (i) unrealized gain (loss) on real estate securities available for sale for which the fair value option is not elected; (ii) the reclassification of unrealized gain (loss) on real estate securities available for sale for which the fair value option was not elected to realized gain (loss) upon sale or realized event; (iii) the reclassification of unrealized gain (loss) to interest expense on derivative instruments that are or were deemed to be effective hedges; (iv) foreign currency translation adjustment; and (v) reclassification of foreign currency translation into realized gain (loss) on investments and other upon realized event.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the components of accumulated OCI for the three months ended March 31, 2016 and 2015 (dollars in thousands):



Accumulated OCI	Unrealized Gain (Loss) on Available for Sale Securities			Interest Rate Swap Gain (Loss)			Foreign Currency Translation			Total
Balance as of December 31, 2015	$	21,016		$	(767	)	$	(1,764	)	$	18,485
Unrealized gain (loss) on real estate securities, available for sale	(33,724		)	—			—			(33,724		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	592			—			—			592
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			223			—			223
Foreign currency translation adjustment	—			—			(1,180		)	(1,180		)
Non-controlling interests	331			(2		)	181			510
Balance as of March 31. 2016 (Unaudited)	$	(11,785	)	$	(546	)	$	(2,763	)	$	(15,094	)

Balance as of December 31, 2014	$	56,072		$	(1,694	)	$	(4,838	)	$	49,540
Unrealized gain (loss) on real estate securities, available for sale	(7,123		)	—			—			(7,123		)
Reclassification of unrealized (gain) loss on real estate securities, available for sale into realized gain (loss) on investments and other	(11,423		)	—			—			(11,423		)
Reclassification of swap (gain) loss into interest expense—mortgage and corporate borrowings (refer to Note 14)	—			265			—			265
Foreign currency translation adjustment	—			—			(2,356		)	(2,356		)
Non-controlling interests	—			—			331			331
Balance as of March 31, 2015 (Unaudited)	$	37,526		$	(1,429	)	$	(6,863	)	$	29,234

Restricted Cash

Restricted cash primarily consists of amounts related to operating real estate and CRE debt investments. The following table presents a summary of restricted cash as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016 (Unaudited)		December 31, 2015
	March 31, 2016 (Unaudited)		December 31, 2015
Capital expenditures reserves	$	131,477	$	171,712
Operating real estate escrow reserves ⁽¹⁾	95,934		107,399
CRE debt escrow deposits	4,503		8,815
Cash in CDOs ⁽²⁾	7,574		11,362
Total	$	239,488	$	299,288

__________________________________________________


(1)	Primarily represents insurance, real estate tax, repair and maintenance, tenant security deposits and other escrows related to operating real estate.


(2)	Represents proceeds from repayments and/or sales pending distribution.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

Operating Real Estate

Operating real estate is carried at historical cost less accumulated depreciation. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements which improve or extend the life of the asset are capitalized and depreciated over their useful life. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



Category:		Term:
Building (fee interest)		15 to 40 years
Building improvements		Lesser of the useful life or remaining life of the building
Building leasehold interests		Lesser of 40 years or remaining term of the lease
Land improvements		10 to 30 years
Tenant improvements		Lesser of the useful life or remaining term of the lease

The Company follows the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations. The Company evaluates whether real estate acquired in connection with a foreclosure, UCC/deed in lieu of foreclosure or a consentual modification of a loan (herein collectively referred to as taking title to collateral) (“REO”) constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. The Company records a gain (loss) on sale of real estate when title is conveyed to the buyer and the Company has no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

Real Estate Securities

The Company classifies its CRE securities investments as available for sale on the acquisition date, which are carried at fair value. The Company historically elected to apply the fair value option for its CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

The Company may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated OCI in the consolidated statements of equity, to the extent impairment losses are considered temporary.

Deferred Costs

Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. Costs related to revolving credit facilities are recorded in other assets and are amortized to interest expense using the straight-line basis over the term of the facility. Costs related to other borrowings are recorded net against the carrying value of such borrowings and are amortized to interest expense using the effective interest method. Unamortized deferred financing costs are expensed when the associated facility is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period such financing transaction was terminated. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.

Intangible Assets and Intangible Liabilities

The Company records acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, below-market ground leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company analyzes goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations.

Events or circumstances which could indicate a potential impairment include (but are not limited to) issues with local, state or federal governments; on-going or projected negative operating income or cash flow; a significant change in payor mix related to healthcare assets; and/or a significant change in the occupancy rate and/or rising interest rates.

A discounted cash flow model is performed based on management’s forecast of operating performance for each reporting unit to assess fair value. In addition, the Company looks at comparable companies and representative transactions to validate management’s expectations, where possible. The inputs used in the annual test is updated for current market conditions and forecasts. The two main assumptions used in measuring goodwill impairment, include the cash flow from operations from each of the Company’s reporting units and the weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan. The detailed planning process takes into consideration many factors including EBITDAR, EBITDAR margins, revenue growth rate and capital spending requirements, among other items which impact the individual reporting unit projections. Cash flow beyond the specific operating plans are estimated using a terminal value calculation, which incorporate historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts the fair value measurement through the weighted average cost of capital that the Company uses to determine the discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long term trend. Fair value of the reporting unit is using significant unobservable inputs or Level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments.

The annual impairment test for the reporting units related to a healthcare portfolio acquired in May 2014 was conducted as of October 1, 2015 and the remaining reporting units related to a portfolio acquired in December 2014 with the acquisition of Griffin-American Healthcare REIT II, Inc. (“Griffin-American” or “Griffin-American Portfolio”) and was conducted as of December 31, 2015 . Management used an independent third-party valuation party specialist to assist. Based on the step one analysis performed, management determined the fair value for all of reporting units were in excess of the respective reporting unit’s carrying value, with four exceptions, related to the healthcare portfolio acquired in 2014. As a result, the Company estimated the impairment loss for such reporting units to be $25.5 million and recorded an estimated preliminary impairment charge for such amount in the fourth quarter 2015. Step two of the impairment test was completed in the first quarter 2016 and there was no change to the estimate recorded.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary

The following tables presents identified intangibles as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016 (Unaudited)							December 31, 2015
	Gross Amount		Accumulated Amortization			Net		Gross Amount		Accumulated Amortization			Net
Intangible assets:
In-place leases	$	268,016	$	(73,341	)	$	194,675	$	289,124	$	(82,089	)	$	207,035
Above-market leases	262,380		(37,605		)	224,775		268,426		(35,940		)	232,486
Goodwill ⁽¹⁾	47,719		NA			47,719		48,635		NA			48,635
Other	40,958		(2,452		)	38,506		41,149		(2,028		)	39,121
Total	$	619,073	$	(113,398	)	$	505,675	$	647,334	$	(120,057	)	$	527,277

Intangible liabilities:
Below-market leases	$	175,008	$	(32,730	)	$	142,278	$	177,931	$	(30,462	)	$	147,469
Other ⁽²⁾	2,236		(72		)	2,164		2,236		(63		)	2,173
Total	$	177,244	$	(32,802	)	$	144,442	$	180,167	$	(30,525	)	$	149,642

_______________________

(1)

Represents goodwill associated with two acquisitions of healthcare portfolios that operate through the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structures. The first portfolio relates to a healthcare portfolio acquired in 2014 ( $25.5 million ) and the second relates to goodwill associated with a healthcare portfolio in the U.K. in the Griffin-American Portfolio ($ 48.6 million ). For the year ended December 31, 2015, the Company recorded an estimated goodwill impairment of $25.5 million related to the healthcare portfolio acquired in 2014, which was finalized during the three months ended March 31, 2016. The change in goodwill for the three months ended March 31, 2016 relates to foreign currency translation.


(2)	Represents the value associated with a purchase price option associated with the Griffin-American Portfolio.

Other Assets and Other Liabilities

The following table presents a summary of other assets and other liabilities as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016 (Unaudited)		December 31, 2015
	March 31, 2016 (Unaudited)		December 31, 2015
Other assets:
Cash collateral held by derivative counterparty (refer to Note 14)	$	62,318	$	—
Investment-related reserves	45,552		47,380
Prepaid expenses	24,897		22,573
Deferred tax assets, net	24,145		24,435
Deferred costs	9,154		9,461
Due from servicer	2,399		642
Investment deposits and pending deal costs	1,411		568
Notes receivable, net	210		694
Other	2,049		2,015
Total	$	172,135	$	107,768

	March 31, 2016 (Unaudited)		December 31, 2015
	March 31, 2016 (Unaudited)		December 31, 2015
Other liabilities:
Deferred tax liabilities	$	52,241	$	50,341
PE Investments deferred purchase price (refer to Note 5)	44,212		44,212
Tenant security deposits	30,192		30,327
Prepaid rent and unearned revenue	21,498		24,697
Escrow deposits payable	7,914		11,753
Other	4,033		4,526
Total	$	160,090	$	165,856

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by the Company on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.

The Company generates operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within depreciation and amortization in the consolidated statements of operations.

Real Estate Debt Investments

Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.

Real Estate Securities

Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

Credit Losses and Impairment on Investments

Operating Real Estate

The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in the consolidated statements of operations.

An allowance for a doubtful account for a tenant/operator receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of tenant/operator to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future tenant/operator/resident/guest credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

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Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that the Company will not be able to collect principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan at the earlier of the date at which payments become 90 -days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in the consolidated statements of operations.

Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment (“OTTI”) as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in the consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in the consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Troubled Debt Restructuring

CRE debt investments modified in a troubled debt restructuring (“TDR”) are modifications granting a concession to a borrower experiencing financial difficulties where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. Management judgment is necessary to determine whether a loan modification is considered a TDR. Troubled debt that is fully satisfied via taking title to collateral, repossession or other transfers of assets is generally included in the definition of TDR. Loans acquired as a pool with deteriorated credit quality that have been modified are not considered a TDR.

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Equity-Based Compensation

The Company accounts for equity-based compensation awards, including awards granted to co-employees, using the fair value method, which requires an estimate of fair value of the award. Awards may be based on a variety of measures such as time, performance, market or a combination thereof. For time-based awards, fair value is determined based on the stock price on the grant date. The Company recognizes compensation expense over the vesting period on a straight-line basis or the attribution method depending if the grant is to an employee or non-employee. For performance-based awards, fair value is determined based on the stock price at the date of grant and an estimate of the probable achievement of such measure. The Company recognizes compensation expense over the requisite service period, net of estimated forfeitures, using the accelerated attribution expense method. For market-based measures, fair value is determined using a Monte Carlo analysis under a risk-neutral premise using a risk-free interest rate. The Company recognizes compensation expense, over the requisite service period, net of estimated forfeitures, on a straight-line basis. For awards with a combination of performance or market measures, the Company estimates the fair value as if it were two separate awards. First, the Company estimates the probability of achieving the performance measure. If it is not probable the performance condition will be met, the Company records the compensation expense based on the fair value of the market measure, as described above. This expense is recorded even if the market-based measure is never met. If the performance-based measure is subsequently estimated to be achieved, the Company records compensation expense based on the performance-based measure. The Company would then record a cumulative catch-up adjustment for any additional compensation expense.

Equity-based compensation issued to non-employees is accounted for using the fair value of the award at the earlier of the performance commitment date or performance completion date. Time-based awards are remeasured every quarter based on the stock price as of the end of the reporting period until such awards vest, if any.

Foreign Currency

Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.

Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on investments and other in the consolidated statements of operations.

Earnings Per Share

The Company’s basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common stock outstanding. Diluted EPS includes restricted stock and the potential dilution that could occur if outstanding restricted stock units (“RSUs”) or other contracts to issue common stock, assuming performance hurdles have been met, were converted to common stock (including limited partnership interests in the Operating Partnership which are structured as profits interests (“LTIP Units”) (refer to Note 10), where such exercise or conversion would result in a lower EPS. The dilutive effect of such RSUs and LTIP Units is calculated assuming all units are converted to common stock.

Discontinued Operations

Subsequent to the early adoption of the accounting standards update on the presentation of discontinued operations beginning in April 2014, the Company presents spin-offs of businesses and portfolios of properties that are sold or classified as held for sale as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.

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(Unaudited)

Income Taxes

The Company has elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, the (“Code”). Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

The Company maintains various taxable REIT subsidiaries (“TRSs”) which may be subject to U.S. federal, state and local income taxes and foreign taxes. In general, a TRS of the Company may perform non-customary services for tenants, hold assets that the REIT cannot hold directly and may engage in most real estate or non-real estate-related business. The Company has established several TRSs in jurisdictions for which no taxes are assessed on corporate earnings. However, the Company generally must include in earnings the income from these TRSs even if it has received no cash distributions. Additionally, the Company has invested in certain real estate assets in Europe, for which local country level taxes will be due on earnings (or other measure) and in some cases withholding taxes for the repatriation of earnings back to the REIT. The REIT will not generally be subject to any additional U.S. taxes on the repatriation of its earnings.

Current and deferred taxes are recorded on the portion of earnings (losses) recognized by the Company with respect to its interest in TRSs and taxable foreign subsidiaries. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal, state, local and foreign tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax expense included in income tax benefit (expense) in the consolidated statements of operations.

The Company recorded income tax expense of $7.8 million and $1.7 million for the three months ended March 31, 2016 and 2015 , respectively, of which $4.5 million represents a current income tax expense for three months ended March 31, 2016 and $0.2 million represents a current income tax benefit for the three months ended March 31, 2015.

Other

Refer to Note 2 of the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for further disclosure of the Company’s significant accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for the Company will be January 1, 2018. The Company is in the process of evaluating the impact, if any, of the update on its consolidated financial position, results of operations and financial statement disclosures.

In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company adopted this guidance in the first quarter 2016 and determined the Company’s Operating Partnership is considered a VIE. The Company is the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and the Company’s partnership interest is considered

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a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on the Company’s consolidated financial position or results of operations. Refer to Note 16 for further disclosure.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The Company is evaluating the impact, if any, that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.


3.	Operating Real Estate

The following table presents operating real estate, net as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016 (Unaudited)			December 31, 2015
	March 31, 2016 (Unaudited)			December 31, 2015
Land	$	1,045,465		$	1,047,620
Land improvements	148,498			148,295
Buildings and improvements	6,714,523			6,728,957
Building leasehold interests and improvements	723,578			723,573
Furniture, fixtures and equipment	359,599			346,628
Tenant improvements	161,776			165,539
Construction in progress	61,315			57,663
Subtotal	9,214,754			9,218,275
Less: Accumulated depreciation	(582,612		)	(511,113		)
Less: Allowance for operating real estate impairment	(4,903		)	(4,903		)
Operating real estate, net	$	8,627,239		$	8,702,259

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Real Estate Held for Sale

The following table summarizes the Company’s operating real estate held for sale as of March 31, 2016 (dollars in thousands):



		Assets						Liabilities
Description	Properties	Operating Real Estate, Net ⁽¹⁾		Intangible Assets, Net		Total ⁽²⁾		Mortgage and Other Notes Payable, Net		Intangible Liabilities, Net		Total		WA Ownership Interest
Manufactured housing communities ⁽³⁾	136	$	1,495,345	$	24,015	$	1,519,360	$	1,262,057	$	—	$	1,262,057	94	%
Multifamily ⁽⁴⁾	11	304,861		—		304,861		247,032		—		247,032		90	%
Other	8	86,273		2,589		88,862		41,482		14,280		55,762		NA
Total	155	$	1,886,479	$	26,604	$	1,913,083	$	1,550,571	$	14,280	$	1,564,851

______________________________________


(1)	Includes $58.9 million of manufactured housing notes receivables previously recorded in other assets.


(2)	Represents operating real estate and intangible assets, net of depreciation and amortization of $218.1 million .


(3)	In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $620 million of net proceeds. The Company expects the transaction to close in the second half of 2016.

(4)

The Company entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $86 million of net proceeds and continues to explore the sale of the remaining two properties, including one multifamily property accounted for as an investment in unconsolidated subsidiary (refer to Note 6).

In March 2016, the Company sold its 60% interest in the $898.7 million independent living facility portfolio (“Senior Housing Portfolio”) for $534.5 million . The Company received $149.4 million of proceeds, net of sales costs. In connection with the sale, the Company recorded a $16.7 million realized gain in the Company’s consolidated statements of operations, which represented a reversal of previously recorded accumulated depreciation and transaction costs. Refer to Note 9. Related Party Arrangements for further disclosure.

Spin-off of European Real Estate Business

On October 31, 2015, the Company completed the NRE Spin-off into a separate publicly-traded REIT, NorthStar Europe, in the form of a taxable distribution. In connection with the NRE Spin-off, each of the Company’s common stockholders received shares of NorthStar Europe’s common stock on a one-for-six basis, before giving effect to a one-for-two reverse stock split of the Company’s common stock (the “Reverse Split”). The Company contributed to NorthStar Europe approximately $2.6 billion of European real estate, at cost (excluding the Company’s European healthcare properties), comprised of 52 properties spanning across some of Europe’s top markets and $250 million of cash. In connection with the NRE Spin-off, $2.8 billion of assets were transferred and $1.9 billion of liabilities were assumed by NorthStar Europe.

For the three months ended March 31, 2015, the Company recorded a $13.9 million loss included in discontinued operations in the Company’s consolidated statements of operations associated with NorthStar Europe which represented a carve-out of revenues of $1.8 million and expenses of $15.7 million , primarily related to transaction costs.

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4.	Real Estate Debt Investments

The following table presents CRE debt investments as of March 31, 2016 (dollars in thousands):



								Weighted Average						Floating Rate as % of Principal Amount ⁽³⁾
	Number	Principal Amount		Carrying Value		Allocation by Investment Type ⁽³⁾		Fixed Rate		Spread Over LIBOR ⁽⁶⁾		Yield ⁽⁴⁾		Floating Rate as % of Principal Amount ⁽³⁾
Asset Type:
First mortgage loans ⁽¹⁾⁽⁶⁾	7	$	198,534	$	170,349	42.5	%	10.24	%	8.62	%	3.18	%	32.6	%
Mezzanine loans	6	22,400		18,571		4.8	%	9.05	%	4.00	%	7.24	%	39.8	%
Subordinate interests	4	170,980		169,760		36.6	%	12.67	%	5.67	%	8.87	%	58.8	%
Corporate loans	4	35,382		30,880		7.6	%	12.92	%	—	%	14.81	%	—	%
Subtotal/Weighted average ⁽²⁾	21	427,296		389,560		91.5	%	11.25	%	10.69	%	6.77	%	40.8	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,320		5.8	%	—	%	1.27	%	3.92	%	100.0	%
Mezzanine loans	1	11,000		10,752		2.4	%	8.00	%	—	%	8.18	%	—	%
Corporate loans	6	1,936		1,936		0.4	%	6.74	%	—	%	6.74	%	—	%
Subtotal/Weighted average	9	39,893		22,008		8.5	%	7.81	%	1.27	%	6.25	%	67.6	%
Total	30	$	467,189	$	411,568	100.0	%	11.08	%	9.42	%	6.75	%	43.1	%

Real estate debt, held for sale ⁽⁵⁾	4	$	91,949	$	88,972	NA		—	%	6.57	%	7.23	%	100.0	%

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(1)

Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One of these three loans is a Sterling denominated loan of £66.7 million , of which £25.0 million is available to be funded as of March 31, 2016 . This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.


(2)	Assuming that all loans that have future fundings meet the terms to qualify for such funding, the Company’s cash requirement on future fundings would be $9.3 million .


(3)	Based on principal amount.


(4)	Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of March 31, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.


(5)	One CRE debt investment served as collateral for financing transactions with a carrying value of $38.6 million for the Company’s loan facility. The remainder was unleveraged. In April 2016, the Company sold these loans and used $25.2 million of proceeds to pay down the Company’s loan facility in full, resulting in net proceeds of $ 64.0 million.


(6)	$64.0 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95%.

The following table presents CRE debt investments as of December 31, 2015 (dollars in thousands):



								Weighted Average ⁽⁵⁾						Floating Rate as % of Principal Amount ⁽³⁾
	Number	Principal Amount		Carrying Value		Allocation by Investment Type ⁽³⁾		Fixed Rate		Spread Over LIBOR ⁽⁶⁾		Yield ⁽⁷⁾		Floating Rate as % of Principal Amount ⁽³⁾
Asset Type:
First mortgage loans ⁽¹⁾	11	$	286,628	$	260,237	51.6	%	7.09	%	4.95	%	6.18	%	55.8	%
Mezzanine loans	6	22,361		18,630		4.0	%	9.04	%	4.00	%	8.39	%	39.9	%
Subordinate interests	4	171,044		169,781		30.8	%	13.04	%	5.65	%	8.72	%	59.0	%
Corporate loans	4	35,215		30,681		6.3	%	12.93	%	—	%	14.84	%	—	%
Subtotal/Weighted average ⁽²⁾	25	515,248		479,329		92.7	%	10.51	%	5.26	%	8.12	%	52.5	%
CRE debt in N-Star CDOs
First mortgage loans	2	26,957		9,321		4.9	%	—	%	1.27	%	3.10	%	100.0	%
Mezzanine loans	1	11,000		10,675		2.0	%	8.00	%	—	%	8.24	%	—	%
Corporate loans	6	2,149		2,149		0.4	%	6.74	%	—	%	6.74	%	—	%
Subtotal/Weighted average	9	40,106		22,145		7.3	%	7.79	%	1.27	%	5.70	%	67.2	%
Total	34	$	555,354	$	501,474	100.0	%	10.33	%	4.79	%	7.98	%	53.5	%

Real estate debt, held for sale ⁽⁷⁾	7	$	225,037	$	224,677	NA		13.65	%	7.41	%	10.89	%	52.5	%

____________________________________________________________


(1)	Includes three loans that pursuant to certain terms and conditions which may or may not be satisfied, where the Company has an option to purchase the properties securing these loans. One is a Sterling denominated loan of £66.7 million . This loan has various maturity dates depending upon the timing of advances; however, will be no later than March 2022.


(2)	Certain CRE debt investments serve as collateral for financing transactions including carrying value of $38.6 million for the Company’s loan facility. The remainder is unleveraged.


(3)	Based on principal amount.

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(4)	Excludes an aggregate principal amount of $ $129.3 million related to three CRE debt investments that were originated prior to 2008, three non-performing loans and one first mortgage loan acquired with deteriorated credit quality.


(5)	$63.9 million principal amount (excluding CRE debt in N-Star CDOs) has a weighted average LIBOR floor of 0.95% . Includes one first mortgage loan with a principal amount of $5.8 million with a spread over the prime rate.


(6)	Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of December 31, 2015 and for CRE debt with a LIBOR floor, using such floor.


(7)	In the first quarter 2016, the Company sold these seven loans and used $46.9 million of proceeds to pay down the Company’s loan facility, resulting in net proceeds of $178.2 million .

The following table presents maturities of CRE debt investments based on principal amount as of March 31, 2016 (dollars in thousands):



	Initial Maturity		Maturity Including Extensions ⁽¹⁾
April 1 to December 31, 2016	$	103,129	$	97,747
Years ending December 31:
2017	220		220
2018	1,716		1,716
2019	—		—
2020	—		—
Thereafter	267,753		273,135
Total ⁽²⁾	$	372,818	$	372,818

____________________________________________________________


(1)	Assumes that all debt with extension options will qualify for extension at such maturity according to the conditions stipulated in the governing documents.


(2)	Excludes three non-performing loans (“NPLs”) with an aggregate principal amount of $94.4 million as of March 31, 2016 due to maturity defaults. In April 2016, one NPL, with a total principal amount of $52 million , was repaid at par.

As of March 31, 2016 , the weighted average maturity, including extensions, of CRE debt investments was 5.5 years.

Actual maturities may differ from contractual maturities as certain borrowers may have the right to prepay with or without prepayment penalty. The Company may also extend certain contractual maturities in connection with loan modifications.

The principal amount of CRE debt investments differs from the carrying value primarily due to unamortized origination fees and costs, unamortized premium and discount and loan loss reserves recorded as part of the carrying value of the investment. As of March 31, 2016 , the Company had $39.6 million of net unamortized discount and $1.4 million of net unamortized origination fees and costs.

Provision for Loan Losses

The following table presents activity in loan loss reserves on CRE debt investments for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31,
	2016			2015
Beginning balance	$	7,839		$	5,599
Provision for (reversal of) loan losses, net	4,260		⁽¹⁾⁽²⁾	200		⁽¹⁾
Ending balance	$	12,099		$	5,799

____________________________________________________________


(1)	Excludes $0.1 million of provision for loan losses relating to manufactured housing notes receivables recorded in assets of properties held for sale as of March 31, 2016 and $0.3 million recorded in other assets as of March 31, 2015.


(2)	Excludes $2.9 million of provision for loan losses primarily relating to exit fees on real estate debt, held for sale.

Credit Quality Monitoring

CRE debt investments are typically loans secured by direct senior priority liens on real estate properties or by interests in entities that directly own real estate properties, which serve as the primary source of cash for the payment of principal and interest. The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity.

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(Unaudited)

The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as a “loan with no loan loss reserve.” The Company categorizes a debt investment as an NPL if it is in maturity default and/or past due at least 90 days on its contractual debt service payments. The Company considers the remaining debt investments to be of weaker credit quality and categorizes such loans as “other loans with a loan loss reserve/non-accrual status.” These loans are not considered NPLs because such loans are performing in accordance with contractual terms but the loans have a loan loss reserve and/or are on non-accrual status. Even if a borrower is currently paying contractual debt service or debt service is not due in accordance with its contractual terms, the Company may still determine that the borrower may not be able to perform under its contractual terms in the future and make full payment upon maturity. The Company’s definition of an NPL may differ from that of other companies that track NPLs.

The following table presents the carrying value of CRE debt investments, by credit quality indicator, as of each applicable balance sheet date (dollars in thousands):



	March 31, 2016		December 31, 2015
Credit Quality Indicator:	March 31, 2016		December 31, 2015
Loans with no loan loss reserve:
First mortgage loans	$	84,668	$	168,978
Mezzanine loans	29,323		29,305
Subordinate interests	169,759		169,781
Corporate loans	32,816		32,830
Subtotal	316,566		400,894
Other loans with a loan loss reserve/non-accrual status:
First mortgage loans ⁽¹⁾	4,137		4,137
Mezzanine loans ⁽²⁾	—		—
Subtotal	4,137		4,137
Non-performing loans ⁽³⁾	90,865		96,443
Total	$	411,568	$	501,474

____________________________________________________________


(1)	Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.1 million as of March 31, 2016 and December 31, 2015 .


(2)	Includes one mezzanine loan with a 100% loan loss reserve with a principal amount of $3.8 million as of March 31, 2016 and December 31, 2015 . Such loan is not considered a NPL as debt service is currently being received.


(3)	In April 2016, one NPL, with a total principal amount of $52 million , was repaid at par.

Impaired Loans

The Company considers impaired loans to generally include NPLs, loans with a loan loss reserve, loans on non-accrual status (excluding loans acquired with deteriorated credit quality) and TDRs. The following table presents impaired loans as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016							December 31, 2015
	Number	Principal Amount ⁽¹⁾		Carrying Value ⁽¹⁾		Loan Loss Reserve		Number	Principal Amount ⁽¹⁾		Carrying Value ⁽¹⁾		Loan Loss Reserve
Class of Debt:
First mortgage loans	5	$	118,177	$	95,002	$	8,333	5	$	119,677	$	100,580	$	4,073
Mezzanine loans	1	3,766		—		3,766		1	3,766		—		3,766
Total	6	$	121,943	$	95,002	$	12,099	6	$	123,443	$	100,580	$	7,839

____________________________________________________________


(1)	Principal amount differs from carrying value primarily due to unamortized origination fees and costs, unamortized premium or discount and loan loss reserves included in the carrying value of the investment. Excludes one first mortgage loan acquired with deteriorated credit quality with a carrying value of $3.1 million as of March 31, 2016 and December 31, 2015 .

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(Unaudited)

The following table presents average carrying value of impaired loans by type and the income recorded on such loans subsequent to them being deemed impaired for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	March 31, 2016					March 31, 2015
	Number	Average Carrying Value		Quarter Ended Income		Number	Average Carrying Value		Quarter Ended Income
Class of Debt:
First mortgage loans	5	$	97,791	$	2,100	2	$	2,690	$	50
Mezzanine loans	1	—		—		1	—		2
Total/weighted average	6	$	97,791	$	2,100	3	$	2,690	$	52

As of March 31, 2016 , the Company had three loans past due greater than 90 days. As of March 31, 2015, the Company did not have any loans past due greater than 90 days.


5.	Investments in Private Equity Funds

The following is a description of investments in private equity funds that own PE Investments either through unconsolidated ventures (“PE Investment I”, “PE Investment II” and “PE Investment XV”) or consolidated ventures and direct investments (“PE Investment III to XIV,” collectively “Direct PE Investments”) which are recorded as investments in private equity funds at fair value on the consolidated balance sheets. The Company elected the fair value option for PE Investments. As a result, the Company records equity in earnings (losses) based on the change in fair value for its share of the projected future cash flow from one period to another. All PE Investments are considered variable interest entities, except for PE Investment I and II (refer to Note 16). PE Investment I and II are considered voting interest entities and are not consolidated by the Company due to the substantive participating rights of the partners in joint ventures that own the interests in the real estate private equity funds. The Company does not consolidate any of the underlying real estate private equity funds owned in Direct PE Investments as it does not own a majority voting interest in any such funds or is not the primary beneficiary of such funds.

The following tables summarize the Company’s PE Investments as of March 31, 2016 (dollars in millions):



PE Investment	Initial Closing Date	NAV Reference Date ⁽¹⁾	Number of Funds		Purchase Price		Expected Future Funding ⁽²⁾
PE Investment I	February 15, 2013	June 30, 2012	49		$	282.1	$	2
PE Investment II ⁽³⁾	July 3, 2013	September 30, 2012	24		5.0		3
PE Investment III	December 31, 2013	June 30, 2013	8		79.6		—
PE Investment IV	May 30, 2014	December 31, 2013	1		8.0		—
PE Investment V	July 1, 2014	September 30, 2013	3		12.0		—
PE Investment VI	July 30, 2014	June 30, 2014	20		90.2		1
PE Investment VII	August 15, 2014	December 31, 2013	14		54.9		—
PE Investment IX	October 2, 2014	March 31, 2014	11		217.7		2
PE Investment X	December 4, 2014	June 30, 2014	13		152.4		—
PE Investment XI	May 1, 2015	September 30, 2014	2		6.4		—
PE Investment XII	May 5, 2015	June 30, 2014	1		6.2		—
PE Investment XIII	May 22, 2015	December 31, 2014	11		441.1		3
PE Investment XIV ⁽⁴⁾	September 9, 2015	December 31, 2014	15		50.2		50
PE Investment XV	November 12, 2015	December 31, 2014	1		60.0		12
Total			173	⁽⁵⁾	1,465.8		$	73

____________________________________________________________


(1)	Represents the net asset value (“NAV”) date on which the Company agreed to acquire the respective PE Investment.


(2)	Includes an estimated amount of expected future contributions to funds and any deferred purchase price as of March 31, 2016 . The actual amount of future contributions underlying the fund interests that may be called and funded by the Company could vary materially from the Company’s expectations.

(3)

In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million . In connection with the sale, the buyers assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture. The purchase price represents 1% of the original purchase price. Refer to Note 9. Related Party Arrangements for further disclosure.


(4)	PE Investment XIV paid $50.2 million to the seller for all of the fund interests, or 50% of the December 31, 2014 NAV, and will pay the remaining $47.8 million in equal installments one year and two years after the initial closing date, respectively. Such amount is included in other liabilities on the consolidated balance sheets.


(5)	The total number of funds includes 28 funds held across multiple PE Investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	Carrying Value				Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
PE Investment ⁽⁵⁾	March 31, 2016 (Unaudited)		December 31, 2015		Income ⁽¹⁾⁽²⁾		Distributions		Contributions		Income ⁽¹⁾⁽²⁾		Distributions		Contributions
PE Investment I ⁽³⁾	$	124.0	$	154.0	$	7.6	$	33.8	$	—	$	13.9	$	17.7	$	0.6
PE Investment II ⁽⁴⁾	2.0		186.2		0.1		0.2		—		14.0		21.6		—
PE Investment III	28.5		26.8		2.3		0.6		—		0.7		1.5		—
PE Investment IV	6.8		7.6		0.3		1.1		—		0.3		—		—
PE Investment V	6.6		7.7		0.3		1.4		—		0.5		—		—
PE Investment VI	74.2		75.3		2.0		3.2		0.1		3.4		7.4		0.1
PE Investment VII	31.3		30.2		1.5		0.4		—		2.1		1.9		—
PE Investment IX	126.6		129.2		5.3		8.0		0.1		7.4		18.0		0.2
PE Investment X	120.6		128.5		3.7		11.6		—		5.9		13.8		0.2
PE Investment XI	4.3		4.2		0.3		0.2		—		—		—		—
PE Investment XII	2.6		2.6		0.1		0.1		—		—		—		—
PE Investment XIII	289.4		287.4		9.6		8.3		0.7		—		—		—
PE Investment XIV	51.2		55.2		1.5		5.6		0.1		—		—		—
PE Investment XV	1.4		6.8		3.0		8.4		—		—		—		—
Total	$	869.5	$	1,101.7	$	37.6	$	82.9	$	1.0	$	48.2	$	81.9	$	1.1

____________________________________________________________


(1)	Income is recorded gross of a current income tax expense of $4.7 million and $1.5 million , respectively, for the three months ended March 31, 2016 and 2015.


(2)	Recorded in equity in earnings in the consolidated statements of operations.


(3)	The Company recorded an unrealized loss of $3.8 million for the three months ended March 31, 2016 , which represented a partial reversal of an unrealized gain of $32.6 million recorded for the year ended December 31, 2014.


(4)	The distributions received for the three months ended March 31, 2016 excludes proceeds of $184.1 million in connection with the sale of substantially all of the Company’s interest in PE Investment II.


(5)	As of March 31, 2016, cash flow is expected through June 30, 2024, with a weighted average expected remaining life of 1.4 years.

Unconsolidated PE Investments

PE Investment I

In February 2013, the Company completed the initial closing (“PE I Initial Closing”) of PE Investment I which owns a portfolio of limited partnership interests in real estate private equity funds managed by institutional-quality sponsors. Pursuant to the terms of the agreement, at the PE I Initial Closing, the full purchase price was funded, excluding future capital commitments. Accordingly, the Company funded $282.1 million and NorthStar Real Estate Income Trust, Inc. (“NorthStar Income”) (together with the Company, the “NorthStar Entities”) funded $118.0 million . The NorthStar Entities have an aggregate ownership interest in PE Investment I of 51% , of which the Company owns 70.5% . The Company assigned its rights to the remaining 29.5% to a subsidiary of NorthStar Income. Teachers Insurance and Annuity Association of America (the “Class B Partner”) contributed its interests in 49 funds subject to the transaction in exchange for all of the Class B partnership interests in PE Investment I.

PE Investment I provides for all cash distributions on a priority basis to the NorthStar Entities as follows: (i) first, 85% to the NorthStar Entities and 15% to the Class B Partner until the NorthStar Entities receive a 1.5 x multiple on all of their invested capital, including amounts funded in connection with future capital commitments; (ii) second, 15% to the NorthStar Entities and 85% to the Class B Partner until the Class B Partner receives a return of its then remaining June 30, 2012 capital; and (iii) third, 51% to the NorthStar Entities and 49% to the Class B Partner. All amounts paid to and received by the NorthStar Entities are based on each partner’s proportionate interest.

The Company guaranteed all of its funding obligations that may be due and owed under PE Investment I agreements directly to PE Investment I entities. The Company and NorthStar Income each agreed to indemnify the other proportionately for any losses that may arise in connection with the funding and other obligations as set forth in the governing documents in the case of a joint default by the Company and NorthStar Income. The Company and NorthStar Income further agreed to indemnify each other for all of the losses that may arise as a result of a default that is solely caused by the Company or NorthStar Income, as the case may be.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

PE Investment II

In June 2013, the Company, NorthStar Income and funds managed by Goldman Sachs Asset Management (each a “Partner”) formed joint ventures and entered into an agreement with Common Pension Fund E, a common trust fund created under New Jersey law, to acquire a portfolio of limited partnership interests in 24 real estate private equity funds managed by institutional-quality sponsors. The aggregate reported NAV acquired was $910.0 million as of September 30, 2012. In February 2016, the Company sold substantially all of its interest in PE Investment II for proceeds of $184.1 million to the other Partners. In connection with the sale, the buyers, Goldman Sachs Asset Management and NorthStar Income, each assumed substantially all of the Company’s $243 million portion of the deferred purchase price obligation of the PE Investment II joint venture.


6.	Investments in Unconsolidated Ventures

The following is a description of investments in unconsolidated ventures. The investments in RXR Realty LLC (“RXR Realty”), Aerium Group (“Aerium”) and SteelWave, LLC (formerly known as Legacy Partners Commercial, LLC) (“SteelWave”) are accounted for at fair value due to the election of the fair value option (refer to Note 13). The investments in the NSAM Retail Companies (as defined below) were accounted for under the equity method prior to the spin-off of the Company’s historical asset management business (“NSAM Spin-off”) and are accounted for under the cost method subsequent to the NSAM Spin-off. All other investments in unconsolidated ventures are accounted for under the equity method.

The following table summarizes the Company’s investments in unconsolidated ventures as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 (dollars in millions):



		Carrying Value				Equity in Earnings (Losses)
	Ownership	March 31, 2016 (Unaudited)		December 31, 2015		Three Months Ended March 31,
Investment	Interest	March 31, 2016 (Unaudited)		December 31, 2015		2016		2015
RXR Realty ⁽¹⁾	27%	$	93.7	$	89.3	$	6.1	$	3.5
Aerium ⁽²⁾	15%	7.0		16.5		—		1.0
LandCap ⁽³⁾	49%	7.7		7.7		—		0.3
SteelWave ⁽⁴⁾	40%	7.4		6.8		0.6		0.4
CS/Federal ⁽⁵⁾	50%	5.7		5.7		—		0.1
NSAM Retail Companies ⁽⁶⁾	Various	15.0		14.0		0.1		0.1
NorthStar Realty Finance Trusts ⁽⁷⁾	N/A	3.7		3.7		—		—
Multifamily Joint Venture ⁽⁸⁾	90%	3.9		3.5		0.3		—
Office Joint Venture ⁽⁹⁾	10%	8.5		8.5		—		—
Total		$	152.6	$	155.7	$	7.1	$	5.4

___________________________________________________________

(1)

In December 2013, the Company entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate in the New York Tri-State area. The Company’s equity interest in RXR Realty is structured so that NSAM is entitled to certain fees in connection with RXR Realty’s investment management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(2)

Aerium is a pan-European real estate investment manager specializing in commercial real estate properties. The Company recorded an unrealized loss on its interest in Aerium of $10.8 million for the three months ended March 31, 2016 . The Company’s equity interest in Aerium is structured so that NSAM is entitled to certain fees in connection with Aerium’s asset management business. Refer to Note 9. “Related Party Arrangements - NorthStar Asset Management Group - Management Agreement” for further disclosure.

(3)

In October 2007, the Company entered into a joint venture with Whitehall Street Global Real Estate Limited Partnership 2007 (“Whitehall”) to form LandCap Partners and LandCap LoanCo. (collectively referred to as “LandCap”). The joint venture is managed by a third-party management group. The Company and Whitehall agreed to no longer provide additional new investment capital in the LandCap joint venture.


(4)	In September 2014, the Company entered into an investment with SteelWave, a real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States.

(5)

CS Federal Drive, LLC (“CS/Federal”) owns three adjacent class A office/flex buildings in Colorado. The properties were acquired for $54.3 million and were financed with two separate non-recourse mortgages totaling $38.0 million and the remainder in cash. The mortgages matured on February 11, 2016 and the Company is currently in negotiations with the lender. The mortgages have a fixed interest rate of 5.51% and 5.46% , respectively.


(6)	Affiliates of NSAM also manage the Company’s previously sponsored companies: NorthStar Income, NorthStar Healthcare and NorthStar Real Estate Income II, Inc. (“NorthStar Income II”) and together with any new retail company (herein collectively referred to as the “NSAM Retail Companies”).


(7)	The Company owns all of the common stock of NorthStar Realty Finance Trusts I through VIII (collectively, the “Trusts”). The Trusts were formed to issue trust preferred securities. Refer to Note 16 for further disclosure.

(8)

In July 2013, the Company through a joint venture with a private investor, acquired a multifamily property with 498 units, located in Philadelphia, Pennsylvania for an aggregate purchase price of $41.0 million , including all costs, escrows and reserves. The property was financed with a non-recourse mortgage note of $29.5 million and the remainder in cash. In April 2015, the property obtained additional non-recourse financing of $7.0 million . Both financings mature on July 1, 2023 and have a weighted average fixed interest rate of 3.87% . The joint venture is exploring the sale of the property.


(9)	In June 2013, in connection with the restructuring of an existing mezzanine loan, the Company acquired a 9.99% equity interest for $8.5 million in a joint venture that owns two office buildings in Chicago.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

NSAM Retail Companies

The Company committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceeds certain measures of operating performance.

The Company acquired an aggregate of $15.4 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through March 31, 2016 . In addition, pursuant to the management agreement with NSAM, the Company committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year.

As of March 31, 2016, the Company’s distribution support obligations remain outstanding for NorthStar Income II and the following other NSAM Retail Companies:

•

NorthStar/RXR New York Metro Real Estate, Inc. - NorthStar/RXR New York Metro Real Estate, Inc.’s (“NorthStar/RXR New York Metro”) registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, the Company and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million , of which $1.5 million was invested by the Company. The Company currently consolidates NorthStar/RXR New York Metro based on its majority voting interest in the entity. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

•

NorthStar Corporate Fund - NorthStar Corporate Income Fund’s (“NorthStar Corporate Fund”) registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, the Company and an affiliate of Och-Ziff Capital Management Group invested $2.0 million of seed capital into NorthStar Corporate Fund, of which $1.0 million was invested by the Company. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

•

NorthStar Capital Fund - NorthStar Real Estate Capital Income Fund’s (“NorthStar Capital Fund”) registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, the Company invested $2.0 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016. The Company currently consolidates the master fund of NorthStar Capital Fund based on its majority voting interest in the entity.


•	NorthStar Corporate Investment - In June 2015, NorthStar Corporate Investment, Inc. confidentially submitted an amended registration statement on Form N-2 to the SEC seeking to raise up to $1 billion in a public offering of common stock.


7.	Real Estate Securities, Available for Sale

The following table presents CRE securities as of March 31, 2016 (dollars in thousands):



						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal Amount ⁽³⁾		Amortized Cost		Gains		(Losses)			Fair Value		Investment Type ⁽³⁾		Average Coupon		Average Yield ⁽⁴⁾
Asset Type:
N-Star CDO bonds ⁽¹⁾⁽⁸⁾	24	$	363,493	$	164,681	$	10,597	$	(21,885	)	$	153,393	30.8	%	2.24	%	24.23	%
N-Star CDO equity ⁽⁵⁾⁽⁸⁾	4	68,128		68,128		1,168		(28,320		)	40,976		5.8	%	NA		13.11	%
CMBS and other securities ⁽⁶⁾	13	67,060		47,689		34		(22,779		)	24,944		5.7	%	0.76	%	1.30	%
Subtotal ⁽²⁾	41	498,681		280,498		11,799		(72,984		)	219,313		42.3	%	2.01	%	17.63	%
CRE securities in N-Star CDOs ⁽⁵⁾⁽⁷⁾
CMBS	121	525,664		391,920		22,914		(104,563		)	310,271		44.5	%	3.39	%	9.27	%
Third-party CDO notes	7	55,190		49,728		—		(43,070		)	6,658		4.4	%	—	%	—	%
Agency debentures	8	87,172		32,133		10,350		—			42,483		7.4	%	—	%	4.57	%
Unsecured REIT debt	1	8,000		8,257		589		—			8,846		0.7	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,819		)	5,406		0.7	%	2.25	%	2.32	%
Subtotal	139	683,251		489,263		33,853		(149,452		)	373,664		57.7	%	2.72	%	7.86	%
Total	180	$	1,181,932	$	769,761	$	45,652	$	(222,436	)	$	592,977	100.0	%	2.44	%	11.42	%

____________________________________________________________


(1)	Excludes $142.1 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation and includes $2.4 million of N-Star CDO bonds owned in N-Star CDO IX.


(2)	All securities are unleveraged.


(3)	Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


(4)	Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of March 31, 2016 .


(5)	The fair value option was elected for these securities (refer to Note 13).


(6)	The fair value option was elected for $ 19.4 million carrying value of these securities (refer to Note 13).


(7)	Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.


(8)	As of March 31, 2016, the weighted average remaining life of the N-Star CDO bonds and N-Star CDO equity is 1.8 years and 2.7 years, respectively.

The Company sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. The Company acquired equity interests of two CRE debt focused CDOs, the CSE RE 2006-A CDO (“CSE CDO”) and the CapLease 2005-1 CDO (“CapLease CDO”) sponsored by third parties. These CDOs are collectively referred to as the N-Star CDOs and their assets are referred to as legacy investments. All N-Star CDOs are considered VIEs (refer to Note 16). At the time of issuance of the sponsored CDOs, the Company retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, the Company repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds.

As of March 31, 2016 , the Company’s CRE securities portfolio is comprised of N-Star CDO bonds and N-Star CDO equity and other securities which are predominantly conduit commercial mortgage-backed securities (“CMBS”), meaning each asset is a pool backed by a large number of commercial real estate loans. As a result, this portfolio is typically well-diversified by collateral type and geography. As of March 31, 2016 , contractual maturities of CRE securities investments ranged from two months to 37 years, with a weighted average expected maturity of 3.4 years.

The following table presents CRE securities as of December 31, 2015 (dollars in thousands):



						Cumulative Unrealized							Allocation by		Weighted		Weighted
	Number	Principal Amount ⁽³⁾		Amortized Cost		Gains		Losses			Fair Value		Investment Type ⁽³⁾		Average Coupon		Average Yield ⁽⁴⁾
Asset Type:
N-Star CDO bonds ⁽¹⁾	26	$	401,848	$	194,908	$	24,332	$	(2,513	)	$	216,727	31.3	%	1.98	%	22.01	%
N-Star CDO equity ⁽⁵⁾	4	71,003		71,003		1,290		(27,388		)	44,905		5.5	%	NA		12.41	%
CMBS and other securities ⁽⁶⁾	15	116,681		61,520		15,340		(21,295		)	55,565		9.1	%	2.15	%	5.52	%
Subtotal ⁽²⁾	45	589,532		327,431		40,962		(51,196		)	317,197		45.9	%	2.01	%	16.83	%
CRE securities in N-Star CDOs ⁽⁵⁾⁽⁷⁾
CMBS	123	538,205		398,343		31,244		(103,076		)	326,511		41.9	%	3.48	%	10.13	%
Third-party CDO notes	8	55,509		50,047		—		(43,362		)	6,685		4.4	%	0.01	%	—	%
Agency debentures	8	87,172		31,774		6,384		(842		)	37,316		6.8	%	—		4.57	%
Unsecured REIT debt	1	8,000		8,285		691		—			8,976		0.6	%	7.50	%	5.88	%
Trust preferred securities	2	7,225		7,225		—		(1,800		)	5,425		0.6	%	2.25	%	2.32	%
Subtotal	142	696,111		495,674		38,319		(149,080		)	384,913		54.1	%	2.80	%	8.56	%
Total	187	$	1,285,643	$	823,105	$	79,281	$	(200,276	)	$	702,110	100.0	%	2.46	%	11.85	%

_________________________________________________________


(1)	Excludes $142.9 million principal amount of N-Star CDO bonds payable that are eliminated in consolidation.


(2)	All securities are unleveraged.


(3)	Based on amortized cost for N-Star CDO equity and principal amount for remaining securities.


(4)	Based on expected maturity and for floating-rate securities, calculated using the applicable LIBOR as of December 31, 2015 .


(5)	The fair value option was elected for these securities (refer to Note 13).


(6)	The fair value option was elected for $48.7 million carrying value of these securities (refer to Note 13).


(7)	Investments in the same securitization tranche held in separate CDO financing transactions are reported as separate investments.

For the three months ended March 31, 2016 , proceeds from the sale of CRE securities was $53.9 million resulting in a net realized loss of $5.6 million . The Company recognized a $9.7 million net cash gain related to acceleration of discount in connection with these sales. For the three months ended March 31, 2015 , proceeds from the sale of CRE securities was $61.0 million resulting in a net realized gain of $10.9 million .

CRE securities investments, not held in N-Star CDOs, include 25 securities for which the fair value option was not elected. As of March 31, 2016 , the aggregate carrying value of these securities was $159.0 million , representing $11.3 million of accumulated net unrealized losses included in OCI. As of March 31, 2016 , the Company held 20 securities with an aggregate carrying value of $119.1 million with an unrealized loss of $21.9 million , three of which were in an unrealized loss position for a period of greater than 12 months. Based on management’s quarterly evaluation, the Company recorded OTTI of $7.0 million for the three months ended March 31, 2016, which was recorded in realized gain (loss) on investments and other in the consolidated statements of operations. As of March 31, 2016 , the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities prior to recovery of its amortized cost basis, which may be at maturity.

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(Unaudited)


8.	Borrowings

The following table presents borrowings as of March 31, 2016 and December 31, 2015 (dollars in thousands):



				March 31, 2016				December 31, 2015
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate ⁽¹⁾⁽²⁾	Principal Amount		Carrying Value ⁽³⁾		Principal Amount		Carrying Value ⁽³⁾
Mortgage and other notes payable: ⁽⁴⁾
Healthcare
East Arlington, TX	Non-recourse	May-17	5.89%	$	3,087	$	3,082	$	3,101	$	3,097
Ohio Portfolio ⁽¹⁶⁾	Non-recourse	Jan-19	LIBOR + 4.25%	19,883		19,731		19,948		19,780
Lancaster, OH ⁽¹⁶⁾	Non-recourse	Jan-19	LIBOR + 4.25%	2,216		2,187		2,261		2,229
Wilkinson Portfolio ⁽¹⁶⁾	Non-recourse	Jan-19	6.99%	146,299		145,730		147,076		146,447
Tuscola/Harrisburg, IL ⁽¹⁶⁾	Non-recourse	Jan-19	7.09%	7,230		7,185		7,268		7,218
Formation Portfolio ⁽⁵⁾	Non-recourse	May-19 ⁽⁶⁾ /Jan-25/Feb-26	LIBOR + 4.25% ⁽⁷⁾ /4.54%/4.59%	705,344		697,963		701,819		695,060
Minnesota Portfolio ⁽¹⁶⁾	Non-recourse	Nov-19	LIBOR + 3.50%	37,800		37,215		37,800		37,171
Griffin-American - U.K. ⁽⁵⁾	Non-recourse	Dec-19 ⁽⁶⁾	LIBOR + 4.25% ⁽⁷⁾	317,466		313,164		327,890		322,415
Griffin-American - U.S. - Fixed ⁽⁵⁾	Non-recourse	Dec-19 ⁽⁶⁾ / Jun-25 / Dec-35	4.68%	1,763,023		1,696,616		1,763,036		1,692,098
Griffin-American - U.S. - Floating ⁽⁵⁾	Non-recourse	Dec-19 ⁽⁶⁾	LIBOR + 3.23% ⁽⁷⁾	854,568		822,379		854,565		820,180
Wakefield Portfolio	Non-recourse	April-20	LIBOR + 4.00%	54,576		54,140		54,694		54,228
Healthcare Preferred ⁽⁸⁾	Non-recourse	Jul-21	LIBOR + 7.75%	75,000		75,000		75,000		75,000
Indiana Portfolio ⁽⁸⁾	Non-recourse	Sept-21	LIBOR + 4.50%	121,130		121,130		121,130		121,130
Subtotal Healthcare/weighted average			4.56% ⁽⁷⁾	4,107,622		3,995,522		4,115,588		3,996,053
Hotel
Innkeepers Portfolio ⁽⁵⁾	Non-recourse	Jun-19 ⁽⁶⁾	LIBOR + 3.39% ⁽⁷⁾	840,000		838,766		840,000		837,137
K Partners Portfolio ⁽⁵⁾	Non-recourse	Aug-19 ⁽⁶⁾	LIBOR + 3.25% ⁽⁷⁾	211,681		211,083		211,681		210,660
Courtyard Portfolio ⁽⁵⁾	Non-recourse	Oct-19 ⁽⁶⁾	LIBOR + 3.05% ⁽⁷⁾	512,000		510,372		512,000		509,554
Inland Portfolio ⁽⁵⁾	Non-recourse	Nov-19 ⁽⁶⁾	LIBOR + 3.60% ⁽⁷⁾	817,000		813,297		817,000		811,927
NE Portfolio ⁽⁵⁾	Non-recourse	Jun-20 ⁽⁶⁾	LIBOR + 3.85% ⁽⁷⁾	132,250		131,070		132,250		130,824
Miami Hotel Portfolio ⁽⁵⁾	Non-recourse	Jul-20 ⁽⁶⁾	LIBOR + 3.90% ⁽⁷⁾	115,500		114,093		115,500		113,833
Subtotal Hotel/weighted average			3.39% ⁽⁷⁾	2,628,431		2,618,681		2,628,431		2,613,935
Net lease
Green Pond, NJ ⁽⁹⁾	Non-recourse	Apr-16	5.68%	15,404		15,403		15,486		15,481
Aurora, CO	Non-recourse	Jul-16	6.22%	30,031		30,028		30,175		30,169
DSG Portfolio	Non-recourse	Oct-16	6.17%	30,314		30,278		30,481		30,428
Indianapolis, IN	Non-recourse	Feb-17	6.06%	25,549		25,540		25,674		25,663
Milpitas, CA	Non-recourse	Mar-17	5.95%	18,663		18,647		18,827		18,807
Fort Mill, SC	Non-recourse	Apr-17	5.63%	27,700		27,681		27,700		27,675
Fort Mill, SC - Mezzanine	Non-recourse	Apr-17	6.21%	541		541		663		663
Industrial Portfolio ⁽⁵⁾	Non-recourse	Jul-17/Dec-17	4.21% ⁽⁷⁾	221,125		224,109		221,125		224,635
Salt Lake City, UT	Non-recourse	Sept-17	5.16%	12,507		12,429		12,646		12,555
South Portland, ME	Non-recourse	Jul-23	LIBOR + 2.15% ⁽⁷⁾	3,150		3,102		3,241		3,190
Subtotal Net lease/weighted average			4.91% ⁽⁷⁾	384,984		387,758		386,018		389,266

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(Unaudited)



				March 31, 2016				December 31, 2015
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate ⁽¹⁾⁽²⁾	Principal Amount		Carrying Value ⁽³⁾		Principal Amount		Carrying Value ⁽³⁾
Multi-tenant Office
Legacy Properties ⁽⁵⁾	Non-recourse	Nov-19/Feb-20 ⁽⁶⁾	LIBOR + 2.15% ⁽⁷⁾	113,804		112,272		112,988		111,266
Subtotal Multi-tenant Office				113,804		112,272		112,988		111,266
Other
Secured borrowing	Non-recourse	May-23	LIBOR + 1.60%	53,595		53,595		54,056		54,056
Subtotal Other				53,595		53,595		54,056		54,056
Subtotal Mortgage and other notes payable ⁽⁴⁾				7,288,436		7,167,828		7,297,081		7,164,576
Credit facilities and term borrowings:
Corporate Revolver ⁽¹¹⁾	Recourse	Aug-17	LIBOR + 3.50% ⁽⁷⁾	—		—		165,000		165,000
Corporate Term Borrowing	Recourse	Sept-17	4.60% / 4.55% ⁽¹²⁾	425,000		419,347		425,000		417,039
Loan Facility 1	Partial Recourse ⁽¹³⁾	Mar-18 ⁽⁶⁾	2.95% ⁽⁷⁾	25,188		23,951		72,053		72,021
Subtotal Credit facilities and term borrowings				450,188		443,298		662,053		654,060
CDO bonds payable:
N-Star I	Non-recourse	Aug-38	7.01%	9,426		9,379		10,869		10,814
N-Star IX	Non-recourse	Aug-52	LIBOR + 0.49% ⁽⁷⁾	411,327		279,959		425,622		296,787
Subtotal CDO bonds payable—VIE				420,753		289,338		436,491		307,601
Exchangeable senior notes:
7.25% Notes	Recourse	Jun-27	7.25%	12,955		12,955		12,955		12,955
8.875% Notes	Recourse	Jun-32	8.875%	1,000		967		1,000		967
5.375% Notes ⁽¹⁴⁾	Recourse	Jun-33	5.375%	16,805		14,652		17,405		15,116
Subtotal Exchangeable senior notes				30,760		28,574		31,360		29,038
Junior subordinated notes:
Trust I	Recourse	Mar-35	LIBOR + 3.25% ⁽⁷⁾	41,240		27,779		41,240		29,033
Trust II	Recourse	Jun-35	LIBOR + 3.25% ⁽⁷⁾	25,780		17,371		25,780		18,152
Trust III	Recourse	Jan-36	LIBOR + 2.83% ⁽⁷⁾	41,238		25,646		41,238		27,003
Trust IV ⁽¹⁵⁾	Recourse	Jun-36	7.95%	50,100		31,574		50,100		33,446
Trust V	Recourse	Sept-36	LIBOR + 2.70% ⁽⁷⁾	30,100		18,114		30,100		18,978
Trust VI	Recourse	Dec-36	LIBOR + 2.90% ⁽⁷⁾	25,100		15,602		25,100		16,348
Trust VII	Recourse	Apr-37	LIBOR + 2.50% ⁽⁷⁾	31,459		18,079		31,459		18,960
Trust VIII	Recourse	Jul-37	LIBOR + 2.70% ⁽⁷⁾	35,100		20,965		35,100		21,973
Subtotal Junior subordinated notes				280,117		175,130		280,117		183,893
Subtotal				8,470,254		8,104,168		8,707,102		8,339,168
Borrowings of properties, held for sale: ⁽⁴⁾
EDS Portfolio ⁽¹⁰⁾	Non-recourse	Oct-15	5.37%	41,482		41,482		41,742		41,742
Manufactured Housing Communities ⁽¹⁰⁾	Non-recourse	Dec-21 - Dec-25	4.32% ⁽⁷⁾	1,273,619		1,262,057		1,274,643		1,262,726
Multifamily ⁽¹⁰⁾	Non-recourse	Apr-23 - Jul-23	4.08% ⁽⁷⁾	249,641		247,032		249,709		247,019
Senior Housing Portfolio ⁽¹⁰⁾	—	—	—	—		—		648,211		644,486
Subtotal Borrowings of properties held for sale				1,564,742		1,550,571		2,214,305		2,195,973
Grand Total				$	10,034,996	$	9,654,739	$	10,921,407	$	10,535,141

____________________________________________________________


(1)	Refer to Note 14 for further disclosure regarding derivative instruments which are used to manage interest rate exposure.


(2)	For borrowings with a contractual interest rate based on LIBOR, represents three -month LIBOR for the Ohio, Lancaster and Wakefield Portfolio and one -month LIBOR for the other borrowings.


(3)	Carrying value represents fair value with respect to CDO bonds payable and junior subordinated notes due to the election of the fair value option (refer to Note 13) and amortized cost, net of deferred financing costs for the other borrowings.


(4)	Mortgage and other notes payable are subject to customary non-recourse carveouts.


(5)	An aggregate principal amount of $6.6 billion is comprised of 22 senior mortgage notes totaling $5.1 billion and 16 mezzanine mortgage notes totaling $1.5 billion .


(6)	Represents final maturity taking into consideration the Company’s extension options.


(7)	Contractual interest rate represents a weighted average. For borrowings with variable interest rates, the weighted average includes the current LIBOR as of March 31, 2016.


(8)	Represents borrowings in N-Star CDOs.


(9)	In April 2016, the mortgage matured and the Company is currently in negotiations with the lender to refinance and extend the mortgage.


(10)	The manufactured housing portfolio and multifamily portfolio are classified as held for sale and associated borrowings are expected to be assumed by a buyer, and therefore, classified as liabilities of assets held for sale. In October 2015, the mortgage matured for the EDS Portfolio and the Company is currently

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(Unaudited)

in negotiations with the lender. In April 2016, the Company gave three properties back to the lender and is expected to give the remaining property back to the lender. In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio for $534.5 million and the buyer assumed the $648.2 million of mortgage borrowing as part of the transaction. Refer to Note 9. Related Party Arrangements for further disclosure.


(11)	Secured by collateral relating to a borrowing base comprised primarily of unlevered CRE debt, net lease and securities investments with a carrying value of $418.3 million as of March 31, 2016 .


(12)	Represents the respective fixed rate applicable to each borrowing under the Corporate Term Borrowing.


(13)	Recourse solely with respect to certain types of loans as defined in the governing documents.


(14)	In January 2016, 0.1 million shares of common stock were issued related to the conversion of exchangeable senior notes.


(15)	Trust IV has a fixed interest rate until June 30, 2016 when the rate will change to floating and reset quarterly to three -month LIBOR plus 2.80% .


(16)	As of March 31, 2016, such borrowings were not in compliance with certain covenants. The Company received a waiver from the lenders for one quarter with respect to such defaults.

The following table presents a reconciliation of principal amount to carrying value of the Company’s mortgage and other notes payable by asset class as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016										December 31, 2015
Asset Class:	Principal Amount		Discount (Premium), Net			Deferred Financing Costs, Net			Carrying Value		Principal Amount		Discount (Premium), Net		Deferred Financing Costs, Net			Carrying Value
Healthcare	$	4,107,622	$	(51,966	)	$	(60,134	)	$	3,995,522	$	4,115,588	$	12,801	$	(132,336	)	$	3,996,053
Hotel	2,628,431		—			(9,750		)	2,618,681		2,628,431		—		(14,496		)	2,613,935
Net lease	384,984		3,752			(978		)	387,758		386,018		4,389		(1,141		)	389,266
Multi-tenant office	113,804		—			(1,532		)	112,272		112,988		—		(1,722		)	111,266
Other	53,595		—			—			53,595		54,056		—		—			54,056
Total	$	7,288,436	$	(48,214	)	$	(72,394	)	$	7,167,828	$	7,297,081	$	17,190	$	(149,695	)	$	7,164,576

The following table presents scheduled principal on borrowings, based on final maturity as of March 31, 2016 (dollars in thousands):



	Total		Mortgage and Other Notes Payable		CDO Bonds Payable		Credit Facilities and Term Borrowings		Exchangeable Senior Notes ⁽¹⁾		Junior Subordinated Notes		Borrowings of Properties, Held for Sale
April 1 to December 31, 2016	$	138,245	$	83,929	$	—	$	—	$	—	$	—	$	54,316
Years ending December 31:
2017	773,921		317,215		—		425,000		12,955		—		18,751
2018	58,710		10,423		—		25,188		—		—		23,099
2019	5,888,341		5,862,097		—		—		1,000		—		25,244
2020	377,110		350,510		—		—		—		—		26,600
Thereafter	2,798,669		664,262		420,753		—		16,805		280,117		1,416,732
Total	$	10,034,996	$	7,288,436	$	420,753	$	450,188	$	30,760	$	280,117	$	1,564,742

____________________________________________________________


(1)	The 7.25% Notes, 8.875% Notes and 5.375% Notes have a final maturity date of June 15, 2027, June 15, 2032 and June 15, 2033, respectively. The above table reflects the holders’ repurchase rights which may require the Company to repurchase the 7.25% Notes, 8.875% Notes and 5.375% Notes on June 15, 2017, June 15, 2019 and June 15, 2023, respectively.

As of March 31, 2016 , with the exception of the covenants disclosed above, the Company was in compliance with all of its financial covenants.

Credit Facilities and Term Borrowings

Corporate Borrowings

In August 2014, the Company obtained a corporate revolving credit facility (as amended, the “Corporate Revolver”) with certain commercial bank lenders, with a three -year term. The Corporate Revolver is secured by collateral relating to a borrowing base and guarantees by certain subsidiaries of the Company. In May 2015, the Company amended and restated the Corporate Revolver to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. In February 2016, the Company amended the agreement and decreased the aggregate amount of the revolving commitment to $250.0 million , subject to certain conditions. In February 2016, the Corporate Revolver was repaid and there is currently no outstanding balance.

In September 2014, the Company entered into a corporate term borrowing agreement (as amended, the “Corporate Term Borrowing”) with a commercial bank lender to establish term borrowings. In March 2015, the Company amended and restated the Corporate Term Borrowing to substitute the Operating Partnership as the borrower, with the Company becoming a guarantor. Borrowings may be prepaid at any time subject to customary breakage costs. In September and December 2014, the Company entered into a credit agreement providing for a term borrowing under the Corporate Term Borrowing in a principal amount of

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(Unaudited)

$275.0 million and $150.0 million , respectively, with a fixed interest rate of 4.60% and 4.55% , respectively, with each maturing on September 19, 2017. There is no available financing remaining under the Corporate Term Borrowing.

The Corporate Revolver and the Corporate Term Borrowing and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

Loan Facility

In March 2013, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility 1”) of $200.0 million to finance first mortgage loans and senior interests secured by commercial real estate. In connection with Loan Facility 1, the Company entered into a guaranty agreement under which the Company guaranteed certain of the obligations under Loan Facility 1. Loan Facility 1 and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Company has agreed to guarantee certain customary obligations under Loan Facility 1 if the Company or an affiliate of the Company engage in certain customary bad acts.

As of March 31, 2016, the Company had one loan with a carrying value of $38.6 million financed with $25.2 million on Loan Facility 1. In April 2016, the Loan Facility 1 was repaid in full upon the sale of such loan.


9.	Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, the Company entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20 -year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for the Company’s day-to-day operations, subject to supervision and management of the Company’s board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to the Company and its subsidiaries other than the Company’s CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of the Company’s management agreement with NSAM. The Company’s management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

Base Management Fee

For the three months ended March 31, 2016 and 2015 , the Company incurred $46.5 million and $45.3 million, respectively, related to the base management fee. As of March 31, 2016 , $46.5 million is recorded in due to related party on the consolidated balance sheets. The base management fee to NSAM could increase subsequent to March 31, 2016 by an amount equal to 1.5% per annum of the sum of:


•	cumulative net proceeds of all future common equity and preferred equity issued by the Company;


•	equity issued by the Company in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;


•	any other issuances by the Company of common equity, preferred equity or other forms of equity, including but not limited to LTIP Units in the Company’s Operating Partnership (excluding units issued to the Company and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and


•	cumulative cash available for distribution (“CAD”) of the Company in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, the Company’s equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee

For the three months ended March 31, 2016 , the Company did not incur an incentive fee. For the three months ended March 31, 2015, the Company incurred $2.9 million related to the incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:

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(Unaudited)


•	the product of: (a) 15% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“ 15% Hurdle”); plus


•	the product of: (a) 25% and (b) the Company’s CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off (“ 25% Hurdle”);


•	multiplied by the Company’s weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from the Company’s healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

Weighted average shares represents the number of shares of the Company’s common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.

Additional Management Agreement Terms

If the Company were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between the Company and NSAM. The management agreement further provides that the aggregate base management fee in place immediately after any future spin-off will not be less than the aggregate base management fee in place at the Company immediately prior to such spin-off.

The Company’s management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, the Company will consider such assignment in good faith and not unreasonably withhold, condition or delay the Company’s consent. The management agreement further provides that the Company anticipates consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.

Payment of Costs and Expenses and Expense Allocation

The Company is responsible for all of its direct costs and expenses and reimburses NSAM for costs and expenses incurred by NSAM on the Company’s behalf. In addition, NSAM may allocate indirect costs to the Company related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the Company’s management agreement with NSAM (the “G&A Allocation”). The Company’s management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) the Company’s and NorthStar Europe’s (the “NorthStar Listed Companies”) general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies (“NorthStar Listed Companies’ G&A”); and (b) NSAM’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include the Company’s allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to the Company’s affairs. In addition, the Company will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

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(Unaudited)

cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

For the three months ended March 31, 2016 , NSAM allocated $0.2 million to the Company. For the three months ended March 31, 2015 , NSAM allocated $2.0 million to the Company, of which $0.8 million is recorded in discontinued operations related to NorthStar Europe.

In addition, the Company, together with NorthStar Europe and any company spun-off from the Company or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from the Company or NorthStar Europe, the amount paid by the Company, NorthStar Europe and any company spun-off from the Company or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of the Company’s restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of the Company’s common stock are not available for issuance under the Company’s equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. The Company’s equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50% .

In connection with the above obligation, the Company was responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan (“NSAM Bonus Plan”). Long-term bonuses were paid to executives in the form of equity-based awards of both the Company and NSAM, subject to performance-based and time-based vesting conditions over the four -year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of the Company were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of the Company.

Investment Opportunities

Under the management agreement, the Company agreed to make available to NSAM for the benefit of NSAM and its managed companies, including the Company, all investment opportunities sourced by the Company. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including the Company and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, the Company is entitled to fair and reasonable compensation for its services in connection with any loan origination opportunities sourced by the Company, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three months ended March 31, 2016, the Company earned $0.2 million from NSAM, recorded in other revenue, for services in connection with loan origination opportunities.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to the Company as it relates to its loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, the Company entered into a revolving credit agreement with NSAM pursuant to which the Company makes available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50% . The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including the Company, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that the Company’s obligation to advance proceeds to NSAM is dependent upon the Company and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of March 31, 2016 , the Company has not funded any amounts to NSAM in connection with this agreement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding the Company’s healthcare business into a preeminent healthcare platform (“Healthcare Strategic Partnership”). In connection with the partnership, Mr. Flaherty oversees both the Company’s healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, the Company granted Mr. Flaherty certain RSUs (refer to Note 10). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by the Company. For the three months ended March 31, 2016 and 2015 , the Company did not incur any incentive fees related to the Healthcare Strategic Partnership.

N-Star CDOs

The Company earns certain collateral management fees from the N-Star CDOs primarily for administrative services. Such fees are recorded in other revenue in the consolidated statements of operations. For the three months ended March 31, 2016 and 2015 , the Company earned $1.1 million and $1.4 million in fee income, respectively, of which $0.5 million and $0.6 million were eliminated in consolidation.

Additionally, the Company earns interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended March 31, 2016 and 2015 , the Company earned $11.2 million and $16.1 million , respectively, of interest income from such investments related to deconsolidated N-Star CDOs. Refer to Note 7 and Note 16 for additional disclosure regarding the N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC (“AHI”) and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American until it was acquired by the Company and NorthStar Healthcare. AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and the Company in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by the Company and, subject to certain conditions, other NSAM managed companies. For the three months ended March 31, 2016 and 2015 , the Company incurred $1.3 million of property management fees to AHI, which are recorded in real estate properties— operating expenses in the consolidated statements of operations.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc. (“Island”). Island is a leading, independent select service hotel management company that currently manages 160 hotel properties, representing $4.0 billion of assets, of which 110 hotel properties are owned by the Company. Island provides certain asset management, property management and other services to the Company to assist in managing the Company’s hotel properties. Island receives a base management fee of 2.5% to 3.0% of the monthly revenue of the hotel properties it manages for the Company. For the three months ended March 31, 2016 and for the period from NSAM’s acquisition date (January 9, 2015) to March 31, 2015 , the Company incurred $4.1 million and $3.5 million, respectively, of base property management and other fees to Island, which are recorded in real estate properties—operating expenses in the consolidated statements of operations.

NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of the Company in the open market for $49.9 million .

Recent Sales or Commitments to Sell to NSAM Retail Companies

For the three months ended March 31, 2016 , the Company sold or entered into agreements to sell certain assets to NSAM Retail Companies:

•

In February 2016, the Company sold substantially all of its 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37.3 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.


•	In February 2016, the Company sold a 49% interest in one loan with a total principal amount of $40.3 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.


•	In February 2016, the Company sold one CRE security with a carrying value of $12.5 million to NorthStar Income II.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


•	In March 2016, the Company sold its 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $534.5 million . NorthStar Healthcare assumed the Company’s portion of the $648.2 million of mortgage borrowing as part of the transaction and the Company received approximately $149.4 million of net proceeds.

The board of directors of each NSAM Retail Company, including all of the independent directors, approved each of the respective transactions after considering, among other matters, third-party pricing support.


10.	Equity-Based Compensation

The Company has issued equity-based awards to directors, officers, employees, consultants and advisors pursuant to the NorthStar Realty Finance Corp. 2004 Omnibus Stock Incentive Plan (the “Stock Plan”) and the NorthStar Realty Executive Incentive Bonus Plan, as amended (the “Plan” and collectively the “NorthStar Realty Equity Plans”).

Prior to the NSAM Spin-off, the Company conducted substantially all of its operations and made its investments through an operating partnership which issued LTIP Units as equity-based compensation. Additionally, prior to the NSAM Spin-off, the Company completed an internal corporate reorganization whereby the Company collapsed its three tier holding company structure, including such operating partnership, into a single tier (the “Reorganization”). All of the vested and unvested equity-based awards granted by the Company prior to the NSAM Spin-off remain outstanding following the Reorganization and the NSAM Spin-off. Appropriate adjustments were made to all awards to reflect the Reorganization, the Reverse Split and the NSAM Spin-off and NRE Spin-off, collectively referred to as the Spin-offs. Pursuant to the Reorganization, such LTIP Units were converted into an equal number of shares of common stock of the Company (refer to Note 12), which are referred to as restricted stock, and holders of such shares received an equal number of shares of NSAM’s common stock in connection with the NSAM Spin-off, all of which generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. In connection with the NSAM Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs and Deferred LTIP Units, were adjusted to also relate to an equal number of shares of NSAM’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NSAM Spin-off. Vesting conditions for outstanding awards have been adjusted to reflect the impact of NSAM in terms of employment for service based on awards and total stockholder return for performance-based awards with respect to periods after the NSAM Spin-off.

In connection with the formation of the Operating Partnership, the Operating Partnership issued LTIP Units to each holder of the Company’s outstanding Deferred LTIP Units, which were equity awards representing the right to receive either LTIP units in the Company’s successor operating partnership or, if such LTIP units were not available upon settlement of the award, shares of common stock of the Company, in settlement of such Deferred LTIP Units on a one for one basis in accordance with the terms of the outstanding Deferred LTIP Units. Conditioned upon minimum allocations to the capital account of the LTIP Unit for federal income tax purposes, each LTIP Unit will be convertible, at the election of the holder, into one common unit of limited partnership interest in the Operating Partnership (“OP Unit”). Each of the OP Units underlying these LTIP Units will be redeemable at the election of the OP Unit holder for: (i) cash equal to the then fair market value of one share of the Company’s common stock; or (ii) at the option of the Company in its capacity as general partner of the Operating Partnership, one share of the Company’s common stock. LTIP Units issued remain subject to the same vesting terms as the Deferred LTIP Units.

In connection with the NRE Spin-off, equity and equity-based awards relating to the Company’s common stock, such as RSUs, were adjusted to also relate to one share of NorthStar Europe common stock for each six shares of the Company’s common stock, but otherwise generally remain subject to the same vesting and other terms that applied prior to the NRE Spin-off. Appropriate adjustments were also made to all awards to reflect the Reverse Split.

Following the Spin-offs, the Company and the compensation committee of its board of directors (the “Committee”) continues to administer all awards issued under the NorthStar Realty Equity Plans but NSAM and NorthStar Europe are obligated to issue shares of their common stock or other equity awards of their subsidiaries or make cash payments in lieu thereof with respect to dividend or distribution equivalent obligations to the extent required by such awards previously issued under the NorthStar Realty Equity Plans. These awards will continue to be governed by the NorthStar Realty Equity Plans, as applicable, and shares of NSAM’s common stock or NorthStar Europe’s common stock issued pursuant to these awards will not be issued pursuant to, or reduce availability, under the NorthStar Realty Equity Plans.

All of the adjustments made in connection with the Reorganization, the Spin-offs and the Reverse Splits were deemed to be equitable adjustments pursuant to anti-dilution provisions in accordance with the terms of the NorthStar Realty Equity Plans. As a result, there was no incremental value attributed to these adjustments and these adjustments do not impact the amount recorded for equity-based compensation expense for the three months ended March 31, 2016 and 2015 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following summarizes the equity-based compensation plans and related expenses.

All share amounts and related information disclosed below have been retrospectively adjusted to reflect the Reverse Split.

NorthStar Realty Equity Plans

Omnibus Stock Incentive Plan

In September 2004, the board of directors of the Company adopted the Stock Plan, and such plan, as amended and restated, was further adopted by the board of directors of the Company on April 17, 2013 and approved by the stockholders on May 29, 2013. The Stock Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, in the form of restricted stock and other equity-based awards such as LTIP Units or any combination of the foregoing. The eligible participants in the Stock Plan include directors, officers, employees, consultants and advisors of the Company.

As of March 31, 2016 , 5,219 unvested shares of restricted stock issued under the Stock Plan were outstanding and 1,291,829 shares of common stock remained available for issuance pursuant to the Stock Plan, which includes shares reserved for issuance upon settlement of outstanding LTIP Units and RSUs. Holders of shares of restricted stock or LTIP Units are entitled to receive dividends or distributions with respect to the Company’s shares of restricted stock and vested and unvested LTIP Units for as long as such shares and LTIP Units remain outstanding.

Incentive Compensation Plan

In July 2009, the Committee approved the material terms of the Plan for the Company’s executive officers and other employees. Pursuant to the Plan, an incentive pool was established each calendar year through 2013. The size of the incentive pool was calculated as the sum of: (a) 1.75% of the Company’s “adjusted equity capital” for the year; and (b) 25% of the Company’s adjusted funds from operations, as adjusted, above a 9% return hurdle on adjusted equity capital. Payout from the incentive pool is or was subject to achievement of additional performance and/or time-based goals summarized below.

The portion of the incentive pool for the executive officers was divided into the following three separate incentive compensation components: (a) an annual cash bonus, tied to annual performance of the Company and paid prior to or shortly after completion of the year-end audit (“Annual Bonus”); (b) a deferred bonus, determined based on the same year’s performance, but paid 50% following the close of each of the first and second years after such incentive pool is determined, subject to the participant’s continued employment through each payment date (“Deferred Bonus”); and (c) a long-term incentive in the form of RSUs, LTIP Units and/or Deferred LTIP Units. RSUs are subject to the Company achieving cumulative performance hurdles and/or total stockholder return hurdles established by the Committee for a three - or four -year period, subject to the participant’s continued employment through the payment date. Upon the conclusion of the applicable performance period, each executive officer will receive a payout, if any, equal to the value of one share of common stock at the time of such payout, including the dividends paid with respect to a share of common stock following the first year of the applicable performance period, for each RSU actually earned (the “Long-Term Amount Value”). The Long-Term Amount Value, if any, other than the portion related to dividends paid, will be paid in the form of shares of common stock of the Company or LTIP Units in the Operating Partnership, to the extent available under the NorthStar Realty Equity Plans, or in cash to the extent shares of common stock of the Company or LTIP Units in the Operating Partnership are unavailable under the NorthStar Realty Equity Plans, and, pursuant to adjustments made in connection with the NSAM Spin-off and the NRE Spin-off, shares of NSAM’s common stock or LTIP Units in NSAM’s operating partnership and shares of NorthStar Europe’s common stock or LTIP Units in NorthStar Europe’s operating partnership (the “Long-Term Amount Payout”). These performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NSAM with respect to periods after the NSAM Spin-off. These performance-based RSUs were again adjusted to refer to combined total stockholder return of the Company, NorthStar Europe and NSAM after the NRE Spin-off. Restricted stock or LTIP Units granted as a portion of the long-term incentive are subject to vesting based on continued employment during the performance period, but are not subject to performance-based vesting hurdles.

Under the Plan, for 2011, the Company issued 381,449 RSUs to executive officers which were subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ended December 31, 2014. The grant date fair value was $4.32 per RSU determined using a risk-free interest rate of 0.42% . As of December 31, 2014, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 24,575 shares of common stock, net of the minimum statutory tax withholding requirements, on January 1, 2015 and the Operating Partnership issued 334,871 LTIP Units. Under the Plan, for 2011, the Company also granted 381,449 LTIP Units to executive officers which were subject to vesting in four annual installments ending on January 29, 2015, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 151,340 shares of restricted stock (net of forfeitures occurring through March 31,

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(Unaudited)

2016 ) to certain non-executive employees, which were subject to vesting quarterly over three years beginning April 2012, subject to continued employment through the applicable vesting date.

Under the Plan, for 2012, the Company issued 352,418 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2015. The grant date fair value was $9.86 per RSU determined using a risk-free interest rate of 0.44% . As of December 31, 2015, the Company determined the performance hurdle was met which resulted in all of these RSUs vesting. To settle these RSUs, the Company issued 158,191 shares of common stock, net of the minimum statutory tax withholding requirements, on January 4, 2016. Under the Plan, for 2012, the Company also granted 352,418 LTIP Units to executive officers which were subject to vesting in four annual installments beginning on January 29, 2013, subject to the executive officer’s continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization. The Company also granted 144,883 LTIP Units (net of forfeitures occurring through March 31, 2016 ) to certain non-executive employees which are subject to vesting quarterly over three years beginning April 2013, subject to continued employment through the applicable vesting date, and were converted into shares of restricted stock pursuant to the Reorganization.

Under the Plan, for 2013, the Company issued 250,184 RSUs to executive officers which are subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2016. The grant date fair value was $21.57 per RSU determined using a risk-free interest rate of 0.63% . Under the Plan, for 2013, the Company also granted 250,184 Deferred LTIP Units to executive officers which are subject to vesting in four annual installments beginning on January 29, 2014, subject to the executive officer’s continued employment through the applicable vesting date and 130,787 Deferred LTIP Units which were subject to vesting based on continued employment through December 31, 2015. The Company also granted 137,260 Deferred LTIP Units (net of forfeitures occurring through March 31, 2016 ) to certain non-executive employees which were subject to vesting quarterly over three years beginning April 2014, subject to continued employment through the applicable vesting date. Such Deferred LTIP Units were subsequently settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

NSAM Bonus Plan

In connection with the NSAM Bonus Plan, for 2014, approximately 31.65% of the long-term bonus was paid in Deferred LTIP Units and approximately 18.35% of the long-term bonus was paid by the Company by issuing RSUs. In connection with the long-term bonuses to be paid by the Company, in February 2015, the Company granted 519,115 Deferred LTIP Units to executive officers of which 25% were vested upon grant and the remainder was subject to vesting in three equal annual installments beginning on December 31, 2015, subject to the executive officer’s continued employment through the applicable vesting dates. The Company also granted 292,438 RSUs to NSAM’s executive officers subject to vesting based on continued employment and achieving total stockholder return hurdles for the four -year period ending December 31, 2017. The grant date fair value of such RSUs was $18.64 per RSU determined using a risk-free interest rate of 1.00% . After the NRE Spin-off, these performance-based RSUs were adjusted to refer to combined total stockholder return of the Company and NorthStar Europe. In the first quarter 2015, the Company also granted 332,988 Deferred LTIP Units (net of forfeitures occurring through March 31, 2016 ) to certain of NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time based vesting conditions. Such Deferred LTIP Units were settled as LTIP Units in the Operating Partnership or shares of restricted stock, which remain subject to the same vesting terms that applied to the Deferred LTIP Units.

In connection with the NSAM Bonus Plan, for 2015, a portion of the long-term bonus was paid in restricted shares of common stock and a portion of the long-term bonus was paid by the Company by issuing RSUs. In connection with the 2015 long-term bonuses paid by the Company, in February 2016, the Company granted 1,006,006 restricted shares of common stock to NSAM’s executive officers, of which 25% were vested upon grant and the remainder is subject to vesting in equal installments on December 31, 2016, 2017 and 2018, subject to the recipient’s continued employment through the applicable vesting dates. In connection with the issuance of these shares , in February 2016, the Company retired 132,654 of the vested shares of common stock to satisfy the minimum statutory withholding requirements. In addition, in February 2016, the Company granted 583,261 RSUs to NSAM’s executive officers, which are subject to vesting based on the Company’s absolute total stockholder return, CAD and continued employment over the four -year period ending December 31, 2018. The grant date fair value of such RSUs was $1.70 per RSU determined using a risk-free interest rate of 0.88% . Following the determination of the number of these performance-based RSUs that vest, the Company will settle the vested RSUs by issuing an equal number shares of common stock (or, if shares are not then available, paying cash in an amount equal to the value of such shares) and the NSAM executives will be entitled to receive the distributions that would have been paid with respect to a share of common stock (for each RSU that vests) on or after January 1, 2015. In February 2016, the Company also granted 525,909 restricted shares (net of forfeitures occurring through March 31, 2016 ) of common stock and/or RSUs to its Chief Executive Officer and certain of the Company’s and NSAM’s non-executive employees, with substantially similar terms to the executive awards subject to time-based vesting conditions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Other Issuances

Healthcare Strategic Joint Venture

In connection with entering into the Healthcare Strategic Partnership, the Company granted Mr. Flaherty 250,000 RSUs on January 22, 2014 which vest on January 22, 2019, unless certain conditions are met. In connection with the Spin-offs, the RSUs granted to Mr. Flaherty were adjusted to also relate to shares of NSAM’s common stock and NorthStar Europe’s common stock. The RSUs are entitled to dividend equivalents prior to vesting and may be settled either in shares of common stock of the Company, NSAM and NorthStar Europe or in cash at the option of the Company.

Summary

The following table presents equity-based compensation expense for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,
	2016		2015		2016		2015		2016		2015
Awards issued pre NSAM Spin-off	$	290	$	2,871	$	473	$	956	$	763	$	3,827
Awards issued post NSAM Spin-off	4,673		6,246		510		224		5,183		6,470
Dividends to non-employees	339		533		—		—		339		533
Total	$	5,302	$	9,650	$	983	$	1,180	$	6,285	$	10,830

The following table presents a summary of equity-based awards outstanding. The balance as of March 31, 2016 represents unvested shares of restricted stock, LTIP Units and restricted stock units outstanding, whether vested or not (grants in thousands):



	Three Months Ended March 31, 2016
	Restricted Stock		LTIP Units		Restricted Stock Units ⁽¹⁾	Total Grants		Weighted Average Grant Price
December 31, 2015	81		1,868		250	2,199		$	33.44
Granted	1,040		—		505	1,545		10.73
Forfeited	—		(8	)	—	(8	)	29.11
Vesting of restricted stock	(328	)	—		—	(328	)	11.25
March 31, 2016	793		1,860		755	3,408		$	25.29

____________________________________________________________


(1)	Represents employee and non-employee grants subject to time-based vesting conditions.

As of March 31, 2016 , equity-based compensation expense to be recognized over the remaining vesting period through August 2019 is $34.7 million , provided there are no forfeitures.


11.	Stockholders’ Equity

Reverse Split

On November 1, 2015, the Company effected a Reverse Split of its common stock with any fractional shares settled in cash. As a result of the Reverse Split, common stock was reduced by dividing the par value prior to the Reverse Split by two (including retrospective adjustment of prior periods) with a corresponding increase to additional paid-in capital. The par value per share of common stock remained unchanged.

Share and per share amounts disclosed in the Company’s consolidated financial statements and the accompanying notes have been retrospectively adjusted to reflect the Reverse Split, including common stock outstanding, earnings per share and shares or units outstanding related to equity-based compensation, where applicable (refer to Note 10).

Share Repurchase

In September 2015, the Company’s board of directors authorized the repurchase of up to $500.0 million of its outstanding common stock. The authorization expires in September 2016, unless otherwise extended by the Company’s board of directors. For the three months ended March 31, 2016, the Company repurchased 3.9 million shares of its common stock for $50.0 million . From September 2015 through March 31, 2016, the Company repurchased 10.4 million shares for $168.0 million , with $332.0 million remaining under the stock repurchase plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Dividend Reinvestment Plan

In April 2007, as amended effective January 1, 2012, the Company implemented a Dividend Reinvestment Plan (the “DRP”), pursuant to which it registered with the SEC and reserved for issuance 3,569,962 shares of its common stock, after giving effect to the Reverse Split. Pursuant to the amended terms of the DRP, stockholders are able to automatically reinvest all or a portion of their dividends for additional shares of the Company’s common stock. The Company expects to use the proceeds from the DRP for general corporate purposes. For the three months ended March 31, 2016 , the Company issued 3,513 shares of its common stock pursuant to the DRP for an immaterial amount of proceeds.

Dividends

The following table presents dividends declared (on a per share basis) for the three months ended March 31, 2016 :



Common Stock			Preferred Stock
				Dividend Per Share
Declaration Date	Dividend Per Share		Declaration Date	Series A		Series B		Series C		Series D		Series E
February 25	$	0.40	January 30	$	0.54688	$	0.51563	$	0.55469	$	0.53125	$	0.54688

Earnings Per Share

The following table presents EPS for the three months ended March 31, 2016 and 2015 (dollars and shares in thousands, except per share data):



	Three Months Ended March 31,
	2016			2015
Numerator:
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)
Net income (loss) attributable to LTIP Units non-controlling interest	(1,437		)	—
Net income (loss) attributable to common stockholders and LTIP Units ⁽¹⁾	$	(146,701	)	$	(31,602	)
Denominator: ⁽²⁾⁽³⁾
Weighted average shares of common stock	182,809			154,268
Weighted average LTIP Units ⁽¹⁾	1,866			358
Weighted average shares of common stock and LTIP Units ⁽²⁾	184,675			154,626
Earnings (loss) per share: ⁽³⁾
Basic	$	(0.79	)	$	(0.20	)
Diluted	$	(0.79	)	$	(0.20	)

____________________________________________________________


(1)	The EPS calculation takes into account LTIP Units, which receive non-forfeitable dividends from the date of grant, share equally in the Company’s net income (loss) and convert on a one -for-one basis into common stock.


(2)	Excludes the effect of exchangeable senior notes, restricted stock and RSUs outstanding that were not dilutive as of March 31, 2016 . These instruments could potentially impact diluted EPS in future periods, depending on changes in the Company’s stock price and other factors.


(3)	Adjusted for the Reverse Split effected on November 1, 2015.


12.	Non-controlling Interests

Operating Partnership

Non-controlling interests include the aggregate LTIP Units held by limited partners (the “Unit Holders”) in the Operating Partnership. Net income (loss) attributable to this non-controlling interest is based on the weighted average Unit Holders’ ownership percentage of the Operating Partnership for the respective period. The issuance of additional common stock or LTIP Units changes the percentage ownership of both the Unit Holders and the Company. Since an LTIP Unit is generally redeemable for cash or common stock at the option of the Company, it is deemed to be equivalent to common stock. Therefore, such transactions are treated as capital transactions and result in an allocation between stockholders’ equity and non-controlling interests on the accompanying consolidated balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. On a quarterly basis, the carry value of such non-controlling interest is allocated based on the number of LTIP Units held by Unit Holders in total in proportion to the number of LTIP Units in total plus the number of shares of common stock. As of March 31, 2016 , LTIP Units of 1,860,145 were outstanding representing a 1.0% ownership and non-controlling interest in the Operating Partnership. Net income (loss) attributable to the Operating Partnership non-controlling interest for the three months

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(Unaudited)

ended March 31, 2016 was a net loss of $1.4 million . Since the Operating Partnership was not formed until March 2015, there was an immaterial amount of net income (loss) attributable to the Operating Partnership non-controlling interest for the three months ended March 31, 2015 .

Other

Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net income (loss) attributable to the other non-controlling interests for the three months ended March 31, 2016 and 2015 was a net loss of $1.7 million and $3.7 million , respectively.

The following table presents net income (loss) attributable to the Company’s common stockholders for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31,
	2016			2015
Income (loss) from continuing operations	$	(145,264	)	$	(17,751	)
Income (loss) from discontinued operations	—			(13,851		)
Net income (loss) attributable to NorthStar Realty Finance Corp. common stockholders	$	(145,264	)	$	(31,602	)


13.	Fair Value

Fair Value Measurement

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities are recorded at fair value on the consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:


Level 1.	Quoted prices for identical assets or liabilities in an active market.


Level 2.	Financial assets and liabilities whose values are based on the following:


(a)	Quoted prices for similar assets or liabilities in active markets.


(b)	Quoted prices for identical or similar assets or liabilities in non-active markets.


(c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability.


(d)	Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.


Level 3.	Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.

PE Investments

The Company accounts for PE Investments at fair value which is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets in the funds and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy. The Company is not using the NAV (practical expedient) of the underlying funds for purposes of determining fair value.

Investments in Unconsolidated Ventures

The Company accounts for certain investments in unconsolidated ventures at fair value determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying assets, discount rate and foreign currency exchange rates. Additionally, the Company accounts for a CRE debt investment made in connection with an investment in unconsolidated venture at fair value, which is determined based on comparing the current yield to the estimated yield for newly originated loans with similar credit risk. These fair value measurements are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Real Estate Securities

N-Star CDO Bonds

The fair value of N-Star CDO bonds is determined using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. The fair value of subordinate N-Star CDO bonds is determined using an internal price interpolated based on third-party prices of the more senior N-Star CDO bonds of the respective CDO. All N-Star CDO bonds are classified as Level 3 of the fair value hierarchy.

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(Unaudited)

N-Star CDO Equity

The fair value of N-Star CDO equity is determined based on a valuation model using assumptions for the timing and amount of expected future cash flow for income and realization events for the underlying collateral of these CDOs and discount rate. This fair value measurement is generally based on unobservable inputs and, as such, is classified as Level 3 of the fair value hierarchy.

Other CRE Securities

Other CRE securities are generally valued using a third-party pricing service or broker quotations. These quotations are not adjusted and are based on observable inputs that can be validated, and as such, are classified as Level 2 of the fair value hierarchy. Certain CRE securities may be valued based on a single broker quote or an internal price which may have less observable pricing, and as such, would be classified as Level 3 of the fair value hierarchy. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as its knowledge of and experience in the market.

Derivative Instruments

Derivative instruments are valued using a third-party pricing service. These quotations are not adjusted and are generally based on valuation models with observable inputs such as interest rates and contractual cash flow, and as such, are classified as Level 2 of the fair value hierarchy. Derivative instruments are also assessed for credit valuation adjustments due to the risk of non-performance by the Company and derivative counterparties. If a credit valuation adjustment is applied to a derivative asset or liability, such fair value is classified as Level 3 of the fair value hierarchy. Derivatives held in non-recourse CDO financing structures where, by design, the derivative contracts are senior to all the CDO bonds payable, there is no material impact of a credit valuation adjustment.

CDO Bonds Payable

CDO bonds payable are valued using quotations from nationally recognized financial institutions that generally acted as underwriter for the transactions. These quotations are not adjusted and are generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the timing and amount of expected future cash flow, discount rate, estimated prepayments and projected losses. CDO bonds payable are classified as Level 3 of the fair value hierarchy.

Junior Subordinated Notes

Junior subordinated notes may be valued using quotations from nationally recognized financial institutions or an internal model. A quotation from a financial institution is not adjusted. The fair value is generally based on a valuation model with observable inputs such as interest rate and other unobservable inputs for assumptions related to the implied credit spread of the Company’s other borrowings and the timing and amount of expected future cash flow. Junior subordinated notes are classified as Level 3 of the fair value hierarchy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables present financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 by level within the fair value hierarchy (dollars in thousands):



	March 31, 2016
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	869,470		$	869,470
Investments in unconsolidated ventures ⁽¹⁾	—		—		116,006			116,006
Real estate securities, available for sale:
N-Star CDO bonds	—		—		153,393			153,393
N-Star CDO equity	—		—		40,976			40,976
CMBS and other securities	—		10,388		14,556			24,944
CRE securities in N-Star CDOs
CMBS	—		251,534		58,737			310,271
Third-party CDO notes	—		—		6,658			6,658
Agency debentures	—		42,483		—			42,483
Unsecured REIT debt	—		8,846		—			8,846
Trust preferred securities	—		—		5,406			5,406
Subtotal CRE securities in N-Star CDOs	—		302,863		70,801			373,664
Subtotal real estate securities, available for sale	—		313,251		279,726			592,977
Derivative assets	—		22		—			22
Total assets	$	—	$	313,273	$	1,265,202		$	1,578,475
Liabilities:
CDO bonds payable	$	—	$	—	$	289,338		$	289,338
Junior subordinated notes	—		—		175,130			175,130
Derivative liabilities	—		5,069		213,787		⁽²⁾	218,856
Total liabilities	$	—	$	5,069	$	678,255		$	683,324

_____________________________________________________________________


(1)	Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.


(2)	Represents an interest rate swap entered into in the corporate segment in 2015 and includes a credit valuation adjustment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)



	December 31, 2015
	Level 1		Level 2		Level 3			Total
Assets:
PE Investments	$	—	$	—	$	1,101,650		$	1,101,650
Investments in unconsolidated ventures ⁽¹⁾	—		—		120,392			120,392
Real estate securities, available for sale:
N-Star CDO bonds	—		—		216,727			216,727
N-Star CDO equity	—		—		44,905			44,905
CMBS and other securities	—		12,318		43,247			55,565
CRE securities in N-Star CDOs
CMBS	—		261,552		64,959			326,511
Third-party CDO notes	—		—		6,685			6,685
Agency debentures	—		37,316		—			37,316
Unsecured REIT debt	—		8,976		—			8,976
Trust preferred securities	—		—		5,425			5,425
Subtotal CRE securities in N-Star CDOs	—		307,844		77,069			384,913
Subtotal real estate securities, available for sale	—		320,162		381,948			702,110
Derivative assets	—		116		—			116
Total assets	$	—	$	320,278	$	1,603,990		$	1,924,268
Liabilities:
CDO bonds payable	$	—	$	—	$	307,601		$	307,601
Junior subordinated notes	—		—		183,893			183,893
Derivative liabilities	—		7,385		95,908		⁽²⁾	103,293
Total liabilities	$	—	$	7,385	$	587,402		$	594,787

_____________________________________________________________________


(1)	Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.


(2)	Represents an interest rate swap entered into in the corporate segment in 2015 and includes a credit valuation adjustment.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the three months ended March 31, 2016 (dollars in thousands):



	Three Months Ended March 31, 2016
	Assets									Liabilities ⁽³⁾
	PE Investments			Investments in Unconsolidated Ventures ⁽¹⁾			CRE Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2016	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Transfers into Level 3 ⁽²⁾	—			—			500			—			—
Transfers out of Level 3 ⁽²⁾	—			—			(3,775		)	—			—
Purchases / borrowings / amortization / contributions	1,015			15			10,587			—			—
Sales	(184,076		)	—			(53,886		)	—			—
Paydowns / distributions	(82,896		)	(1,641		)	(6,590		)	(15,737		)	—
Gains:
Equity in earnings of unconsolidated ventures	37,552			6,710			—			—			—
Unrealized gains included in earnings	—			1,361			4,879			(2,526		)	(8,763		)
Realized gains included in earnings	—			—			100			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			2,073			—			—
Losses:
Unrealized losses included in earnings	(3,775		)	(10,831		)	(7,995		)	—			—
Realized losses included in earnings	—			—			(12,935		)	—			—
Unrealized loss on real estate securities, available for sale included in OCI	—			—			(35,180		)	—			—
March 31, 2016	$	869,470		$	116,006		$	279,726		$	289,338		$	175,130
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held	$	(3,775	)	$	(9,470	)	$	(3,116	)	$	2,526		$	8,763

____________________________________________________________


(1)	Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.


(2)	Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.

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(Unaudited)


(3)	Excludes one derivative instrument, which for the three months ended March 31, 2016, an unrealized loss of $117.8 million was recorded, of which $7.6 million related to a credit valuation adjustment.

The following table presents the changes in fair value of financial assets and liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the year ended December 31, 2015 (dollars in thousands):



	Year Ended December 31, 2015
	Assets									Liabilities ⁽³⁾
	PE Investments			Investments in Unconsolidated Ventures ⁽¹⁾			CRE Securities			CDO Bonds Payable			Junior Subordinated Notes
January 1, 2015	$	962,038		$	276,437		$	481,576		$	390,068		$	215,172
Transfers into Level 3 ⁽²⁾	—			—			24,170			—			—
Transfers out of Level 3 ⁽²⁾	—						(3,052		)	—			—
Purchases / borrowings / amortization / contributions	614,578			(4,053		)	93,477			(25,531		)	—
Sales	—			—			(77,230		)	—			—
Paydowns / distributions	(639,884		)	(125,285		)	(124,480		)	(90,070		)	—
Gains:
Equity in earnings of unconsolidated ventures	198,159			19,177			—			—			—
Unrealized gains included in earnings	—			—			81,532			—			(31,279		)
Realized gains included in earnings	—			—			22,418			—			—
Unrealized gain on real estate securities, available for sale included in OCI	—			—			1,213			—			—
Losses:
Unrealized losses included in earnings	(33,241		)	(45,884		)	(75,523		)	29,275			—
Realized losses included in earnings	—			—			(5,886		)	3,859			—
Unrealized loss on real estate securities, available for sale included in OCI	—			—			(36,267		)	—			—
December 31, 2015	$	1,101,650		$	120,392		$	381,948		$	307,601		$	183,893
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to assets or liabilities still held	$	(33,241	)	$	(45,884	)	$	6,009		$	(29,275	)	$	31,279

____________________________________________________________


(1)	Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.


(2)	Transfers between Level 2 and Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more or less observable during the period. Transfers are assumed to occur at the beginning of the year.


(3)	Excludes one derivative instrument, which for the year ended December 31, 2015, an unrealized loss of $95.9 million was recorded. Such amount is net of an unrealized gain of $23.1 million related to a credit valuation adjustment.

There were no transfers, other than those identified in the tables above, during the periods ended March 31, 2016 and December 31, 2015 .

The Company relies on the third-party pricing exception with respect to the requirement to provide quantitative disclosures about significant Level 3 inputs being used to determine fair value measurements related to CRE securities (including N-Star CDO bonds), junior subordinated notes and CDO bonds payable. The Company believes such pricing service or broker quotation for such items may be based on a market transaction of comparable securities, inputs including forecasted market rates, contractual terms, observable discount rates for similar securities and credit (such as credit support and delinquency rates).

For the three months ended March 31, 2016 , quantitative information about the Company’s remaining Level 3 fair value measurements on a recurring basis are as follows (dollars in thousands):



	Fair Value		Valuation Technique	Key Unobservable Inputs ⁽²⁾	Weighted Average
PE Investments	$	869,470	Discounted Cash Flow Model	Discount Rate	15%
Investments in unconsolidated ventures ⁽¹⁾	$	116,006	Discounted Cash Flow Model/Credit Spread	Discount Rate/Credit Spread	25%
N-Star CDO equity	$	40,976	Discounted Cash Flow Model	Discount Rate	18%

_________________________________________


(1)	Includes CRE debt investments made in connection with an investment in unconsolidated venture, for which the fair value option was elected.


(2)	Includes timing and amount of expected future cash flow.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Significant increases (decreases) in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets and liabilities using such Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value on a non-recurring basis in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that the Company believes to be within a reasonable range of current market rates for the respective properties.

Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, the Company may engage third-party valuation experts to assist with the preparation of certain of its valuations.

Fair Value Option

The Company has historically elected to apply the fair value option for the following financial assets and liabilities existing at the time of adoption or at the time the Company recognizes the eligible item for the purpose of consistent accounting application: CRE securities financed in N-Star CDOs; CDO bonds payable; and junior subordinated notes. Given past market volatility the Company had observed that the impact of electing the fair value option would generally result in additional variability to the Company’s consolidated statements of operations which management believes is not a useful presentation for such financial assets and liabilities. Therefore, the Company more recently has not elected the fair value option for new investments in CRE securities and securitization financing transactions. The Company may elect the fair value option for certain of its financial assets or liabilities due to the nature of the instrument. In the case of PE Investments, certain investments in unconsolidated ventures (refer to Note 6) and N-Star CDO equity, the Company elected the fair value option because management believes it is a more useful presentation for such investments. The Company determined recording such investments based on the change in fair value of projected future cash flow from one period to another better represents the underlying economics of the respective investment.

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(Unaudited)

The following table presents the fair value of financial instruments for which the fair value option was elected as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	March 31, 2016		December 31, 2015
	March 31, 2016		December 31, 2015
Assets:
PE Investments	$	869,470	$	1,101,650
Investments in unconsolidated ventures ⁽¹⁾	116,006		120,392
Real estate securities, available for sale: ⁽²⁾
N-Star CDO equity	40,976		44,905
CMBS and other securities	19,377		48,711
CRE securities in N-Star CDOs
CMBS	310,271		326,511
Third-party CDO notes	6,658		6,685
Agency debentures	42,483		37,316
Unsecured REIT debt	8,846		8,976
Trust preferred securities	5,406		5,425
Subtotal CRE securities in N-Star CDOs	373,664		384,913
Subtotal real estate securities, available for sale	434,017		478,529
Total assets	$	1,419,493	$	1,700,571
Liabilities:
CDO bonds payable	$	289,338	$	307,601
Junior subordinated notes	175,130		183,893
Total liabilities	$	464,468	$	491,494

___________________________________________________________


(1)	Includes CRE debt investments made in connection with certain investments in unconsolidated ventures, for which the fair value option was elected.


(2)	March 31, 2016 excludes 25 CRE securities including $153.4 million of N-Star CDO bonds and $5.6 million of CRE securities, for which the fair value option was not elected. December 31, 2015 excludes 28 CRE securities including $216.7 million of N-Star CDO bonds and $6.9 million of CRE securities, for which the fair value option was not elected.

The Company attributes the change in the fair value of floating-rate liabilities to changes in instrument-specific credit spreads. For fixed-rate liabilities, the Company attributes the change in fair value to interest rate-related and instrument-specific credit spread changes.

Change in Fair Value Recorded in the Statements of Operations

The following table presents unrealized gains (losses) on investments and other related to the change in fair value of financial assets and liabilities in the consolidated statements of operations for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31,
	2016			2015
Assets:
Real estate securities, available for sale ⁽¹⁾	$	(10,222	)	$	4,512
PE Investments ⁽¹⁾	(3,775		)	(4,433		)
Investments in unconsolidated ventures ⁽¹⁾	(10,831		)	—
Foreign currency remeasurement ⁽²⁾	(3,750		)	(17,543		)
Liabilities:
CDO bonds payable ⁽¹⁾	2,526			(9,188		)
Junior subordinated notes ⁽¹⁾	8,763			(2,010		)
Subtotal unrealized gain (loss), excluding derivatives	(17,289		)	(28,662		)
Derivatives	(115,648		)	1,136
Subtotal unrealized gain (loss)	(132,937		)	(27,526		)
Net cash payments on derivatives (refer to Note 14)	(2,544		)	(3,048		)
Total	$	(135,481	)	$	(30,574	)

____________________________________________________________


(1)	Represents financial assets and liabilities for which the fair value option was elected.


(2)	Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Fair Value of Financial Instruments

In addition to the above disclosures regarding financial assets or liabilities which are recorded at fair value, U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.

The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of March 31, 2016 and December 31, 2015 ( dollars in thousands):



	March 31, 2016						December 31, 2015
	Principal / Notional Amount		Carrying Value		Fair Value		Principal / Notional Amount		Carrying Value		Fair Value
Financial assets: ⁽¹⁾
Real estate debt investments, net	$	467,189	$	411,568	$	411,815	$	555,354	$	501,474	$	594,698
Real estate debt investments, held for sale	91,949		88,972		88,972		225,037		224,677		224,677
Real estate securities, available for sale ⁽²⁾	1,181,932		592,977		592,977		1,285,643		702,110		702,110
Derivative assets ⁽²⁾⁽³⁾	3,894,271		22		22		4,173,872		116		116
Financial liabilities: ⁽¹⁾
Mortgage and other notes payable	$	7,288,436	$	7,167,828	$	7,204,160	$	7,297,081	$	7,164,576	$	7,175,374
Credit facilities and term borrowings	450,188		443,298		443,298		662,053		654,060		654,060
CDO bonds payable ⁽²⁾⁽⁴⁾	420,753		289,338		289,338		436,491		307,601		307,601
Exchangeable senior notes	30,760		28,574		48,351		31,360		29,038		50,121
Junior subordinated notes ⁽²⁾⁽⁴⁾	280,117		175,130		175,130		280,117		183,893		183,893
Derivative liabilities ⁽²⁾⁽³⁾	2,225,750		218,856		218,856		2,225,750		103,293		103,293
Borrowings of properties held for sale	1,564,742		1,550,571		1,555,276		2,241,305		2,195,975		2,200,686

____________________________________________________________


(1)	The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.


(2)	Refer to “Determination of Fair Value” above for disclosures of methodologies used to determine fair value.


(3)	Derivative assets and liabilities exclude timing swaps with an aggregate notional amount of $28.0 million as of March 31, 2016 and December 31, 2015 .


(4)	The fair value option has been elected for these liabilities.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Real Estate Debt Investments

For CRE debt investments, fair value was approximated by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment. Fair value was determined assuming fully-extended maturities regardless of structural or economic tests required to achieve such extended maturities. For any CRE debt investments that are deemed impaired, carrying value approximates fair value. The fair value of CRE debt investments held for sale is determined based on the expected sales price. Fair value measurements related to CRE debt are generally based on unobservable inputs and, as such, are classified as Level 3 of the fair value hierarchy.

Mortgage and Other Notes Payable

For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period or market credit spreads over the rate payable on fixed rate U.S. Treasury of like maturities. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy. For the borrowings of properties held for sale, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Credit Facilities and Term Borrowings

As of the reporting date, the Company believes the carrying value of its credit facilities and term borrowings approximate fair value. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

Exchangeable Senior Notes

For the exchangeable senior notes, the Company uses available market information, which includes quoted market prices or recent transactions, if available, to estimate their fair value and are, therefore, based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.


14.	Risk Management and Derivative Activities

Derivatives

The Company uses derivative instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and cap agreements and the primary objective is to minimize interest rate risks associated with investment and financing activities. The counterparties of these arrangements are major financial institutions with which the Company may also have other financial relationships. The Company is exposed to credit risk in the event of non-performance by these counterparties and it monitors their financial condition; however, the Company currently does not anticipate that any of the counterparties will fail to meet their obligations.

The following tables present derivative instruments that were not designated as hedges under U.S. GAAP as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	Number	Notional Amount ⁽¹⁾		Fair Value Net Asset (Liability)				Range of Fixed LIBOR / Forward Rate	Range of Maturity
As of March 31, 2016:
Interest rate caps	11	$	3,894,271	$	22			1.26% - 5.00%	June 2016 - December 2017
Interest rate swaps - N-Star CDOs	9	207,310		(5,069		)	⁽²⁾	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,149		(213,787		)		3.39% - 4.17%	July 2023 - December 2029
Total	22	$	6,104,730	$	(218,834	)

As of December 31, 2015:
Interest rate caps	14	$	4,173,872	$	116			2.50% - 5.00%	January 2016 - December 2017
Interest rate swaps - N-Star CDOs	9	222,510		(7,321		)	⁽²⁾	5.02% - 5.25%	January 2017 - July 2018
Interest rate swaps - other	2	2,003,240		(95,972		)		3.39% - 4.17%	July 2023 - December 2029
Total	25	$	6,399,622	$	(103,177	)

____________________________________________________________


(1)	Excludes timing swaps with a notional amount of $28.0 million as of March 31, 2016 and December 31, 2015 .


(2)	Interest rate swaps in consolidated N-Star CDOs are liabilities and are only subject to the credit risks of the respective CDO transaction. As the interest rate swaps are senior to all the liabilities of the respective CDO and the fair value of each of the CDO’s investments exceeded the fair value of the CDO’s derivative liabilities, a credit valuation adjustment was not recorded.

The change in number and notional amount of derivative instruments from December 31, 2015 relates to contractual notional amortization and the maturity of interest rate caps in the Company’s healthcare portfolio. The Company had no derivative financial instruments that were designated as hedges in qualifying hedging relationships as of March 31, 2016 and December 31, 2015 .

The following table presents the fair value of derivative instruments, as well as their classification on the consolidated balance sheets, as of March 31, 2016 and December 31, 2015 (dollars in thousands):



	Balance Sheet	March 31, 2016		December 31, 2015
	Location	March 31, 2016		December 31, 2015
Interest rate caps	Derivative assets	$	22	$	116
Interest rate swaps	Derivative liabilities	$	218,856	$	103,293

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents the effect of derivative instruments in the consolidated statements of operations for the three months ended March 31, 2016 and 2015 (dollars in thousands):



		Three Months Ended March 31,
	Statements of Operations Location	2016			2015
Amount of gain (loss) recognized in earnings (loss):
Adjustment to fair value of interest rate swaps and caps	Unrealized gain (loss) on investments and other	$	(115,648	)	$	1,136
Net cash payment on derivatives	Unrealized gain (loss) on investments and other	$	(2,544	)	$	(3,048	)
Amount of swap gain (loss) reclassified from OCI into earnings	Interest expense—mortgage and corporate borrowings	$	(223	)	$	(265	)

The counterparty for the corporate interest rate swap held $62.3 million of cash margin as collateral against the derivative contract as of March 31, 2016 . The Company’s counterparties did not hold any cash margin as collateral against the Company’s derivative contracts as of December 31, 2015.

Risk Management

Concentrations of credit risk arise when a number of tenants, operators or issuers related to the Company’s investments are engaged in similar business activities or located in the same geographic region to be similarly affected by changes in economic conditions. The Company monitors its portfolios to identify potential concentrations of credit risks. With respect to the Company’s healthcare portfolio, for the three months ended March 31, 2016, Senior Lifestyle Holding Company, LLC was the healthcare operator as it related to 74.5% of the Company’s resident fee income and 10.7% of the Company’s total revenue. Otherwise, the Company has no other tenant or operator that generates 10% or more of its total revenue. The Company believes the remainder of its portfolios are reasonably well diversified and do not contain any unusual concentration s of credit risks.


15.	Commitments and Contingencies

The Company is involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, the current legal proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

Guaranty Agreements

In connection with certain hotel acquisitions, the Company entered into guaranty agreements with various hotel franchisors, pursuant to which the Company guaranteed the franchisees’ obligations, including payments of franchise fees and marketing fees, for the term of the agreements, which expires from 2029 to 2034. As of March 31, 2016 , the aggregate amount remaining under these guarantees is $3.8 million .

In connection with the NRE Spin-off, the 4.635% senior stock-settlable notes issued by NorthStar Europe and due in December 2016 are senior unsubordinated and unsecured primary obligations of NorthStar Europe and the Company continues to guarantee payments subsequent to the NRE Spin-off. Subject to certain conditions, NorthStar Europe may elect to settle all or part of the principal amount of the senior notes in its common stock in lieu of cash. As of March 31, 2016, principal amount outstanding of such senior notes was $189.5 million .


16.	Variable Interest Entities

As of March 31, 2016 , the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company. The Company identified several VIEs as of March 31, 2016 which were originally consolidated under the voting interest model prior to changes in the consolidation rules under U.S. GAAP (refer to Note 2).

Consolidated VIEs

The Company’s most significant newly identified consolidated VIEs are its Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights and the Company is the primary beneficiary.

N-Star CDOs

As of March 31, 2016 , the Company serves as collateral manager and/or special servicer for N-Star CDOs I and IX which are primarily collateralized by CRE securities. The Company consolidates these entities as the Company has the power to direct the activities that most significantly impact the economic performance of these CDOs, and therefore, continues to be the primary beneficiary.

The Company is not contractually required to provide financial support to any of the consolidated N-Star CDOs, however, the Company, in its capacity as collateral manager and/or special servicer, may in its sole discretion provide support such as protective and other advances it deems appropriate. The Company did not provide any other financial support to any of the consolidated N-Star CDOs for the three months ended March 31, 2016 and 2015 .

Unconsolidated VIEs

N-Star CDOs

The Company delegated the collateral management rights for N-Star CDOs IV, VI and VIII and the CapLease CDO on September 30, 2013 and the CSE CDO on December 31, 2013 to a third-party collateral manager/collateral manager delegate who is entitled to a percentage of the senior and subordinate collateral management fees. The Company continues to receive fees as named collateral manager or collateral manager delegate and retained administrative responsibilities. The Company evaluated the fees paid to the third-party collateral manager/collateral manager delegate and concluded that such fees represented a variable interest in the deconsolidated loan CDOs and that the third party was functioning as a principal. The Company determined that the delegation of the Company’s collateral management power in the CDOs was a VIE reconsideration event and concluded that these CDOs were still VIEs as the equity investors do not have the characteristics of a controlling financial interest. The Company then reconsidered if it was the primary beneficiary of such VIEs and determined that it no longer has the power to direct the activities that most significantly impact the economic performance of these CDOs, which includes but is not limited to selling collateral, and therefore is no longer the primary beneficiary of such CDOs. As a result, the Company does not consolidate the assets and liabilities for N-Star CDOs IV, VI and VIII, CSE CDO and the CapLease CDO. In September 2015, N-Star CDO IV was liquidated.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In March 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO V due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO V, and as a result, in the first quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

In May 2014, the Company determined it no longer had the power to direct the activities that most significantly impact the economic performance of N-Star CDO III due to the ability of a single party to remove the Company as collateral manager as a result of an existing event of default. The Company was no longer the primary beneficiary of N-Star CDO III, and as a result, in the second quarter 2014, the Company deconsolidated the assets and liabilities of this CDO.

Similar events of default in the future, if they occur, could cause the Company to deconsolidate its remaining consolidated N-Star CDO financing transactions.

Other Unconsolidated VIEs

Based on management’s analysis, the Company is not the primary beneficiary of the VIEs summarized below and as such, these VIEs are not consolidated into the Company’s financial statements as of March 31, 2016 . These unconsolidated VIEs are summarized as follows:

Real Estate Debt Investments

The Company identified three CRE debt investments with an aggregate carrying value of $ 60.4 million as variable interests in a VIE. The Company determined that it is not the primary beneficiary of such VIEs, and as such, the VIEs are not consolidated in the Company’s financial statements. For all other CRE debt investments, the Company determined that these investments are not VIEs and, as such, the Company continues to account for all CRE debt investments as loans.

Real Estate Securities

The Company identified one CMBS investment with a fair value of $0.3 million as a variable interest in a VIE, which is the controlling class of this securitization for which the Company did not sponsor. However, the Company determined at that time and continues to believe that it does not currently or potentially hold a significant interest in this CMBS and, therefore, is not the primary beneficiary.

NorthStar Realty Finance Trusts

The Company owns all of the common stock of the Trusts. The Trusts were formed to issue trust preferred securities. The Company determined that the holders of the trust preferred securities were the primary beneficiaries of the Trusts. As a result, the Company did not consolidate the Trusts and has accounted for the investment in the common stock of the Trusts under the equity method. As of March 31, 2016 , the Company’s carrying value and maximum exposure to loss related to its investment in the Trusts is $3.7 million and is recorded in investments in unconsolidated ventures on the consolidated balance sheets.

PE Investments

The Company determined all PE Investments are VIEs, with the exception of PE Investment I and II, as the non-controlling interests do not have substantive kick-out or participating rights. As of March 31, 2016, the Company’s investment in these entities is $743.5 million and the amount of expected future contributions is $67.6 million .

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Summary of Unconsolidated VIEs

The following table presents the classification, carrying value and maximum exposure of unconsolidated VIEs as of March 31, 2016 (dollars in thousands):



	Junior Subordinated Notes, at Fair Value			Real Estate Debt Investments, Net		Real Estate Securities, Available for Sale		PE Investments		Total		Maximum Exposure to Loss ⁽¹⁾
Real estate debt investments, net	$	—		$	60,443	$	—	$	—	$	60,443	$	60,443
Investments in unconsolidated ventures	3,742			—		—		—		3,742		3,742
Investments in private equity funds, at fair value	—			—		—		743,507		743,507		743,507
Real estate securities, available for sale:
N-Star CDO bonds	—			—		153,393		—		153,393		153,393
N-Star CDO equity	—			—		40,976		—		40,976		40,976
CMBS	—			—		339		—		339		339
Subtotal real estate securities, available for sale	—			—		194,708		—		194,708		194,708
Total assets	3,742			60,443		194,708		743,507		1,002,400		1,002,400
Junior subordinated notes, at fair value	175,130			—		—		—		175,130		NA
Total liabilities	175,130			—		—		—		175,130		NA
Net	$	(171,388	)	$	60,443	$	194,708	$	743,507	$	827,270	$	1,002,400

____________________________________________________________


(1)	The Company’s maximum exposure to loss as of March 31, 2016 would not exceed the carrying value of its investment.

Other than described above as it relates to expected future fundings on PE Investments, the Company is not contractually required to provide financial support to any of its unconsolidated VIEs during the three months ended March 31, 2016 and 2015 however, the Company, in its capacity as collateral manager/collateral manager delegate and/or special servicer of the deconsolidated N-Star CDOs, may in its sole discretion provide support such as protective and other advances it deems appropriate. As of March 31, 2016 , there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.


17.	Segment Reporting

The Company currently conducts its business through the following five segments (excluding the European real estate business which the Company spun off on October 31, 2015, which is no longer a separate operating segment), based on how management reviews and manages its business:

•

Real Estate - The real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments diversified by property type and geography. In addition, the Company is also invested in manufactured housing communities and multifamily properties, which the Company has recently entered into agreements to sell.

•

Healthcare - The healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of the healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, the Company owns senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by RIDEA that permit the Company, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, the Company sold its 60% interest in a $899 million Senior Housing Portfolio for $534.5 million . The buyer assumed the Company’s portion of the $648.2 million of related mortgage financing and the Company received approximately $149.4 million of proceeds, net of sales costs.


•	Hotel - The hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

•

Manufactured Housing - The manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, the Company entered into an agreement to sell its manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $620 million of net proceeds. The Company expects the transaction to close in the second half of 2016. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.


•	Net Lease - The net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants.

•

Multifamily - The multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. The Company is exploring the sale of its multifamily portfolio and entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. The Company expects to receive $86 million of net proceeds and continue to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated subsidiary. Such assets and related liabilities are classified as held for sale on the Company’s consolidated balance sheet.


•	Multi-tenant Office - The Company pursues the acquisition of multi-tenant office properties currently focused on the western United States.

•

PE Investments - The real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, the Company sold substantially all of its interest in PE Investment II for $184.1 million of proceeds and is exploring the sale of its remaining PE Investments.

•

Commercial Real Estate Debt - The CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. The Company may from time to time take title to collateral in connection with a CRE debt investment as REO which would be included in the CRE debt business. In 2016, the Company sold and received repayment for 13 debt investments and a REO with a total principal amount of $383.0 million and used $72.1 million of proceeds to pay down the Company’s loan facility in full, resulting in $307.5 million of net proceeds.

•

Commercial Real Estate Securities - The CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly CMBS meaning each asset is a pool backed by a large number of commercial real estate loans. The Company also invests in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, the Company sold certain N-Star CDO bonds and CRE securities for $53.9 million of net proceeds.

•

N-Star CDOs - The Company historically originated or acquired CRE debt and securities investments that were predominantly financed through permanent, non-recourse CDOs. The Company’s remaining consolidated CDOs are past the reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold. The Company has been winding down its legacy CDO business and investing in a broad and diverse range of CRE assets. As a result, this distinct business is a significantly smaller portion of its business today than in the past. As of March 31, 2016 , only N-Star securities CDOs I and IX continue to be consolidated. Refer to Note 16 for further disclosure regarding deconsolidated N-Star CDOs. The Company continues to receive collateral management fees related to administrative responsibilities for deconsolidated N-Star CDO financing transactions, which are recorded in other revenue and included in the N-Star CDOs segment.


•	Corporate - The corporate segment includes NSAM management fees incurred, corporate level interest income and interest expense and general and administrative expenses.

The Company primarily generates revenue from rental income from its real estate properties, operating income from healthcare and hotel properties permitted by the RIDEA and net interest income on the CRE debt and securities portfolios. Additionally, the Company records equity in earnings of unconsolidated ventures, including from PE Investments. The Company’s income is primarily derived through the difference between revenue and the cost at which the Company is able to finance its investments. The Company may also acquire investments which generate attractive returns without any leverage.

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present segment reporting for the three months ended March 31, 2016 and 2015 (dollars in thousands):



Statement of Operations:											N-Star CDOs ⁽²⁾
Three Months Ended March 31, 2016	Real Estate ⁽¹⁾				CRE Debt			CRE Securities			CRE Securities			Corporate				Consolidated Total
Rental and escalation income	$	191,434			$	—		$	—		$	—		$	—			$	191,434
Hotel related income	193,743				—			—			—			—				193,743
Resident fee income	72,777				—			—			—			—				72,777
Net interest income on debt and securities	2,584			⁽³⁾	13,032			11,490			8,464		⁽⁴⁾	5,203			⁽⁴⁾	40,773
Interest expense—mortgage and corporate borrowings	112,977				—			—			—			11,525				124,502
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	8,378			⁽⁵⁾	6,579			(3,605		)	2,831			(178,377		)	⁽⁶⁾	(164,194		)
Equity in earnings (losses) of unconsolidated ventures	44,577				—			—			—			78				44,655
Income tax benefit (expense)	(7,716		)		(127		)	—			—			—				(7,843		)
Income (loss) from continuing operations	45,239				6,452			(3,605		)	2,831			(178,299		)		(127,382		)
Net income (loss)	45,239				6,452			(3,605		)	2,831			(178,299		)		(127,382		)

___________________________________


(1)	Includes $8.8 million of rental and escalation income and $0.5 million of net income from a portfolio of healthcare assets located in the United Kingdom.

(2)

Based on CDO financing transactions that were primarily collateralized by CRE securities and may include other types of investments. $1.1 million of collateral management fees were earned from CDO financing transactions for the three months ended March 31, 2016 , of which $0.5 million was eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.


(3)	Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Griffin-American portfolio.


(4)	Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDOs segment.


(5)	Primarily relates to depreciation and amortization of $87.8 million.


(6)	Includes management fees to NSAM of $46.5 million .



Statement of Operations:										N-Star CDOs ⁽¹⁾
Three months ended March 31, 2015:	Real Estate				CRE Debt			CRE Securities		CRE Securities			Corporate				European Real Estate ⁽²⁾				Consolidated Total
Rental and escalation income	$	164,746			$	—		$	—	$	295		$	—			$	—			$	165,041
Hotel related income	168,727				—			—		—			—				—				168,727
Resident fee income	63,373				—			—		—			—				—				63,373
Net interest income on debt and securities	2,609			⁽³⁾	30,806			17,083		10,533		⁽⁴⁾	2,629			⁽⁴⁾	—				63,660
Interest expense—mortgage and corporate borrowings	100,137				—			—		—			12,872				—				113,009
Income (loss) before equity in earnings (losses) and income tax benefit (expense)	(27,298		)	⁽⁵⁾	30,114			33,059		2,457			(90,726		)	⁽⁶⁾	—				(52,394		)
Equity in earnings (losses) of unconsolidated ventures	53,643				—			—		—			—				—				53,643
Income tax benefit (expense)	(1,642		)		(22		)	—		—			—				—				(1,664		)
Income (loss) from continuing operations	24,703				30,092			33,998		1,518			(90,726		)		—				(415		)
Income (loss) from discontinued operations	(11		)		—			—		—			—				(13,850		)	⁽⁷⁾	(13,861		)
Net income (loss)	24,692				30,092			33,998		1,518			(90,726		)		(13,850		)	⁽⁷⁾	(14,276		)

___________________________________

(1)

Based on CDO financing transactions that were primarily collateralized by either CRE debt or securities and may include other types of investments. $1.4 million of collateral management fees were earned from CDO financing transactions for the three months ended March 31, 2015 , of which $0.6 million were eliminated in consolidation. The eliminated amounts are recorded as other revenue in the Corporate segment and as an expense in the N-Star CDO segment.

(2)

Prior to the NRE Spin-off, the Company generated rental and escalation income from its European properties. The European real estate segment represents the consolidated results of operations and balance sheet of such European real estate business which was transferred to NorthStar Europe in connection with the NRE Spin-off. Amounts related to the European real estate business are reported in discontinued operations. Represents the consolidated statements of operations of NRE reported in discontinued operations and includes an allocation of indirect expenses from the Company (refer to Note 3).


(3)	Primarily represents interest income earned from notes receivable on manufactured homes and interest income on loans in the Griffin-American portfolio.


(4)	Represents income earned from N-Star CDO bonds repurchased at a discount, recognized using the effective interest method, that is eliminated in consolidation. The corresponding interest expense is recorded in net interest income in the N-Star CDO segments.


(5)	Primarily relates to transaction costs and includes depreciation and amortization of $108.5 million for the three months ended March 31, 2015 .


(6)	Includes management fees to NSAM of $48.2 million .


(7)	Primarily relates to transaction costs of $12.4 million and depreciation and amortization of $0.7 million .

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NORTHSTAR REALTY FINANCE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table presents total assets by segment as of March 31, 2016 and December 31, 2015 (dollars in thousands):



							N-Star CDOs ⁽¹⁾
Total Assets	Real Estate		CRE Debt		CRE Securities		CRE Securities		Corporate		Consolidated Total
March 31, 2016	$	12,720,057	$	416,818	$	220,029	$	407,943	$	427,022	$	14,191,869
December 31, 2015	$	13,871,796	$	661,348	$	319,937	$	422,953	$	128,367	$	15,404,401

______________________________________


(1)	Based on CDO financing transactions that are primarily collateralized by CRE securities and may include other types of investments.


18.	Supplemental Disclosures of Non-cash Investing and Financing Activities

The following table presents non-cash investing and financing activities for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31,
	2016		2015
Assumption of mortgage note payable upon sale of real estate	$	648,211	$	—
Reclassification of CRE debt investments to held for sale	88,972		—
Non-controlling interest – sale of subsidiary	88,604		—
Receivables related to sales	42,042		—
Reclassification of operating real estate, net to asset held for sale	29,209		—
Retirement of shares of common stock	5,014		—
Escrow deposit payable related to CRE debt investments	4,312		25,532
Due from servicer	2,399		46,270
Reclassification of intangible assets to asset held for sale	1,859		—
Non-controlling interests—reallocation of interest in Operating Partnership	1,846		—
Dividends payable related to RSUs	1,839		2,720
Non-cash related to PE Investments	1,806		28,829
Amounts payable relating to improvements of operating real estate	1,724		—
Conversion of exchangeable senior notes	504		11,228
Reclassification of operating real estate to intangible assets	—		35,540
Conversion of Deferred LTIP Units to LTIP Units (refer to Note 12)	—		18,730


19.	Subsequent Events

Dividends

On May 4, 2016, the Company declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on May 20, 2016 to stockholders of record as of the close of business on May 16, 2016. On April 27, 2016, the Company declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on May 16, 2016 to stockholders of record as of the close of business on May 9, 2016.

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

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in Item 1. “Financial Statements” of this report. References to “N-Star,” “NorthStar Realty,” “we,” “us” or “our” refer to NorthStar Realty Finance Corp. and its subsidiaries unless the context specifically requires otherwise.

Introduction

We are a diversified commercial real estate company, with 87% of our total assets invested directly or indirectly in real estate, of which 80% is invested in direct real estate. We generated 92% of our revenue from our real estate portfolio for the three months ended March 31, 2016 . We invest in multiple asset classes across commercial real estate that we expect will generate attractive risk-adjusted returns and may take the form of acquiring real estate, originating or acquiring senior or subordinate loans, as well as pursuing opportunistic commercial real estate, or CRE, investments. We seek to generate stable cash flow for distribution to our stockholders through our diversified portfolio of commercial real estate assets and in turn build long-term franchise value. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce our leverage.

We are a Maryland corporation and completed our initial public offering in October 2004. We conduct our operations so as to continue to qualify as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are externally managed and advised by an affiliate of NorthStar Asset Management Group Inc. (NYSE: NSAM), which together with its affiliates is referred to as NSAM.

Significant Developments

Strategic Initiatives

We continue to execute a series of strategic initiatives with the goal of maximizing long-term shareholder value. These initiatives include: (i) sales of all or portions of certain real estate assets; (ii) sales of all or a portion of our limited partnership interests in real estate private equity funds, or PE Investments; and (iii) sales and/or accelerated repayments of our CRE debt and securities investments. Additionally, in connection with our continuous evaluation of our capital allocation strategy, we revised our dividend policy.

Proceeds from such sales initiatives, along with capital retained from our revised dividend policy, are currently expected to be used for opportunistically repurchasing our common stock, which we believe is currently trading at a significant discount to underlying net asset value and toward repayment of a significant portion of our corporate recourse borrowing obligations with $425 million currently outstanding (excluding $280 million of trust preferred securities with maturities beginning in 2035). Since the beginning of the fourth quarter 2015 through May 2016, assets sold or committed to sell totaled $4.2 billion, of which net proceeds to us received or expected to be received totaled approximately $1.7 billion.

In addition, our board of directors formed a special committee, which retained UBS Investment Bank as its financial advisor, to explore a potential recombination transaction with NSAM. The special committee is comprised solely of independent directors that are not on the board of directors of NSAM. In May 2016, we also announced that we had entered into exclusive discussions with NSAM and Colony Capital, Inc., or Colony Capital, regarding a tri-party business combination. There can be no assurance that the exploration of corporate strategic initiatives, including our discussions with NSAM and Colony Capital, will result in any definitive agreement, transaction or initiative being announced or consummated.

Summary of Business

Our primary business lines are as follows:

•

Real Estate - Our real estate business pursues various types of investments in commercial real estate located throughout the United States that includes healthcare, hotel, net lease and multi-tenant office properties. In addition, it includes certain healthcare properties located outside of the United States and PE Investments, diversified by property type and geography. In addition, we are also invested in manufactured housing communities and multifamily properties, which we have recently entered into agreements to sell.

•

Healthcare - Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities, which include healthcare properties that operate through management agreements with independent third-party operators, predominantly through structures permitted by the REIT Investment Diversification and Empowerment Act of 2007, or RIDEA, that permit us, through a taxable REIT subsidiary, or TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60% interest in a $899 million portfolio of independent living facilities, or Senior Housing Portfolio, for $535 million. The buyer assumed our portion

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of the $648 million of related mortgage financing and we received approximately $150 million of proceeds, net of sales costs.


•	Hotel - Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands.

•

Manufactured Housing - Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. In addition, the portfolio includes manufactured homes and receivables related to the financing of homes sold to residents. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.


•	Net Lease - Our net lease properties are primarily industrial, office and retail properties typically under net leases to corporate tenants.

•

Multifamily - Our multifamily portfolio primarily focuses on properties located in suburban markets that are well suited to capture the formation of new households. We are exploring the sale of our multifamily portfolio and entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and continue to explore the sale of the remaining two properties, including one accounted for as an investment in unconsolidated subsidiary. Such assets and related liabilities are classified as held for sale on our consolidated balance sheet.


•	Multi-tenant Office - We pursue the acquisition of multi-tenant office properties currently focused on the western United States.


•	PE Investments - Our real estate business also includes investments (directly or indirectly in joint ventures) owning PE Investments managed by institutional quality sponsors and diversified by property type and geography. In February 2016, we sold substantially all of our interest in PE Investment II for $184 million of proceeds and are exploring the sale of our remaining PE Investments.

•

Commercial Real Estate Debt - Our CRE debt business is focused on originating, acquiring and asset managing senior and subordinate debt investments secured primarily by commercial real estate and includes first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests. We may from time to time take title to collateral in connection with a CRE debt investment as real estate owned, or REO, which would be included in our CRE debt business. In 2016, we sold and received repayment for 13 debt investments and a REO with a total principal amount of $383 million and used $72 million of proceeds to pay down our loan facility in full, resulting in $308 million of net proceeds.

•

Commercial Real Estate Securities - Our CRE securities business is predominately comprised of N-Star CDO bonds and N-Star CDO equity of deconsolidated N-Star CDOs and includes other securities, mostly conduit commercial mortgage-backed securities, or CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We also invest in opportunistic CRE securities such as an investment in a “B-piece” CMBS. In 2016, we sold certain N-Star CDO bonds and CRE securities for $54 million of net proceeds.

We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns. Our ability to invest across the CRE market creates complementary and overlapping sources of investment opportunities based upon common reliance on real estate fundamentals and application of similar portfolio management skills to maximize value and to protect capital. Additionally, we have pursued opportunistic investments across all our business lines including CRE equity and debt investments. Examples of opportunistic investments include PE Investments, strategic joint ventures and repurchasing our CDO bonds at a discount to their principal amount.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity.

We predominantly use investment-level financing as part of our strategy to prudently leverage our investments and deliver attractive risk-adjusted returns to our stockholders. We pursue a variety of financing arrangements such as mortgage notes from the CMBS market, government-sponsored agencies, finance companies, banks and securitization financing transactions. In addition, we use corporate-level financing such as credit facilities and other term borrowings. We generally seek to limit our reliance on recourse borrowings. Borrowing levels for our CRE investments may be dependent upon the nature of the assets and the related financing that is available.

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The availability of attractive long-term, non-recourse, non mark-to-market, assignable financing through the CMBS and agency financing markets has bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt which currently provide for an aggregate of up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. We will continue to seek to use the capital markets to finance any new debt investments. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

With respect to corporate-level financing, in August 2014, we entered into a corporate revolving credit facility, or Corporate Revolver, with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.

We believe that we maintain a competitive advantage through a combination of deep industry relationships and access to market leading CRE credit underwriting and capital markets expertise which enables us to manage credit risk across our business lines as well as to structure and finance our assets efficiently. Our ability to invest across the spectrum of commercial real estate investments allows us to take advantage of complementary and overlapping sources of investment opportunities based on a common reliance on CRE fundamentals and application of similar underwriting and asset management skills as we seek to maximize stockholder value and to protect our capital. However, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce our leverage.

Our Investments

The following table presents our investments as of March 31, 2016 and pro forma for sales and commitments to sell through May 5, 2016 (refer to the below for further discussion) (dollars in thousands):



					Pro Forma
	Amount ⁽¹⁾		%		Amount			%
Real Estate
Healthcare ⁽²⁾	$	5,797,113	37.8	%	$	5,765,419	(3)	43.9	%
Hotel	3,427,281		22.3	%	3,427,281			26.1	%
Manufactured housing communities (held for sale)	1,756,615		11.4	%	—		(4)	—	%
Net lease	783,653		5.1	%	783,653			6.0	%
Multifamily (held for sale)	377,211		2.5	%	92,634		(5)	0.7	%
Multi-tenant office	175,979		1.1	%	175,979			1.3	%
Subtotal	12,317,852		80.2	%	10,244,966			78.0	%
Private equity fund investments	872,946		5.7	%	872,946			6.6	%
Corporate investments ⁽⁶⁾	108,162		0.7	%	108,162			0.8	%
Total real estate	13,298,960		86.6	%	11,226,074			85.4	%
CRE Debt ⁽⁷⁾
CRE debt	427,296		2.8	%	375,296		(8)	2.9	%
CRE debt, held for sale	91,949		0.6	%	—		(9)	—	%
CRE debt of consolidated N-Star CDOs	39,893		0.3	%	39,893			0.3	%
Other	16,417		0.1	%	16,417			0.1	%
Total CRE debt	575,555		3.8	%	431,606			3.3	%
CRE Securities
N-Star CDO bonds ⁽¹⁰⁾	503,201		3.3	%	503,201			3.8	%
N-Star CDO equity	68,128		0.4	%	68,128			0.5	%
Other securities	67,060		0.4	%	67,060			0.5	%
Total CRE securities	638,389		4.1	%	638,389			4.8	%
Subtotal	14,512,904		94.5	%	12,296,069			93.5	%
Assets underlying deconsolidated CRE Debt CDOs ⁽¹¹⁾	840,326		5.5	%	840,326			6.5	%
Grand total	$	15,353,230	100.0	%	$	13,136,395		100.0	%

____________________________________________________________

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(1)

Based on cost for real estate investments which includes net purchase price allocation related to net intangibles, deferred costs and other assets, if any, fair value for PE Investments, carrying value for our corporate investments, principal amount for our CRE debt and securities investments and amortized cost for N-Star CDO equity. Represents 100% of all real estate assets in consolidated joint ventures.


(2)	Includes $471 million of Sterling denominated real estate in the United Kingdom owned in connection with the acquisition of Griffin-American Healthcare REIT II, Inc., or Griffin-American or the Griffin-American Portfolio.


(3)	In April 2016, a purchase option on one of our healthcare properties was exercised by the tenant.


(4)	In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016.


(5)	We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and we continue to explore the sale of the remaining two properties.


(6)	Represents our investments in RXR Realty LLC, or RXR Realty, Aerium Group, or Aerium, and SteelWave, LLC (formerly known as Legacy Partners Commercial LLC), or SteelWave.


(7)	In the first quarter 2016, we sold seven debt investments with a total principal amount of $225 million at par and used $47 million of proceeds to pay down our loan facility, resulting in $178 million of net proceeds.


(8)	In April 2016, one first mortgage loan, with a total principal amount of $52 million, was repaid at par.


(9)	In April 2016, we sold four loans with a total principal amount of $92 million and used $25 million of proceeds to pay down our loan facility in full, resulting in $64 million of net proceeds.


(10)	Includes N-Star CDO bonds with a principal amount of $142 million related to CRE securities CDOs that are eliminated in consolidation.


(11)	Represents assets of deconsolidated N-Star CDOs and is based on the respective remittance report issued on the date nearest to March 31, 2016 . This amount excludes $432 million of aggregate principal amount of N-Star CDO bonds and amortized cost of N-Star CDO equity of such deconsolidated N-Star CDOs included in CRE securities.

We have the ability to invest in a broad spectrum of commercial real estate assets and seek to provide attractive risk-adjusted returns to our stockholders. As a result, we pursue opportunistic investments across all our business lines including CRE equity and debt investments.

For financial information regarding our reportable segments, refer to Note 17. “Segment Reporting” in our accompanying consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Real Estate

Overview

As part of our real estate strategy, we explore a variety of real estate investments, both directly and through joint ventures. Opportunities to purchase real estate have been bolstered by attractive long-term, non-recourse, non mark-to-market financing available through CMBS and agency financing markets. Our portfolio is primarily comprised of healthcare, hotel, manufactured housing communities, net lease and multifamily properties. We also invest in other opportunistic real estate investments such as indirect interests in real estate through PE Investments. Our hotel and certain healthcare properties acquired operate through RIDEA structures where we participate directly in the operational cash flow of a property. Our real estate equity investments that operate under the RIDEA structure generate resident and hotel guest related income from short-term residential agreements and incur customary related operating expenses.

Recently, we sold or are pursuing the sale of certain real estate assets and are exploring other sales or joint ventures to further monetize certain of our real estate assets. There is no assurance we will enter into any transactions on favorable terms, or at all. Refer to the below for further discussion.

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Our Portfolio

As of March 31, 2016 , $13.3 billion , or 87% , of our assets were invested directly in real estate properties, indirectly through our PE Investments and in corporate interests. The following table presents our direct investments in real estate properties as of March 31, 2016 (refer to the below for further discussion) (dollars in thousands):



Type	Number of Properties	Amount ⁽¹⁾		% of Portfolio		Capacity		Primary Locations
Healthcare
Medical office buildings (MOB)	149	$	2,139,609	17.4	%	6.0 million	square feet	IN, TX, GA, CO, IL
Net lease
Skilled nursing facilities (SNF) ⁽²⁾	107	1,345,365		10.9	%	12,550	beds	FL, PA, IL, IN, VA
Assisted living facilities (ALF)	83	859,129		7.0	%	4,330	units	UK, NC, OR, MN, IN
Hospital (HOS)	14	261,686		2.1	%	800	beds	CA, MO, TX
Senior housing-operating
Assisted living facilities - RIDEA (ALF-RIDEA)	109	1,191,324		9.7	%	6,300	units	IL, OR, OH, TX, MA, WA
Subtotal	462	5,797,113		47.1	%
Hotel	167	3,427,281		27.8	%	22,092	rooms	TX, FL, NJ, CA, VA
Manufactured housing communities (held for sale) ⁽³⁾	136	1,756,615		14.3	%	33,055	pad sites	CO, UT, FL, TX, WY, NY
Net lease
Industrial	35	379,799		3.1	%	6.1 million	square feet	CA, IL, FL, GA, MI
Office ⁽⁴⁾	19	339,301		2.8	%	2.3 million	square feet	CA, FL, NJ, UT
Retail	10	64,553		0.5	%	467,971	square feet	NH, MA, ME
Subtotal	64	783,653		6.4	%
Multifamily (held for sale) ⁽⁴⁾⁽⁵⁾	12	377,211		3.1	%	4,514	units	TN, GA, FL
Multi-tenant office	13	175,979		1.3	%	1.0 million	square feet	CO, TX, CA
Total	854	$	12,317,852	100.0	%

___________________________________________________________


(1)	Represents cost, which includes net purchase price allocation of $643 million related to net intangibles. Additionally, includes $59 million of notes receivable and $254 million of escrows and other assets.


(2)	Includes three properties with a cost of $14 million owned pursuant to a RIDEA structure.


(3)	In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016.


(4)	Includes our interest in joint ventures that own a net lease property and multifamily property of $27 million and $39 million, respectively.


(5)	We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and we continue to explore the sale of the remaining two properties.

Healthcare Properties

Our healthcare properties are comprised of a diverse portfolio of medical office buildings, senior housing, skilled nursing and other healthcare properties. The majority of our healthcare properties are medical office buildings and properties structured under a net lease to healthcare operators. In addition, we own senior operating facilities properties that operate through management agreements with independent third-party operators, predominantly through RIDEA structures that permit us, through a TRS, to have direct exposure to resident fee income and incur customary related operating expenses. In March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million. The buyer assumed our portion of the $648 million mortgage borrowing and we received approximately $150 million of proceeds, net of sales costs.

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As of March 31, 2016 , $5.8 billion , or 37.8% , of our assets were invested in healthcare properties. The following presents a summary of our healthcare portfolio and diversity across property type based on net cash flow:



			Healthcare by Property Type
Total Healthcare Portfolio	$5.8 billion
Number of facilities	462
Number of units/beds ⁽¹⁾	23,980

Weighted average occupancy ⁽²⁾	86	%
Weighted average lease coverage	1.7x
Weighted average lease term	8.8 years

Net cash flow related to:
Medical office buildings	28	%
Net lease	51	%
Senior operating facilities - RIDEA	21	%

___________________________________


(1)	Represents number of units for ALF property types and number of beds for SNF property types.


(2)	Represents weighted average occupancy for ALF, SNF, and hospital property types based on number of units/beds. Percentage excludes medical office buildings, which has a weighted average occupancy of 90%, based on square footage.

Hotel Portfolio

Our hotel portfolio is a geographically diverse portfolio primarily comprised of extended stay hotels and premium branded select service hotels primarily located in major metropolitan markets with the majority affiliated with top hotel brands. As of March 31, 2016 , $3.4 billion , or 22.3% , of our assets were invested in hotel properties.

The following presents a summary of our hotel portfolio and diversity across geographic location based on number of rooms:



			Hotel by Geographic Location
Total Hotel Portfolio	$3.4 billion
Number of hotels	167
Number of rooms	22,092
Weighted average occupancy	70	%

Rooms by brand:
Marriott	75	%
Hilton	16	%
Starwood	4	%
Hyatt	4	%
Intercontinental	1	%

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Manufactured Housing Communities

Our manufactured housing portfolio consists of communities that lease pad rental sites for placement of factory built homes located throughout the United States. The manufactured housing industry has traditionally demonstrated low cash flow volatility and steady annual rent increases, although there is no assurance that will continue to be the case. In May 2016, we entered into an agreement to sell our manufactured housing portfolio for $2.0 billion with $1.3 billion of related mortgage financing expected to be assumed as part of the transaction. We expect to receive $620 million of net proceeds. We expect the transaction to close in the second half of 2016.

As of March 31, 2016 , $1.8 billion , or 11.4% , of our assets were invested in manufactured housing communities. The following presents a summary of our manufactured housing communities portfolio and diversity across geographic location based on net cash flow:



			Manufactured Housing Communities by Geographic Location
Total Manufactured Housing Portfolio	$1.8 billion
Number of communities	136
Number of pad rental sites	33,055
Number of manufactured homes	4,122
Number of states	14
Weighted average occupancy	86	%

Net cash flow related to:
Pad rental sites	92	%
Other	8	%

Net Lease Properties

Our real estate that is net leased to corporate tenants is primarily comprised of industrial, office and retail properties. These net lease properties are typically leased to a single tenant who agrees to pay basic rent, plus all taxes, insurance, capital and operating expenses arising from the use of the leased property generally leaving us, as owner, with minimal ongoing operational or expense obligations. We may also invest in properties that are leased to tenants for which we are responsible for some of the operating expenses and capital costs. At the end of the lease term, the tenant typically has a right to renew the lease at market rates or to vacate the property with no further ongoing obligation.

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As of March 31, 2016 , $784 million , or 5.1% , of our assets were invested in net lease properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our net lease portfolio and diversity across geographic location based on number of properties:



			Net Lease by Geographic Location
Total Net Lease Portfolio	$784 million
Number of properties	64
Number of states	23
Total square feet	8.9 million
Weighted average occupancy	94	%
Weighted average lease term	9.1 years

Net cash flow related to:
Industrial	55	%
Office	35	%
Retail	10	%

Multifamily Properties

Our multifamily portfolio primarily focuses on properties located in suburban markets that we believe are well suited to capture the formation of new households. Currently, we are exploring the sale of our multifamily portfolio. We entered into and are finalizing agreements to sell ten multifamily properties for $307 million with $210 million of mortgage financing expected to be assumed as part of the transaction. We expect to receive $86 million of net proceeds and continue to explore the sale of the remaining two properties. There is no assurance we will enter into any transactions on favorable terms, if at all.

As of March 31, 2016 , $377 million , or 2.5% , of our assets were invested in multifamily properties, including one property owned through an unconsolidated joint venture. The following presents a summary of our multifamily portfolio and diversity across geographic location based on net cash flow:



			Multifamily by Geographic Location
Total Multifamily Portfolio	$377 million
Number of properties	12
Number of states	6
Number of units	4,514

Weighted average occupancy	95	%

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Multi-tenant Office

We, through a joint venture with SteelWave, acquired multi-tenant office properties in the western United States. As of March 31, 2016 , $ 176 million , or 1.1% , of our assets were invested in multi-tenant office properties. The following presents a summary of our multi-tenant office portfolio and diversity across geographic location based on cost:



			Multi-tenant Office by Geographic Location
Total Multi-tenant Office Portfolio	$176 million
Number of properties	13
Number of states	3
Total square feet	1,021,400

Weighted average occupancy	90	%

PE Investments

Our PE Investments own limited partnership interests in real estate private equity funds acquired in the secondary market and are managed by institutional-quality sponsors, which we refer to as fund interests. In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million and are exploring the sale of our remaining PE Investments. As of March 31, 2016 , $873 million , or 5.7% , of our assets were invested in PE Investments through unconsolidated ventures or direct investments. The following tables present a summary of our PE Investments (dollars in millions):



												Underlying Fund Interests
PE Investment ⁽¹⁾	Initial Closing Date	Amount		Number of Funds		Number of General Partners		Initial NAV		Initial NAV as a Percentage of Cost ⁽²⁾		Assets, at Cost		Implied Leverage ⁽³⁾		Expected Future Funding ⁽⁴⁾
PE Investment I ⁽⁵⁾	February 15, 2013	$	124.0	49		26		$	802.4	66.2	%	$	17,100	44.1	%	$	2
PE Investment III	December 31, 2013	28.5		8		4		80.3		119.0	%	1,800		43.6	%	—
PE Investment IV	May 30, 2014	6.8		1		1		8.8		113.4	%	500		43.6	%	—
PE Investment V	July 1, 2014	6.6		3		1		23.0		57.8	%	700		50.2	%	—
PE Investment VI	July 30, 2014	74.2		20		12		98.3		77.5	%	8,100		52.0	%	1
PE Investment VII	August 15, 2014	31.3		14		12		65.7		79.2	%	900		46.4	%	—
PE Investment IX	October 2, 2014	126.6		11		7		232.8		135.3	%	18,800		30.3	%	2
PE Investment X	December 4, 2014	120.6		13		7		160.4		92.5	%	4,400		52.2	%	—
PE Investment XI	May 1, 2015	4.3		2		1		7.9		64.0	%	1,400		34.8	%	—
PE Investment XII	May 5, 2015	2.6		1		1		6.1		212.0	%	700		28.1	%	—
PE Investment XIII	May 22, 2015	289.4		11		5		454.8		90.5	%	2,200		48.5	%	3
PE Investment XIV	September 9, 2015	51.2		15		5		100.4		51.8	%	7,900		59.9	%	50
PE Investment XV	November 12, 2015	1.4		1		1		95.6		137.8	%	500		42.0	%	12
Subtotal		867.5		149		83		2,136.5				65,000				70
PE Investment II ⁽⁶⁾	July 3, 2013	5.4		24		15		910.0		73.5	%	19,000		37.4	%	3		⁽⁶⁾
Total		$	872.9	173	⁽⁷⁾	98	⁽⁷⁾	$	3,046.5			$	84,000			$	73

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(1)	Based on financial data reported by the underlying funds as of December 31, 2015, which is the most recent financial information from the underlying funds, except as otherwise noted.


(2)	Net cost represents total funded capital less distributions received.


(3)	Represents implied leverage for funds with investment-level financing, calculated as the underlying borrowing divided by assets at fair value.


(4)	Includes an estimated amount of expected future contributions to funds and any deferred purchase price as of March 31, 2016 .


(5)	We, together with NorthStar Real Estate Income Trust, Inc., or NorthStar Income, have an ownership interest in PE Investment I of 51%, of which we own 70.5% and NorthStar Income owns 29.5%.


(6)	In February 2016, we sold substantially all of our interest in PE Investment II for proceeds of $184 million. In connection with the sale, the buyers assumed substantially all of our $243 million portion of the deferred purchase price obligation of the joint venture.


(7)	Includes 28 funds and 21 general partners held across multiple PE Investments.

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	Our Proportionate Share of PE Investments
	March 31, 2016
	Three Months Ended		Inception to Date ⁽²⁾
Income ⁽¹⁾	$	37.6	$	452.3
Return of capital	45.3		854.1
Total distributions ⁽³⁾	82.9		1,306.4
Contributions	1.0		106.8
Net	$	81.9	$	1,199.6

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(1)	Recorded in equity in earnings in the consolidated statements of operations.


(2)	Represents activity from the respective initial closing date through March 31, 2016 .


(3)	Excludes proceeds of $184 million in connection with the sale of substantially all of our interest in PE Investment II.

The following presents the underlying fund interests in our PE Investments by investment type and geographic location based on NAV as of December 31, 2015 :



PE Investments by Underlying Investment Type ⁽¹⁾		PE Investments by Underlying Geographic Location ⁽¹⁾

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(1)	Based on individual fund financial statements.

Corporate Investments

RXR Realty

In December 2013, we entered into a strategic transaction with RXR Realty, a leading real estate owner, developer and investment management company focused on high-quality real estate investments in the New York Tri-State area. The investment includes an approximate 27% equity interest in RXR Realty, which represented a carrying value of $94 million as of March 31, 2016 .

Aerium

In June 2014, we acquired a 15% interest in Aerium, a pan-European real estate investment manager specializing in commercial real estate properties. The investment in Aerium represented a carrying value of $7 million as of March 31, 2016 .

SteelWave

In September 2014, we entered into a debt and equity investment with SteelWave, comprised of a 40% interest in the common equity of certain entities affiliated with SteelWave. SteelWave is a leading real estate investment manager, owner and operator with a portfolio of commercial assets focused in key markets in the western United States. The investment in SteelWave represented a carrying value of $7 million as of March 31, 2016 .

Commercial Real Estate Debt

Overview

Our CRE debt investment strategy is focused on originating, acquiring and asset managing CRE debt investments, including first mortgage loans, subordinate mortgage and mezzanine loans and participations in such loans and preferred equity interests.

We emphasize direct origination of our debt investments as this allows us a greater degree of control over how they are underwritten and structured and it provides us the opportunity to syndicate senior or subordinate interests in the loan to maximize returns, if

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desired. Further, it facilitates a more direct relationship with our borrowers which helps us maintain a robust pipeline, provides an opportunity for us to earn origination and other fees and offers us an important advantage when considering any potential future modifications or restructurings.

The supply/demand imbalance driven by the large amount of maturing CRE loans could create an opportunity for us. Even with some increased supply by lenders, demand for debt financing is allowing investors with capital and real estate expertise, such as us, the opportunity to make investments with attractive risk/return profiles. We are currently focused on monetizing many of our CRE debt investments through sales.

We believe we have built a franchise with a reputation for providing capital to high-quality real estate owners who want a responsive and flexible balance sheet lender. Given that we are a lender who generally retains control of the loans we originate, we are able to maintain flexibility in how we structure loans to meet the needs of our borrowers. Typical CMBS and other capital markets driven lenders generally cannot provide these types of loans due to constraints within their funding structures and because of their requirement to sell the entire loan to third parties and relinquish all control. Even when we finance our investments through securitizations, we maintain a significant capital investment in our loans. Our centralized investment organization has enabled senior management to review potential new loans early in the origination process which, unlike many large institutional lenders with several levels of approval required to commit to a loan, allows us to respond quickly and provide a high degree of certainty to our borrowers that we would close a loan on terms substantially similar to those initially proposed. We believe that this level of service has enhanced our reputation in the marketplace. In addition, we believe the early and active role of senior management in our portfolio management process has been key to maximizing recoveries of invested capital from our investments and our ability to be responsive to changing market conditions.

Our Portfolio

As of March 31, 2016 , $427 million , or 2.8% , of assets were invested in CRE debt, excluding CRE debt financed in consolidated N-Star CDOs, CRE debt held for sale and other CRE debt accounted for as joint ventures, consisting of 20 loans with an average investment size of $20 million and weighted average extended maturity of 5.8 years. We directly originated approximately 93% of our current portfolio of CRE debt investments (excluding debt investments acquired in connection with Griffin-American).

The following table presents a summary of our CRE debt investments, excluding amounts held for sale, as of March 31, 2016 (dollars in thousands):



								Weighted Average ⁽³⁾						Floating Rate as % of Principal Amount
	Number ⁽¹⁾	Principal Amount		Carrying Value		Allocation by Investment Type ⁽²⁾		Fixed Rate		Spread Over LIBOR		Yield ⁽⁴⁾		Floating Rate as % of Principal Amount
Asset Type:
First mortgage loans ⁽⁵⁾	6	$	146,534	$	118,288	39.0	%	7.14	%	8.62	%	4.58	%	32.6	%
Mezzanine loans	6	22,400		18,571		6.0	%	9.05	%	4.00	%	7.24	%	39.8	%
Subordinate interests	4	170,980		169,760		45.6	%	12.67	%	5.67	%	8.87	%	58.8	%
Corporate loans	4	35,382		30,880		9.4	%	12.92	%	—		14.81	%	—
Total/Weighted average	20	$	375,296	$	337,499	100.0	%	10.27	%	10.69	%	7.82	%	40.8	%

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(1)	Excludes amounts related to joint ventures and CRE debt held for sale and underlying our N-Star CDOs.


(2)	Based on principal amount.


(3)	Excludes an aggregate principal amount of $129 million related to three CRE debt investments that were originated prior to 2008, three non-performing loans and one first mortgage loan acquired with deteriorated credit quality.


(4)	Based on initial maturity and for floating-rate debt, calculated using one -month LIBOR as of March 31, 2016 and for CRE debt with a LIBOR floor greater than LIBOR, using such floor.


(5)	In April 2016, one first mortgage loan, with a total principal amount of $52 million, was repaid at par.

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The following presents our $427 million CRE debt portfolio’s diversity across property type and geographic location based on principal amount.



Debt Investments by Property Type		Debt Investments by Geographic Location

Commercial Real Estate Securities

We historically originated or acquired CRE debt and securities investments that were predominately financed through permanent, non-recourse CDOs. We sponsored nine CDOs, three of which were primarily collateralized by CRE debt and six of which were primarily collateralized by CRE securities. In addition, we acquired the equity interests of two CRE debt focused CDOs, CSE RE 2006-A CDO, or CSE CDO, and CapLease 2005-1 CDO, or CapLease CDO. We refer to those CRE debt and securities investments that serve as collateral for N-Star CDO financing transactions as legacy CRE debt and securities, respectively. At the time of issuance of the N-Star CDOs, we retained the below investment grade bonds, which are referred to as subordinate bonds, and preferred shares and equity notes, which are referred to as equity interests. In addition, since the initial issuance of the N-Star CDOs, we repurchased CDO bonds originally issued to third parties at discounts to par. These repurchased CDO bonds and retained subordinate bonds are herein collectively referred to as N-Star CDO bonds. We own the equity interests in all of our N-Star CDO financing transactions whether or not we consolidate these transactions on our balance sheet. Substantially all of our N-Star CDO equity is invested in our CRE debt CDOs. In fact, our CRE debt CDOs have distributed regular cash flow since their inception. We do not, however, own undivided interests in any of the assets within our N-Star CDOs and all senior and junior bondholders of the CDOs have economic interests that are senior to our equity interests. In September 2015, N-Star CDO IV was liquidated and the third-party senior bondholders of N-Star CDO IV were repaid in full.

We historically consolidated these CDO financing transactions under accounting principles generally accepted in the United States, or U.S. GAAP. Our legacy CDO business is winding down, resulting in liquidation and deconsolidation of certain of our N-Star CDOs. Repurchased N-Star CDO bonds that are consolidated are not presented as an investment but rather are eliminated in our consolidated financial statements and, as a result, the interest and realization of any discount will generally not be recorded as income in our consolidated statements of operations under U.S. GAAP. All of our CRE debt CDOs were deconsolidated in 2013 and currently only N-Star securities CDOs I and IX continue to be consolidated. All N-Star CDOs are past their reinvestment period and given the nature of these transactions, these CDOs are amortizing over time as the underlying assets pay down or are sold.

Our CRE securities portfolio is predominately comprised of N-Star CDO bonds and N-Star CDO equity of our deconsolidated N-Star CDOs and includes other securities, mostly conduit CMBS, meaning each asset is a pool backed by a large number of commercial real estate loans. We have also invested in opportunistic CRE securities such as an investment in a “B-piece” CMBS. More recently, we are pursuing the sale of certain of our CRE securities. In 2016, we sold five N-Star CDO bonds and CRE securities for $54 million of net proceeds.

The following table presents our interest in the N-Star CDOs as of March 31, 2016 (dollars in thousands):



	Number	Amount ⁽¹⁾
N-Star CDO bonds ⁽²⁾⁽³⁾
AAA	2	$	108,900
AA through BBB	18	233,854
Below investment grade	10	160,447
	30	503,201
N-Star CDO equity ⁽⁴⁾	4	68,128
Total	34	$	571,329

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(1)	Based on principal amount for N-Star CDO bonds and amortized cost for N-Star CDO equity.


(2)	Based on original credit rating. Includes N-Star CDO bonds with a principal amount of $142 million related to our securities CDOs that are eliminated in consolidation.


(3)	Unencumbered N-Star CDO bonds are owned by us, of which $369 million of principal amount were repurchased at a discount to par at a weighted average original credit rating of A / A2 and a weighted average purchase price of 38%.


(4)	Represents our equity interests in the deconsolidated CRE debt N-Star CDOs.

The following table presents a summary of our deconsolidated N-Star CRE debt CDOs as of March 31, 2016 (dollars in thousands):



Issue/Acquisition Date	N-Star VI Mar-06		N-Star VIII Dec-06		CapLease Aug-11			CSE Jul-10				Total
Balance sheet as of March 31, 2016 ⁽¹⁾
Assets, principal amount	$	258,066	$	634,164	$	123,527		$	459,840			$	1,475,597
CDO bonds, principal amount ⁽²⁾	189,169		461,315		105,775			400,114				1,156,373
Net assets	$	68,897	$	172,849	$	17,752		$	59,726			$	319,224

CDO quarterly cash distributions and coverage tests ⁽³⁾
Equity notes and subordinate bonds	$	176	$	1,817	$	563		$	1,076			$	3,632
Collateral management and other fees ⁽⁴⁾	237		671		70			196				1,174
Interest coverage cushion at March 31, 2016 (IC) ⁽¹⁾	800		3,718		375			1,758
Overcollateralization cushion (OC)
At March 31, 2016 ⁽¹⁾	57,483		144,235		9,816			79,499
At offering	17,412		42,193		5,987		⁽⁵⁾	(151,595		)	⁽⁶⁾

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(1)	Based on remittance report issued on date nearest to March 31, 2016 .


(2)	Includes all outstanding CDO bonds payable to third parties and all CDO bonds owned by us.


(3)	IC and OC coverage to the most constrained class.


(4)	Based on cash receipts.


(5)	Based on trustee report as of August 31, 2011, closest to the date of acquisition.


(6)	Based on trustee report as of June 24, 2010, closest to the date of acquisition.

The following presents the diversity across property type and geographic location of the CRE debt in our deconsolidated N-Star CDOs, based on principal amount, as of March 31, 2016 :



CRE Debt in N-Star CDOs by Property Type		CRE Debt in N-Star CDOs by Geographic Location

Sources of Operating Revenues and Cash Flows

We primarily generate revenue from rental and other operating income from our real estate properties and net interest income on our CRE debt and securities portfolios. Additionally, we record equity in earnings of unconsolidated ventures, including from PE Investments. Our income is primarily derived through the difference between revenue and the cost at which we are able to finance our investments. We may also acquire investments which generate attractive returns without any leverage.

Operations of our hotel portfolio are affected by seasonal patterns resulting from overall economic cycles, geographic locations, weather and customer mix at the hotels. Generally, we expect our hotel portfolio to have higher revenue, operating income and cash flow in the second and third quarters of each year and lower revenue, operating income and cash flow in the first and fourth quarters of each year.

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Profitability and Performance Metrics

We calculate CAD and NOI as metrics to evaluate the profitability and performance of our business (refer to “Non-GAAP Financial Measures” for a description of these metrics).

Outlook and Recent Trends

The U.S. economy has shown improvement in 2015 and into 2016 which prompted the Federal Reserve in December 2015 to raise the Federal Funds Rate for the first time in nine years. Despite this, concerns still remain regarding low inflation in the United States, a stronger U.S. dollar, volatility in the price of oil, slow global growth and international market volatility. Many other global central banks have been easing monetary conditions to combat their own low inflation and stagnant growth and it is unclear when or if the Federal Reserve will adjust the Federal Funds Rate further.

Our business and operations are dependent on the commercial real estate industry generally, which in turn is dependent upon broad economic conditions in the United States, Europe, China and elsewhere. Recently, concerns over the U.S. mortgage market and sustainability of continued growth in the real estate market in the United States have contributed to increased domestic economic uncertainty and the potential for a recessionary environment.

CRE fundamentals remain relatively healthy across U.S. property types. Robust investor demand in 2014 for commercial real estate increased transaction activity and prices as rent and vacancy fundamentals improved across most property sectors and continued to improve in 2015. Private capital investment remained aggressive during this time contributing to the growth in real estate values. However, property price appreciation has slowed and there is speculation that the markets may be in the later stage of the current real estate cycle leading to potentially falling values. One factor that may, among other factors, contribute to periodic volatility in the commercial real estate market is the large amount of maturing commercial real estate debt that may have difficulties being refinanced.

It is currently estimated that approximately $1.4 trillion of commercial real estate debt in the United States will mature through 2018. While there appears to be a supply of available liquidity and the benefits from improved fundamentals in the commercial real estate market, we still anticipate that certain of these loans will not be able to be refinanced, potentially inhibiting growth and contracting credit.

The recent volatility in the equity markets has and may continue to diminish our capital raising activity. A return to weak economic conditions in the future, such as those of the credit crisis of 2008, could reduce a tenant’s/operator’s/resident’s/guest’s ability to make payments in accordance with the contractual terms and could weaken demand for companies to lease or occupy new space. To the extent that market rental and occupancy rates weaken, property-level cash flow could be negatively affected, and therefore, reduce our ability to make distributions to stockholders.

Our Strategy

Our primary business objectives are to invest in commercial real estate property and other real estate assets that we expect will generate attractive risk-adjusted returns and in turn will generate stable cash flow for distribution to our stockholders. Until recently, our investment activity and uses of available cash liquidity was focused on acquiring real estate, originating or acquiring loans, as well as pursuing opportunistic CRE investments across our businesses. Opportunistic investments have included investing in real estate private equity funds, strategic joint ventures and repurchasing our N-Star CDO bonds at discounts to par.

Availability and cost of capital impacts our profitability and earnings since we would be required to raise new capital to fund a majority of this growth. Given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock, reduce our corporate recourse borrowings and prudently manage our portfolio so it is well positioned.

We have not been actively raising capital due to current market conditions. However, in 2015, we issued aggregate capital of $1.3 billion. Further, we have access to other forms of corporate-level financing. In August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment amount of $250 million for a three-year term, subject to certain conditions. In September 2014, we entered into a corporate term borrowing with a commercial bank lender. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

In addition, we have a loan facility of $200 million to finance the origination of CRE first mortgage loans. In April 2016, our loan facility was repaid. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitization financing transactions with an aggregate $610 million of principal amount of bonds issued to finance debt investments on a permanent, non-recourse, non-mark-to-market basis that were previously financed on credit facilities. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

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Financing Strategy

We seek to access a wide range of secured and unsecured debt and public and private equity capital sources to fund our investment activities and asset growth.

The availability of attractive long-term, non-recourse, non mark-to-market assignable financing through the CMBS and agency financing markets has bolstered opportunities to acquire real estate in the past few years. For longer duration, stable investment cash flow such as those derived from net lease assets, we tend to use fixed rate financing. For investment cash flow with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow and potential increases in interest rates.

Our financing strategy for debt investments is to obtain match-funded borrowing at rates that provide a positive net spread. In late 2011, we began using secured term credit facilities provided by major financial institutions to partially finance CRE debt, which currently provide for up to $200 million. Additionally, we have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In November 2012 and August 2013, we, and on behalf of NorthStar Income, entered into securitized financing transactions (Securitization 2012-1 and Securitization 2013-1) with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for newly-originated CRE debt investments of ours and NorthStar Income. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full. We will continue to seek to use the capital markets to finance any new debt investments. In April 2016, our loan facility was repaid.

With respect to corporate-level financing, in August 2014, we entered into a Corporate Revolver with certain commercial bank lenders, with a total current commitment of $250 million. In September 2014, we entered into a corporate term borrowing with a commercial bank lender with respect to the establishment of term borrowings. However, given recent market conditions, we are currently focused on exploring sales to generate liquidity to repurchase our common stock and reduce such corporate recourse borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives. Refer to Liquidity and Capital Resources for further discussion.

Historically, we used CDOs to finance legacy CRE debt and securities investments. Our legacy CDO business is winding down as we invest in a broader, more diverse range of CRE assets. As a result, such legacy business is a significantly smaller portion of our business today than in the past.

Portfolio Management

NSAM performs portfolio management services on our behalf. The comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management and servicing team, regular management meetings and an exhaustive quarterly credit review process. These processes are designed to enable management to evaluate and proactively identify asset-specific credit issues and trends on a portfolio-wide basis. Nevertheless, we cannot be certain that such review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets; therefore, potential future losses may also stem from investments that are not identified during these credit reviews. NSAM uses many methods to actively manage our credit risk to preserve our income and capital, which includes our ability to manage our assets in a manner that minimizes credit losses that could decrease income and portfolio value. For CRE equity and debt investments, frequent re-underwriting and dialogue with borrowers/tenants/operators/partners and regular inspections of our collateral and owned properties have proven to be an effective process for identifying issues early. With respect to our healthcare properties, we consider the impact of regulatory changes on operator performance and property values. During the quarterly credit review, or more frequently as necessary, investments are put on highly-monitored status and identified for possible asset impairment/loan loss reserves, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment. The portfolio management process related to CRE debt and securities underlying our deconsolidated CDOs is limited to monitoring the CDO bonds and equity interests in such CDO financing transactions.

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Critical Accounting Policies

Principles of Consolidation

Our consolidated financial statements include the accounts of NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership, or our Operating Partnership, and their consolidated subsidiaries. We consolidate variable interest entities, or VIEs, where we are the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by us. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. We base the qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. We reassess the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to our business activities and the other interests. We reassess the determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

We evaluate our CRE debt and securities, investments in unconsolidated ventures and securitization financing transactions, such as our CDOs and our liabilities to subsidiary trusts issuing preferred securities to determine whether they are a VIE. We analyze new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If we have a majority voting interest in a voting interest entity, the entity will generally be consolidated. We do not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

We perform on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method, at fair value or the cost method.

We may account for an investment in an unconsolidated entity at fair value by electing the fair value option. We elected the fair value option for PE Investments and certain investments in unconsolidated ventures. PE Investments are recorded as investments in private equity funds, at fair value. We record the change in fair value for our share of the projected future cash flow of such investments from one period to another in equity in earnings (losses) from unconsolidated ventures in the consolidated statements of operations. Any change in fair value attributed to market related assumptions is considered unrealized gain (loss).

We may account for an investment that does not qualify for equity method accounting or for which the fair value option was not elected using the cost method if we determine the investment in the unconsolidated entity is insignificant. Under the cost method,

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equity in earnings is recorded as dividends are received to the extent they are not considered a return of capital, which is recorded as a reduction of cost of the investment.

Fair Value Option

The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. We may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.

Operating Real Estate

We follow the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles, such as goodwill. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in our consolidated statements of operations. We evaluate whether REO constitutes a business and whether business combination accounting is appropriate. Any excess upon taking title to collateral between the carrying value of a loan over the estimated fair value of the property is charged to provision for loan losses.

Operating real estate, including REO, which has met the criteria to be classified as held for sale, is separately presented on the consolidated balance sheets. Such operating real estate is recorded at the lower of its carrying value or its estimated fair value less the cost to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. We record a gain (loss) on sale of real estate when title is conveyed to the buyer and we have no substantial economic involvement with the property. If the sales criteria for the full accrual method are not met, we defer some or all of the gain (loss) recognition by applying the finance, leasing, profit sharing, deposit, installment or cost recovery method, as appropriate, until the sales criteria are met.

Real Estate Debt Investments

CRE debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium and discount. CRE debt investments that are deemed to be impaired are carried at amortized cost less a loan loss reserve, if deemed appropriate, which approximates fair value. CRE debt investments where we do not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.

Real Estate Securities

We classify our CRE securities investments as available for sale on the acquisition date, which are carried at fair value. We have historically elected to apply the fair value option for our CRE securities investments. For those CRE securities for which the fair value option was elected, any unrealized gains (losses) from the change in fair value is recorded in unrealized gains (losses) on investments and other in the consolidated statements of operations.

We may decide to not elect the fair value option for certain CRE securities due to the nature of the particular instrument. For those CRE securities for which the fair value option was not elected, any unrealized gain (loss) from the change in fair value is recorded as a component of accumulated other comprehensive income, or OCI, in the consolidated statements of equity, to the extent impairment losses are considered temporary.

Deferred Costs

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Intangible Assets and Intangible Liabilities

We record acquired identified intangibles, which includes intangible assets (such as value of the above-market leases, in-place leases, below-market ground leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases are amortized into rental income, below-market ground leases are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.

Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. We analyze goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit, related to such goodwill, is less than the carrying amount as a basis to determine whether the two-step impairment test is necessary. The first step in the impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds fair value, the second step is required to determine the amount of the impairment loss, if any, by comparing the implied fair value of the reporting unit goodwill with the carrying amount of such goodwill. The implied fair value of goodwill is derived by performing a hypothetical purchase price allocation for the reporting unit as of the measurement date, allocating the reporting unit’s estimated fair value to its net assets and identifiable intangible assets. The residual amount represents the implied fair value of goodwill. To the extent this amount is below the carrying value of goodwill, an impairment loss is recorded in the consolidated statements of operations.

A discounted cash flow model is performed based on management’s forecast of operating performance for each reporting unit to assess fair value. In addition, we look at comparable companies and representative transactions to validate management’s expectations, where possible. The inputs used in the annual test is updated for current market conditions and forecasts. The two main assumptions used in measuring goodwill impairment, include the cash flow from operations from each of our reporting units and the weighted average cost of capital. The starting point for each of the reporting unit’s cash flow from operations is the detailed annual plan. The detailed planning process takes into consideration many factors including EBITDAR, EBITDAR margins, revenue growth rate and capital spending requirements, among other items which impact the individual reporting unit projections. Cash flow beyond the specific operating plans are estimated using a terminal value calculation, which incorporate historical and forecasted financial cyclical trends for each reporting unit and considered long-term earnings growth rates. The financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine the discount rate. During times of volatility, significant judgment must be applied to determine whether credit changes are a short-term or long term trend. Fair value of the reporting unit is using significant unobservable inputs or Level 3 in the fair value hierarchy. These inputs are based on internal management estimates, forecasts and judgments.

The annual impairment test for the reporting units related to a healthcare portfolio acquired in May 2014 was conducted as of October 1, 2015 and the remaining reporting units related to the Griffin-American Portfolio as of December 31, 2015. Management used an independent third-party valuation party specialist to assist. Based on the step one analysis performed, management determined the fair value for all of reporting units were in excess of the respective reporting unit’s carrying value, with four exceptions, related to the healthcare portfolio acquired in 2014 . As a result, we estimated the impairment loss for such reporting units to be $25.5 million and recorded an estimated preliminary impairment charge for such amount in the fourth quarter 2015 . Step two of the impairment test was completed in the first quarter 2016 and there was no change to the estimate recorded.

In addition, our reporting units associated with the Griffin-American Portfolio each had calculated fair value that were between 9% and 14% in excess of the respective carrying value. We continue to monitor the cash flow for these reporting units as they each contain goodwill.

Fair Value Measurement

Financial assets and liabilities are recorded at fair value on our consolidated balance sheets and are categorized based on the inputs to the valuation techniques as follows:


Level 1.	Quoted prices for identical assets or liabilities in an active market.


Level 2.	Financial assets and liabilities whose values are based on the following:

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(a)	Quoted prices for similar assets or liabilities in active markets.


(b)	Quoted prices for identical or similar assets or liabilities in non-active markets.


(c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability.


(d)	Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.


Level 3.	Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair

value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management determines the prices are representative of fair value through a review of available data, including observable inputs, recent transactions as well as our knowledge and experience of the market.

With respect to valuation for CRE securities, we generally obtain at least one quote from a pricing service or broker. Furthermore, we may use internal pricing models to establish arm’s length prices. Generally, the quote from the pricing service is used to determine fair value for the securities. The quotes are not adjusted. The pricing service uses market-based measurements based on valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including prices for similar assets, benchmark yield curves and market corroborated inputs such as contractual terms, discount rates for similar securities and credit (such as credit support and delinquency rates). We believe such broker quote is generally based on a market transaction of comparable securities.

To determine the fair value of CRE securities, we maintain a comprehensive quarterly process that includes a valuation committee comprised of senior members of the investment and accounting teams that is designed to enable management to ensure the prices used are representative of fair value and the instruments are properly classified pursuant to the fair value hierarchy.

Initially, a member of the investment team on the valuation committee reviews the prices at quarter end to ensure current market conditions are fairly presented. The investment team is able to assess these values because they are actively engaged in the market, reviewing bid lists, recent sales and frequently have discussions with various banks and other financial institutions regarding the state of the market. We then perform a variety of analyses to ensure the quotes are in a range which we believe to be representative of fair value and to validate the quotes obtained and used in determining the ultimate value used in the financial statements. At the portfolio level, we evaluate the overall change in fair value versus the overall change in the market. We review significant changes in fair value for individual instruments, both positive and negative, from the prior period. We perform back testing on any securities sold to validate the quotes used for the prior quarter. Where multiple quotes are available, we evaluate any large variance between the high and low price. We obtain any available market data that provides insight into the price through recent or comparable security trades, multiple broker bids and other pertinent information. This data may be available through the pricing service or based on data directly available to us. If as part of any of these processes, we are aware of data which we believe better supports the fair value, we challenge the quote provided by either the pricing service or broker. Any discrepancy identified from our processes are reviewed and resolved. The valuation committee approves the final prices. We believe these procedures are designed to enable us to estimate fair value.

Once we determine fair value of CRE securities, we review to ensure the instrument is properly classified pursuant to the fair value hierarchy consistent with U.S. GAAP through our understanding of the valuation methodologies used by the pricing service via discussion with representatives of the pricing service and review of any documentation describing its valuation methodology.

Generally, when fair value is based on the pricing service or multiple broker quotes, we believe, based on our analysis, such quotes are based on observable inputs and are therefore classified as Level 2. Where the price is based on either a single broker quote or an internal pricing model, we generally consider such price to be based on less observable data and therefore classify such instruments as Level 3.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Non-financial assets and liabilities measured at fair value in the consolidated financial statements consist of real estate held for sale or assets for which an impairment has been recorded, such as goodwill. Such fair value measurements are generally considered to be Level 3 within the valuation hierarchy, where applicable, based on estimated sales price, adjusted for closing costs and expenses, determined by discounted cash flow analysis, direct capitalization analyses or a sales comparison approach if no contracts had been consummated. The discounted cash flow and direct capitalization analyses include all estimated cash inflows and outflows over a specific holding period and, where applicable, any estimated debt premiums. This cash flow is comprised of unobservable inputs which included forecasted rental revenues and expenses based upon existing in-place leases, market conditions and

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expectations for growth. Capitalization rate and discount rate used in these analyses are based upon observable rates that we believe to be within a reasonable range of current market rates for the respective properties.

Valuations are prepared using internally-developed valuation models. These valuations are reviewed and approved, during each reporting period, by management, as deemed necessary, including personnel from the accounting, finance and operations and the valuations are updated as appropriate. In addition, we may engage third-party valuation experts to assist with the preparation of certain of its valuations.

Revenue Recognition

Operating Real Estate

Rental and escalation income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators. Rental revenue recognition commences when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in unbilled rent receivable on our consolidated balance sheets. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by us on behalf of the respective property. This revenue is accrued in the same period as the expenses are incurred.

We generate operating income from healthcare and hotel properties permitted by RIDEA. Revenue related to healthcare properties includes resident room and care charges and other resident charges. Revenue related to operating hotel properties primarily consists of room and food and beverage sales. Revenue is recognized when such services are provided, generally defined as the date upon which a resident or guest occupies a room or uses the healthcare property or hotel services and is recorded in resident fee income for healthcare properties and hotel related income for hotel properties in the consolidated statements of operations.

In a situation in which a lease(s) associated with a significant tenant have been, or are expected to be, terminated early, we evaluate the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, we may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within depreciation and amortization in the consolidated statements of operations.

Real Estate Debt Investments

Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in our consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such loan is reclassified to held for sale.

Real Estate Securities

Credit Losses and Impairment on Investments

Operating Real Estate

Our real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of our operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if management’s estimate of the aggregate expected future undiscounted cash flow to be generated by the property is less than the carrying value of the property. In conducting this review, management considers U.S. and global macroeconomic factors and real estate sector conditions together with investment specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value of the property and recorded in impairment losses in our consolidated statements of operations.

An allowance for a doubtful account for a tenant/operator receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of tenant/operator to make required rent and other payments contractually due. Additionally, we establish, on a current basis, an allowance for future tenant/operator/resident/guest credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.

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Real Estate Debt Investments

Loans are considered impaired when based on current information and events, it is probable that we will not be able to collect principal and interest amounts due according to the contractual terms. We assess the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis or more frequently as necessary. Significant judgment of management is required in this analysis. We consider the estimated net recoverable value of the loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the loan, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. The loan loss reserve for each loan is maintained at a level that is determined to be adequate by management to absorb probable losses.

Income recognition is suspended for a loan at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired loan is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. A loan is written off when it is no longer realizable and/or legally discharged.

Investments in Unconsolidated Ventures

We review our investments in unconsolidated ventures for which we did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, we consider U.S. and global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in provision for loss on equity investment in our consolidated statements of operations.

Real Estate Securities

CRE securities for which the fair value option is elected are not evaluated for other-than-temporary impairment, or OTTI, as any change in fair value is recorded in our consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur.

CRE securities for which the fair value option is not elected are evaluated for OTTI quarterly. Impairment of a security is considered to be other-than-temporary when: (i) the holder has the intent to sell the impaired security; (ii) it is more likely than not the holder will be required to sell the security; or (iii) the holder does not expect to recover the entire amortized cost of the security. When a CRE security has been deemed to be other-than-temporarily impaired due to (i) or (ii), the security is written down to its fair value and an OTTI is recognized in the consolidated statements of operations. In the case of (iii), the security is written down to its fair value and the amount of OTTI is then bifurcated into: (a) the amount related to expected credit losses; and (b) the amount related to fair value adjustments in excess of expected credit losses. The portion of OTTI related to expected credit losses is recognized in our consolidated statements of operations. The remaining OTTI related to the valuation adjustment is recognized as a component of accumulated OCI in our consolidated statements of equity. The portion of OTTI recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through OCI are amortized over the life of the security with no impact on earnings. CRE securities which are not high-credit quality are considered to have an OTTI if the security has an unrealized loss and there has been an adverse change in expected cash flow. The amount of OTTI is then bifurcated as discussed above.

Other

Refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a complete discussion of our critical accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting update requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The accounting standard update will replace most of the existing revenue recognition guidance currently promulgated by U.S. GAAP. In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The effective date of the new revenue standard for us will be January 1, 2018. We are in the process of evaluating the impact, if any, of the update on our consolidated financial position, results of operations and financial statement disclosures.

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In February 2015, the FASB issued updated guidance that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. We adopted this guidance in the first quarter 2016 and determined our Operating Partnership is considered a VIE. We are the primary beneficiary of the VIE, the VIE’s assets can be used for purposes other than the settlement of the VIE’s obligations and our partnership interest is considered a majority voting interest. As such, this standard resulted in the identification of additional VIEs, however it did not have a material impact on our consolidated financial position or results of operations.

In January 2016, the FASB issued an accounting update that addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. We are currently assessing the impact of the guidance on our consolidated financial position, results of operations and financial statement disclosures.

In February 2016, the FASB issued an accounting update that requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact that this guidance will have on its consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to a borrowing requires only an analysis of the four-step decision sequence. Additionally, entities are not required to separately assess whether the contingency itself is clearly and closely related. Entities are required to apply the guidance to existing instruments in scope using a modified retrospective transition method as of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. The update requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment become qualified for equity method accounting. The update should be applied prospectively upon their effective date to increases in the level of ownership interests or degree of influence that results in the adoption of the equity method. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

In March 2016, the FASB issued guidance which amends several aspects of the accounting for equity-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are evaluating the impact, if any, that this guidance will have on our consolidated financial position, results of operations and financial statement disclosures.

Results of Operations

Comparison of the Three Months Ended March 31, 2016 to March 31, 2015 (dollars in thousands):

The following table represents our results of operations for the three months ended March 31, 2016 and 2015 (dollars in thousands).

The consolidated financial statements for the three months ended March 31, 2016 include our results of operations following the NRE Spin-off on October 31, 2015. The three months ended March 31, 2015 include a carve-out of revenues and expenses attributable to NorthStar Europe recorded in discontinued operations.

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	Three Months Ended March 31,						Increase (Decrease)
	2016			2015			Amount			%
Property and other revenues
Rental and escalation income	$	191,434		$	165,041		$	26,393		16.0	%
Hotel related income	193,743			168,727			25,016			14.8	%
Resident fee income	72,777			63,373			9,404			14.8	%
Other revenue	5,440			3,483			1,957			56.2	%
Total property and other revenues	463,394			400,624			62,770			15.7	%
Net interest income
Interest income	42,933			65,637			(22,704		)	(34.6	)%
Interest expense on debt and securities	2,160			1,977			183			9.3	%
Net interest income on debt and securities	40,773			63,660			(22,887		)	(36.0	)%
Expenses
Management fee, related party	46,528			48,231			(1,703		)	(3.5	)%
Interest expense—mortgage and corporate borrowings	124,502			113,009			11,493			10.2	%
Real estate properties—operating expenses	238,410			201,141			37,269			18.5	%
Other expenses	7,016			4,473			2,543			56.9	%
Transaction costs	3,215			5,585			(2,370		)	(42.4	)%
Impairment losses	5,073			—			5,073			NA
Provision for (reversal of) loan losses, net	7,242			483			6,759			1,399.4	%
General and administrative expenses
Salaries and related expense	1,999			3,127			(1,128		)	(36.1	)%
Equity-based compensation expense	6,285			10,830			(4,545		)	(42.0	)%
Other general and administrative expenses	4,984			3,246			1,738			53.5	%
Total general and administrative expenses	13,268			17,203			(3,935		)	(22.9	)%
Depreciation and amortization	88,003			108,982			(20,979		)	(19.2	)%
Total expenses	533,257			499,107			34,150			6.8	%
Other income (loss)
Unrealized gain (loss) on investments and other	(135,481		)	(30,574		)	(104,907		)	343.1	%
Realized gain (loss) on investments and other	377			13,003			(12,626		)	(97.1	)%
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)	(164,194		)	(52,394		)	(111,800		)	213.4	%
Equity in earnings (losses) of unconsolidated ventures	44,655			53,643			(8,988		)	(16.8	)%
Income tax benefit (expense)	(7,843		)	(1,664		)	(6,179		)	371.3	%
Income (loss) from continuing operations	(127,382		)	(415		)	(126,967		)	30,594.5	%
Income (loss) from discontinued operations	—			(13,861		)	13,861			(100.0	)%
Net income (loss)	$	(127,382	)	$	(14,276	)	$	(113,106	)	792.3	%

Property and Other Revenues

Rental and Escalation Income

Rental and escalation income increased $26.4 million , primarily attributable to new acquisitions in 2015 including healthcare and multi-tenant office investments ($22.1 million) and increased income from our manufactured housing and multifamily investments ($6.2 million), offset by lower income from healthcare properties transitioned to a RIDEA structure in 2015 ($1.5 million) and lower income from our net lease and remaining healthcare properties ($0.5 million), all in our real estate segment.

Hotel Related Income

Hotel related income increased $25.0 million related to two new hotel acquisitions in 2015 in our real estate segment.

Resident Fee Income

Resident fee income increased $9.4 million , primarily related to our healthcare properties which transitioned to a RIDEA structure in 2015 ($9.9 million), in our real estate segment.

Other Revenue

Other revenue increased $2.0 million primarily due to an increase in real estate related fees in our real estate segment.

Net Interest Income

Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is primarily related to our CRE debt, securities and N-Star CDO segments and includes certain CRE debt and notes receivable investments included as part of our real estate segment. For assets financed in a CDO, also referred to as legacy investments, the N-Star CDO segments are based on the primary collateral of the CDO financing transaction and as such may include other types of investments.

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The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended March 31, 2016 and 2015 . Amounts presented have been impacted by the timing of new investments, sales and repayments during the periods (dollars in thousands):



	Three Months Ended March 31,
	2016							2015
	Average Carrying Value ⁽¹⁾		Interest Income/ Expense ⁽²⁾		WA Yield/ Financing Cost ⁽³⁾			Average Carrying Value ⁽¹⁾		Interest Income/ Expense ⁽²⁾		WA Yield/ Financing Cost ⁽³⁾
Interest-earning assets:
CRE debt investments ⁽⁴⁾	$	514,616	$	17,077	13.27	%		$	1,081,035	$	36,228	13.40	%
CRE securities investments	796,433		25,856		12.99	%		956,770		29,409		12.30	%
	$	1,311,049	42,933		13.10	%		$	2,037,805	65,637		12.88	%
Interest-bearing liabilities:
CDO bonds payable	$	428,622	$	1,124	3.42	%	⁽⁵⁾	$	552,887	$	1,094	3.00	%	⁽⁵⁾
Securitization bonds payable	—		—		—	%		20,912		151		2.88	%
Loan facilities	47,308		588		4.97	%		79,342		732		3.69	%
Secured borrowing	53,856		448		3.33	%		—		—		—	%
	$	529,786	2,160		3.55	%		$	653,141	1,977		3.08	%
Net interest income			$	40,773						$	63,660

____________________________________________________________


(1)	Based on amortized cost for CRE debt and securities investments, principal amount for CDO bonds payable, securitization bonds payable and loan facilities. All amounts are calculated based on quarterly averages. Additionally, amounts include manufactured housing notes receivables recorded in other assets based on carrying value.


(2)	Includes the effect of amortization of premium or accretion of discount and deferred fees.


(3)	Calculated as interest income or expense divided by average carrying value.


(4)	Includes $1.2 million and $1.8 million of interest income related to manufactured housing notes receivables recorded in other assets and included in our real estate segment for the three months ended March 31, 2016 and 2015 , respectively.


(5)	We use interest rate swaps in CDO financing transactions to manage interest rate risk. Weighted average financing cost includes $2.5 million and $3.0 million of net cash payments on interest rate swaps in our consolidated N-Star CDOs recorded in unrealized gain (loss) in our consolidated statements of operations for the three months ended March 31, 2016 and 2015 , respectively.

Interest income decreased $22.7 million , primarily attributable to decreased income on debt investments due to pay offs and sales ($17.9 million) in our CRE debt segment and decreased income on investments in deconsolidated N-Star CDO bonds and equity notes ($4.9 million) in our CRE securities segment.

Interest expense increased $0.2 million , primarily attributable to increased interest expense related to a secured borrowing ($0.5 million), offset by lower interest expense on our loan facility ($0.3 million), both in our CRE debt segment.

Expenses

Management Fee, Related Party

For the three months ended March 31, 2016 , we recorded $46.5 million related to the base management fee to NSAM in our corporate segment. For the three months ended March 31, 2015 , we recorded $45.3 million related to the base management fee and $2.9 million related to the incentive fee to NSAM in our corporate segment.

Interest Expense—Mortgage and Corporate Borrowings

Interest expense on mortgage and corporate borrowings increased $11.5 million , primarily attributable to increased interest expense related to new mortgage and other notes payable associated with new property acquisitions in 2015 ($13.6 million), all in our real estate segment, offset by lower interest expense on our corporate borrowings ($1.3 million), in our corporate segment.

Real Estate Properties—Operating Expenses

Real estate operating expenses primarily relate to utilities, real estate taxes, insurance and repair and maintenance expense and with respect to RIDEA properties, salaries, food and beverage and resident services. Real estate properties operating expenses increased $37.3 million , primarily attributable to new acquisitions in 2015 comprised of healthcare, hotel and multi-tenant office investments and healthcare properties transitioned to a RIDEA structure in 2015, all in our real estate segment ($36.5 million).

Other Expenses

Other expenses primarily represents third-party asset management, audit and legal fees and other administrative related fees related to portfolio management of our real estate segment and other expenses such as legal and consulting fees for loan modifications and restructurings and other expenses associated with managing the N-Star CDOs. Other expenses increased $2.5 million primarily related to new acquisitions in 2015 in our real estate segment.

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Transaction Costs

Transaction costs represent costs such as professional fees associated with new investments, dead deal costs and restructuring costs which are related to specific transactions. For the three months ended March 31, 2016 , transaction costs of $3.2 million primarily related to real estate investments, in our real estate segment. For the three months ended March 31, 2015 , transaction costs of $5.6 million primarily related to real estate acquisitions and restructurings, which includes transaction costs related to the acquisitions and restructurings related to our healthcare portfolios ($3.6 million), our multi-tenant office acquisitions ($0.7 million) and our hotel acquisitions ($0.2 million), all in our real estate segment.

Impairment Losses

Impairment losses of $5.1 million related to impairment on a medical office building in our healthcare portfolio where the tenant exercised its purchase option, in our real estate segment.

Provision for (Reversal of) Loan Losses, Net

For the three months ended March 31, 2016 , provision for loan losses, net of $7.2 million related to two loans ($7.1 million) in our CRE debt segment and notes receivable related to our manufactured housing portfolio ($0.1 million) in our real estate segment. For the three months ended March 31, 2015 , provision for loan losses, net of $0.5 million primarily related to a provision for loan loss for an existing first mortgage loan.

General and Administrative Expenses

General and administrative expenses are principally incurred at the corporate level. General and administrative expenses decreased $3.9 million primarily attributable to the following:

Salaries and related expense decreased $1.1 million primarily due to NSAM allocating less expenses to us for the three months ended March 31, 2016.

Equity-based compensation expense is comprised of (dollars in thousands):



	Time-Based Awards				Performance-Based Awards				Total
	Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,
	2016		2015		2016		2015		2016		2015
Awards issued pre NSAM Spin-off	$	290	$	2,871	$	473	$	956	$	763	$	3,827
Awards issued post NSAM Spin-off	4,673		6,246		510		224		5,183		6,470
Dividends to non-employees	339		533		—		—		339		533
Total	$	5,302	$	9,650	$	983	$	1,180	$	6,285	$	10,830

Other general and administrative expenses increased $1.7 million related to higher corporate expenses.

Depreciation and Amortization

Depreciation and amortization expense decreased $21.0 million , primarily related to our manufactured housing and multifamily properties which were classified as held for sale in 2015 ($21.1 million), both in our real estate segment.

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Other Income (Loss)

Unrealized Gain (Loss) on Investments and Other

Unrealized gain (loss) on investments and other is primarily related to the non-cash change in fair value adjustments and the remaining amount is related to net cash payments on interest rate swaps. The following table presents a summary of unrealized gain (loss) on investments and other by operating segment for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31, 2016
							N-Star CDOs
	Real Estate			CRE Securities			CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale ⁽¹⁾	$	—		$	(2,589	)	$	(7,633	)	$	—		$	(10,222	)
PE Investments ⁽¹⁾	(3,775		)	—			—			—			(3,775		)
CDO bonds payable, at fair value ⁽¹⁾	—			—			2,526			—			2,526
Junior subordinated notes, at fair value ⁽¹⁾	—			—			—			8,763			8,763
Derivatives, at fair value	(140		)	—			2,252			(117,760		)	(115,648		)
Foreign currency remeasurement ⁽²⁾	(3,750		)	—			—			—			(3,750		)
Investments in unconsolidated ventures ⁽¹⁾	(10,831		)	—			—			—			(10,831		)
Subtotal unrealized gain (loss)	(18,496		)	(2,589		)	(2,855		)	(108,997		)	(132,937		)
Net cash payments on derivatives	(13		)	—			(2,531		)	—			(2,544		)
Total unrealized gain (loss) on investments and other	$	(18,509	)	$	(2,589	)	$	(5,386	)	$	(108,997	)	$	(135,481	)

__________________________________________________________


(1)	Represents financial assets and liabilities for which the fair value option was elected.


(2)	Represents foreign currency remeasurement on investments, cash and deposits primarily denominated in British Pounds.



	Three Months Ended March 31, 2015
						N-Star CDOs
	Real Estate			CRE Securities		CRE Securities			Corporate			Total
Change in fair value of:
Real estate securities, available for sale ⁽¹⁾	$	—		$	3,118	$	1,394		$	—		$	4,512
PE Investments ⁽¹⁾	(4,433		)	—		—			—			(4,433		)
CDO bonds payable, at fair value ⁽¹⁾	—			—		(9,188		)	—			(9,188		)
Junior subordinated notes, at fair value ⁽¹⁾	—			—		—			(2,010		)	(2,010		)
Derivatives, at fair value	(1,070		)	—		2,206			—			1,136
Foreign currency remeasurement ⁽²⁾	(15,211		)	—		—			(2,332		)	(17,543		)
Subtotal unrealized gain (loss)	(20,714		)	3,118		(5,588		)	(4,342		)	(27,526		)
Net cash payments on derivatives	(88		)	—		(2,960		)	—			(3,048		)
Total unrealized gain (loss) on investments and other	$	(20,802	)	$	3,118	$	(8,548	)	$	(4,342	)	$	(30,574	)

__________________________________________________________


(1)	Represents financial assets and liabilities for which the fair value option was elected.


(2)	Primarily represents foreign currency remeasurement on an investment denominated in British Pounds.

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Realized Gain (Loss) on Investments and Other

The following table presents a summary of realized gain (loss) on investments and other by segment for the three months ended March 31, 2016 and 2015 (dollars in thousands):



		Three Months Ended March 31,
Description	Segment	2016			2015
Sale of real estate investments ⁽¹⁾	Real Estate	$	16,720		$	—
Sale of REO	CRE Debt	1,490			2,980
Conversion of exchangeable senior notes	Corporate	17			(1,147		)
Sale of CRE debt	CRE Debt	(1,006		)	(759		)
Other-than-temporary impairment	CRE Securities	(6,985		)	—
Sale of manufactured homes	Real Estate	(1,239		)	(175		)
Sales/repayments from N-Star CDO bonds and securities ⁽²⁾	CRE Securities	(5,614		)	11,153
Mortgage payoff of a net lease property	Real Estate	—			2,074
Other	Various	(3,006		)	(1,123		)
Total		$	377		$	13,003

_________________________________________________________


(1)	In March 2016, we sold our 60% interest in the Senior Housing Portfolio for $535 million.


(2)	Represents accelerated cash amortization on N-Star CDO bonds.

Equity in Earnings (Losses) of Unconsolidated Ventures and Income Tax Benefit (Expense)

Equity in Earnings (Losses) of Unconsolidated Ventures

The following table presents a summary of our equity in earnings (losses) of unconsolidated ventures, substantially all of which is generated from investments in our real estate segment, for the three months ended March 31, 2016 and 2015 (dollars in thousands):



	Three Months Ended March 31,
	2016		2015		Increase (Decrease)
PE Investments	$	37,552	$	48,186	$	(10,634	)
Investment in RXR Realty	6,116		3,533		2,583
Other unconsolidated ventures	987		1,924		(937		)
Total	$	44,655	$	53,643	$	(8,988	)

Income Tax Benefit (Expense)

Income tax expense for the three months ended March 31, 2016 represents a net expense of $7.8 million , of which $4.5 million represents a current income tax expense primarily related to a provision for income tax for our PE Investments ($4.7 million) and for our RIDEA healthcare properties ($1.2 million), offset by a current income tax benefit related to our hotel properties ($1.2 million), all in our real estate segment. Income tax expense for the three months ended March 31, 2015 represents a net expense of $1.7 million primarily related to a provision for income tax for our PE Investments ($3.9 million) and healthcare properties ($0.8 million), offset by a benefit of net operating loss carryforward related to our hotel portfolios operating under a RIDEA structure ($3.1 million).

Discontinued Operations

Income (Loss) from Discontinued Operations

For the three months ended March 31, 2015, we recorded a $13.9 million loss included in discontinued operations associated with NorthStar Europe which represented a carve-out of revenues of $1.8 million and expenses of $15.7 million, primarily related to transaction costs.

Liquidity and Capital Resources

We require capital to fund our operating expenses and investment activities, including the repurchase of our common stock. Our capital sources may include cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, financings secured by our assets such as mortgage notes, securitization financing transactions, long-term senior and subordinate corporate capital such as revolving credit facilities, senior term loans, senior notes, senior exchangeable notes, trust preferred securities, perpetual preferred stock and common stock. For instance, we are currently exploring the sale of certain real estate, CRE debt and securities, and since the beginning of the fourth quarter 2015 through May 2016, assets sold or committed to sell totaled $4.2 billion to generate liquidity to repurchase our common stock and reduce our leverage. Proceeds from these sales initiatives, along with capital retained from our revised dividend policy, are currently expected to be used for repurchasing our common stock, which we believe is currently trading at a large discount to underlying net asset value and toward the repayment of all of our corporate recourse borrowing obligations with $425 million currently outstanding (excluding $280 million of trust preferred securities with maturities beginning in 2035).

In addition, in connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available, on an “as available basis,” up to $250 million of financing to NSAM subject to certain conditions (refer to Related Party Arrangements). The terms of the NSAM revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and our affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. In addition, in connection with the NRE Spin-off, we provided NorthStar Europe with an initial capitalization of $250 million.

We seek to meet our long-term liquidity requirements, including the repayment of borrowings and our investment funding needs, through existing cash resources, issuance of debt or equity capital, return of capital from investments and the liquidation or refinancing of assets. Nonetheless, our ability to meet a long-term (beyond one year) liquidity requirement may be subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to provide us with financing will depend upon a number of factors, such as our compliance with the terms of our existing credit arrangements, our financial performance, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders’ and investors’ resources and policies concerning the terms under which they make capital commitments and the relative attractiveness of alternative investment or lending opportunities.

As a REIT, we are required to distribute at least 90% of our annual REIT taxable income to our stockholders, including taxable income where we do not receive corresponding cash, and we intend to distribute all or substantially all of our REIT taxable income in order to comply with the REIT distribution requirements of the Internal Revenue Code and to avoid federal income tax and the non-deductible excise tax. On a quarterly basis, our board of directors determines an appropriate common stock dividend based upon numerous factors, including CAD, REIT qualification requirements, availability of existing cash balances, borrowing capacity under existing credit agreements, access to cash in the capital markets and other financing sources, our view of our ability to realize gains in the future through appreciation in the value of our assets, general economic conditions and economic conditions that more specifically impact our business or prospects. Future dividend levels are subject to adjustment based upon our evaluation of the factors described above, as well as other factors that our board of directors may, from time-to-time, deem relevant to consider when determining an appropriate common stock dividend.

We currently believe that our existing sources of funds should be adequate for purposes of meeting our short-term liquidity needs. Unrestricted cash as of May 5, 2016 was approximately $652 million.

Capital Raise

In 2015, we issued aggregate capital of $1.3 billion from the issuance of common equity.

Securitization Financing Transactions

We have historically demonstrated the ability to securitize our CRE debt investments and expect to continue to pursue similar transactions to finance our newly-originated debt investments that might initially be financed on our credit facilities. In 2012 and 2013 we, and on behalf of NorthStar Income, entered into two securitization financing transactions with an aggregate $610 million of principal amount of bonds issued providing permanent, non-recourse, non-mark-to-market financing for CRE debt investments of ours and NorthStar Income’s. In January 2015, Securitization-2012-1 with $228 million principal amount of original bonds issued was repaid in full.

Corporate Borrowings

In August 2014, we entered into our Corporate Revolver with certain commercial bank lenders, with a total current amount of $250 million for a three year term. Additionally, in September 2014, we entered into a corporate term arrangement with respect to the establishment of term borrowings. In February 2016, our Corporate Revolver was repaid and we expect our remaining corporate recourse borrowings to be repaid from proceeds from sales initiatives.

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Loan Facility

With respect to investment-level financing, we maintain a loan facility that provides up to $200 million to finance the origination of first mortgage loans and senior loan participations secured by commercial real estate. The interest rate and advance rate depend on asset type and characteristic. In March 2016, the maturity date for the facility was extended for one year with final maturity in March 2018. In April 2016, our loan facility was repaid.

Our loan facility contains representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. We are currently in compliance with all of our financial covenants under our loan facility.

Exchangeable Senior Notes

For the three months ended March 31, 2016 , we issued 0.1 million shares of our common stockholders related to the conversion of exchangeable senior notes. As of May 5, 2016, we had $31 million in principal amount of exchangeable senior notes outstanding.

Cash Flows

The following presents a summary of our consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 (dollars in thousands).

The consolidated cash flows for the three months ended March 31, 2016 represents our cash flow following the NRE Spin-off on October 31, 2015. The consolidated cash flows for the three months ended March 31, 2015 includes cash flow attributable to revenues and expenses of NorthStar Europe recorded in discontinued operations.

As a result, cash flows for the three months ended March 31, 2016 may not be comparative to our cash flows reported for the prior period presented.



	Three Months Ended March 31,
Cash flow provided by (used in):	2016			2015
Operating activities	$	64,253		$	105,440
Investing activities	603,786			(489,865		)
Financing activities	(441,437		)	496,078
Effect of foreign currency translation on cash and cash equivalents	(86		)	(3,414		)
Net increase (decrease) in cash and cash equivalents	$	226,516		$	108,239

Three Months Ended March 31, 2016 Compared to March 31, 2015

Net cash provided by operating activities was $64 million for the three months ended March 31, 2016 compared to $105 million for the three months ended March 31, 2015 . The decrease was primarily due to the NRE Spin-off and sales of other investments.

Net cash provided by investing activities was $ 604 million for the three months ended March 31, 2016 compared to net cash used in investing activities of $490 million for the three months ended March 31, 2015 . The primary investing activities for the three months ended March 31, 2016 related to proceeds of sales of real estate, certain loans and securities and a PE Investment. The three months ended March 31, 2015 includes deposits for European real estate acquired and subsequently spun off as part of the NRE Spin-off.

Net cash used in financing activities was $441 million for the three months ended March 31, 2016 compared to net cash provided by financing activities of $496 million for the three months ended March 31, 2015 . The primary cash outflows for the three months ended March 31, 2016 was $212 million for the repayment of our credit facilities, $97 million for the payment of dividends, $47 million for the repurchase of our common stock and $16 million for net repurchase/repayment of CDO bonds. The primary cash inflows for the three months ended March 31, 2015 was $555 million of net new capital, $176 million of net new borrowings, offset by $151 million for the payment of dividends, $71 million for the payment of financing costs and $16 million for net repurchase/repayment of CDO bonds.

Off-Balance Sheet Arrangements

As of March 31, 2016 , we had off-balance sheet arrangements with respect to retained interests in certain deconsolidated N-Star CDOs. Refer to Note 16. “Variable Interest Entities” in Item 1. “Financial Statements” for a discussion of such retained interests in such N-Star CDOs in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Additionally, we have certain arrangements which do not meet the definition of off-balance sheet arrangements, but do have some of the characteristics of off-balance sheet arrangements, including certain investments in unconsolidated ventures. Refer to Note 5. “Investments in Private Equity Funds” and Note 6. “Investments in Unconsolidated Ventures” in Item 1. “Financial Statements”

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for a discussion of such unconsolidated ventures in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.

Related Party Arrangements

NorthStar Asset Management Group

Management Agreement

Upon completion of the NSAM Spin-off, we entered into a management agreement with an affiliate of NSAM for an initial term of 20 years, which automatically renews for additional 20 -year terms each anniversary thereafter unless earlier terminated. As asset manager, NSAM is responsible for our day-to-day operations, subject to supervision and management of our board of directors. Through its global network of subsidiaries and branch offices, NSAM performs services and engages in activities relating to, among other things, investments and financing, portfolio management and other administrative services, such as accounting and investor relations, to us and our subsidiaries other than our CRE loan origination business. The management agreement with NSAM provides for a base management fee and incentive fee.

In connection with the NRE Spin-off, NorthStar Europe entered into a management agreement with NSAM with an initial term of 20 years on terms substantially consistent with the terms of our management agreement with NSAM. Our management agreement with NSAM was amended and restated in connection with the NRE Spin-off to, among other things, adjust the annual base management fee and incentive fee hurdles for the NRE Spin-off.

Base Management Fee

For the three months ended March 31, 2016 , we incurred $47 million related to the base management fee. The base management fee to NSAM could increase subsequent to March 31, 2016 by an amount equal to 1.5% per annum of the sum of:


•	cumulative net proceeds of all future common equity and preferred equity issued by us;


•	equity issued by us in exchange or conversion of exchangeable notes based on the stock price at the date of issuance;


•	any other issuances by us of common equity, preferred equity or other forms of equity, including but not limited to limited partnership interests, or LTIP Units, in our Operating Partnership (excluding units issued to us and equity-based compensation, but including issuances related to an acquisition, investment, joint venture or partnership); and


•	cumulative CAD in excess of cumulative distributions paid on common stock, LTIP units or other equity awards beginning the first full calendar quarter after the NSAM Spin-off.

Additionally, our equity interest in RXR Realty and Aerium is structured so that NSAM is entitled to the portion of distributable cash flow from each investment in excess of the $10 million minimum annual base amount.

Incentive Fee

For the three months ended March 31, 2016 , we did not incur an incentive fee. The incentive fee is calculated and payable quarterly in arrears in cash, equal to:


•	the product of: (a) 15% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.68 per share and up to $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 15% Hurdle; plus


•	the product of: (a) 25% and (b) our CAD before such incentive fee, divided by the weighted average shares outstanding for the calendar quarter, of any amount in excess of $0.78 per share, after giving effect to the Reverse Split and the NRE Spin-off, or the 25% Hurdle;


•	multiplied by our weighted average shares outstanding for the calendar quarter.

In addition, NSAM may also earn an incentive fee from our healthcare investments in connection with NSAM’s Healthcare Strategic Partnership (refer to below).

Weighted average shares represents the number of shares of our common stock, LTIP Units or other equity-based awards (with some exclusions), outstanding on a daily weighted average basis. With respect to the base management fee, all equity issuances are allocated on a daily weighted average basis during the fiscal quarter of issuance. With respect to the incentive fee, such amounts will be appropriately adjusted from time to time to take into account the effect of any stock split, reverse stock split, stock dividend, reclassification, recapitalization or other similar transaction.

Additional Management Agreement Terms

If we were to spin-off any asset or business in the future, such entity would be managed by NSAM on terms substantially similar to those set forth in the management agreement between us and NSAM. The management agreement further provides that the

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aggregate base management fee in place immediately after any future spin-off will not be less than our aggregate base management fee in place immediately prior to such spin-off.

Our management agreement with NSAM provides that in the event of a change of control of NSAM or other event that could be deemed an assignment of the management agreement, we will consider such assignment in good faith and not unreasonably withhold, condition or delay our consent. The management agreement further provides that we anticipate consent would be granted for an assignment or deemed assignment to a party with expertise in commercial real estate and over $10 billion of assets under management. The management agreement also provides that, notwithstanding anything in the agreement to the contrary, to the maximum extent permitted by applicable law, rules and regulations, in connection with any merger, sale of all or substantially all of the assets, change of control, reorganization, consolidation or any similar transaction of us or NSAM, directly or indirectly, the surviving entity will succeed to the terms of the management agreement.

Payment of Costs and Expenses and Expense Allocation

We are responsible for all of our direct costs and expenses and reimburse NSAM for costs and expenses incurred by NSAM on our behalf. In addition, NSAM may allocate indirect costs to us related to employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, our management agreement with NSAM, or the G&A Allocation. Our management agreement with NSAM provides that the amount of the G&A Allocation will not exceed the following: (i) 20% of the combined total of: (a) our and NorthStar Europe’s, or the NorthStar Listed Companies’, general and administrative expenses as reported in their consolidated financial statements excluding (1) equity-based compensation expense, (2) non-recurring items, (3) fees payable to NSAM under the terms of the applicable management agreement and (4) any allocation of expenses to the NorthStar Listed Companies, or NorthStar Listed Companies’ G&A; and (b) NSAM’s general and administrative expenses as reported in its consolidated financial statements, excluding equity-based compensation expense and adding back any costs or expenses allocated to any managed company of NSAM; less (ii) the NorthStar Listed Companies’ G&A. The G&A Allocation may include our allocable share of NSAM’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing our affairs, based upon the percentage of time devoted by such personnel to our affairs. The G&A Allocation may also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses, which may be allocated based on various methodologies, such as weighted average employee count or the percentage of time devoted by personnel to our affairs. In addition, we will pay directly or reimburse NSAM for an allocable portion of any severance paid pursuant to any employment, consulting or similar service agreements in effect between NSAM and any of its executives, employees or other service providers.

In connection with the NRE Spin-off and the related agreements, the NorthStar Listed Companies’ obligations to reimburse NSAM for the G&A Allocation and any severance are shared among the NorthStar Listed Companies, at NSAM’s discretion, and the 20% cap on the G&A Allocation, as described above, applies on an aggregate basis to the NorthStar Listed Companies. NSAM currently determined to allocate these amounts based on assets under management.

For the three months ended March 31, 2016 , NSAM allocated $0.2 million to us.

In addition, we, together with NorthStar Europe and any company spun-off from us or NorthStar Europe, will pay directly or reimburse NSAM for up to 50% of any long-term bonus or other compensation that NSAM’s compensation committee determines shall be paid and/or settled in the form of equity and/or equity-based compensation to executives, employees and service providers of NSAM during any year. Subject to this limitation and limitations contained in any applicable management agreement between NSAM and NorthStar Europe or any company spun-off from us or NorthStar Europe, the amount paid by us, NorthStar Europe and any company spun-off from us or NorthStar Europe will be determined by NSAM in its discretion. At the discretion of NSAM’s compensation committee, this compensation may be granted in shares of our restricted stock, restricted stock units, LTIP Units or other forms of equity compensation or stock-based awards; provided that if at any time a sufficient number of shares of our common stock are not available for issuance under our equity compensation plan, such compensation shall be paid in the form of RSUs, LTIP Units or other securities that may be settled in cash. Our equity compensation for each year may be allocated on an individual-by-individual basis at the discretion of the NSAM compensation committee and, as long as the aggregate amount of the equity compensation for such year does not exceed the limits set forth in the management agreement, the proportion of any particular individual’s equity compensation may be greater or less than 50% .

In connection with the above obligation, we were responsible for paying approximately 50% of the 2015 and 2014 long-term bonuses earned under the NorthStar Asset Management Group Inc. Executive Incentive Bonus Plan, or NSAM Bonus Plan. Long-term bonuses were paid to executives in the form of equity-based awards of both us and NSAM, subject to performance-based and time-based vesting conditions over the four-year performance period from January 1, 2014 through December 31, 2017. The long-term bonuses paid in the form of equity-based awards of ours were adjusted for the NRE Spin-off and Reverse Split in the same manner as all other equity-based awards of ours.

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Investment Opportunities

Under the management agreement, we agreed to make available to NSAM for the benefit of NSAM and its managed companies, including us, all investment opportunities that we source. NSAM agreed to fairly allocate such opportunities among NSAM’s managed companies, including us, and NSAM in accordance with an investment allocation policy. Pursuant to the management agreement, we are entitled to fair and reasonable compensation for our services in connection with any loan origination opportunities sourced by us, which may include first mortgage loans, subordinate mortgage interests, mezzanine loans and preferred equity interests, in each case relating to commercial real estate. For the three months ended March 31, 2016, we earned $0.2 million from NSAM for services in connection with loan origination opportunities.

NSAM provides services with regard to such areas as payroll, human resources and employee benefits, financial systems management, treasury and cash management, accounts payable services, telecommunications services, information technology services, property management services, legal and accounting services and various other corporate services to us as it relates to our loan origination business for CRE debt.

Credit Agreement

In connection with the NSAM Spin-off, we entered into a revolving credit agreement with NSAM pursuant to which we make available to NSAM, on an “as available basis,” up to $250 million of financing with a maturity of June 30, 2019 at LIBOR plus 3.50% . The revolving credit facility is unsecured. NSAM expects to use the proceeds for general corporate purposes, including potential future acquisitions. In addition, NSAM may use the proceeds to acquire assets on behalf of its managed companies, including us, that it intends to allocate to such managed company but for which such managed company may not then have immediately available funds. The terms of the revolving credit facility contain various representations, warranties, covenants and conditions, including the condition that our obligation to advance proceeds to NSAM is dependent upon us and its affiliates having at least $100 million of either unrestricted cash and cash equivalents or amounts available under committed lines of credit, after taking into account the amount NSAM seeks to draw under the facility. As of March 31, 2016 , we have not funded any amounts to NSAM in connection with this agreement.

Healthcare Strategic Joint Venture

In January 2014, NSAM entered into a long-term strategic partnership with James F. Flaherty III, former Chief Executive Officer of HCP, Inc., focused on expanding our healthcare business into a preeminent healthcare platform, or the Healthcare Strategic Partnership. In connection with the partnership, Mr. Flaherty oversees both our healthcare real estate portfolio and the portfolio of NorthStar Healthcare. In connection with entering into the partnership, we granted Mr. Flaherty certain RSUs (refer to Note 10. “Equity-Based Compensation” in Item 1. “Financial Statements”). The Healthcare Strategic Partnership is entitled to incentive fees ranging from 20% to 25% above certain hurdles for new and existing healthcare real estate investments held by us. For the three months ended March 31, 2016 , we did not incur any incentive fees related to the Healthcare Strategic Partnership.

NSAM Retail Companies

Prior to the NSAM Spin-off, we had agreements with each of our previously sponsored companies: NorthStar Income, NorthStar Healthcare and NorthStar Income II to manage their day-to-day operations, including identifying, originating and acquiring investments on their behalf and earning fees for our services. For the six months ended June 30, 2014, we earned $22 million of fees related to these agreements, which are recorded in discontinued operations in the consolidated statements of operations. In addition, we were entitled to certain expense allocation for costs paid on behalf of the NSAM Retail Companies. For the six months ended June 30, 2014, we received $14 million of reimbursement from the NSAM Retail Companies.

We committed to purchase up to $10 million in shares of each of NSAM’s Retail Companies’ common stock during the period from when each offering was declared effective through the end of their respective offering period, in the event that NSAM Retail Companies’ distributions to its stockholders, on a quarterly basis, exceeds certain measures of operating performance.

We acquired an aggregate of $15 million of shares of NorthStar Income, NorthStar Healthcare and NorthStar Income II through March 31, 2016 . In addition, pursuant to the management agreement with NSAM, we committed up to $10 million to invest as distribution support consistent with past practice in each future public non-traded NSAM Retail Company, up to a total of five new companies per year.

As of March 31, 2016, our distribution support obligations remain outstanding for NorthStar Income II and the following other NSAM Retail Companies:

•

NorthStar/RXR New York Metro - NorthStar/RXR New York Metro Real Estate, Inc., or NorthStar/RXR New York Metro’s registration statement filed with the SEC seeks to offer up to $2 billion in a public offering of multiple classes of common stock. In December 2015, we and RXR Realty satisfied NorthStar/RXR New York Metro’s minimum offering amount as a result of the purchase of 0.2 million shares of its common stock for an aggregate $2.0 million, of which $1.5

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million was invested by us. We currently consolidate NorthStar/RXR New York Metro based on our majority voting interest in the entity. NSAM began raising capital for NorthStar/RXR New York Metro in the second quarter 2016.

•

NorthStar Corporate Fund - NorthStar Corporate Income Fund’s, or NorthStar Corporate Fund, registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In January 2016, an affiliate of Och-Ziff Capital Management Group and us invested $2 million of seed capital into NorthStar Corporate Fund, of which $1 million was invested by us. In February 2016, NorthStar Corporate Fund was declared effective by the SEC and expects to begin raising capital in 2016.

•

NorthStar Capital Fund - NorthStar Real Estate Capital Income Fund’s registration statement on Form N-2 filed with the SEC seeks to raise up to $3 billion in a public offering of common stock. In March 2016, we invested $2 million of seed capital into NorthStar Capital Fund. In May 2016, NorthStar Capital Fund was declared effective by the SEC and expects to begin raising capital in 2016. We currently consolidate the master fund of NorthStar Capital Fund based on our majority voting interest in the entity.


•	NorthStar Corporate Investment - In June 2015, NorthStar Corporate Investment, Inc. confidentially submitted its amended registration statement on Form N-2 to the SEC seeking to raise up to $1 billion in a public offering of common stock.

N-Star CDOs

We earn certain collateral management fees from the N-Star CDOs primarily for administrative services. For the three months ended March 31, 2016 we earned $1 million in fee income of which $0.5 million was eliminated in consolidation.

Additionally, we earn interest income from the N-Star CDO bonds and N-Star CDO equity in deconsolidated N-Star CDOs. For the three months ended March 31, 2016 , we earned $11 million of interest income from such investments related to deconsolidated N-Star CDOs.

American Healthcare Investors

In December 2014, NSAM acquired a 43% interest in American Healthcare Investors LLC, or AHI, and James F. Flaherty III, a strategic partner of NSAM, acquired a 12% interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by us and NorthStar Healthcare. In connection with this acquisition, AHI provides certain management and related services, including property management, to NSAM, NorthStar Healthcare and us in order to assist NSAM in managing the current and future healthcare assets (excluding any joint venture assets) acquired by us and, subject to certain conditions, other NSAM managed companies. For the three months ended March 31, 2016 , we incurred $1 million of property management fees to AHI.

Island Hospitality Management

In January 2015, NSAM acquired a 45% interest in Island Hospitality Management Inc., or Island. Island is a leading, independent select service hotel management company that currently manages 160 hotel properties, representing $4 billion of assets, of which 110 hotel properties are owned by us. Island provides certain asset management, property management and other services to us to assist in managing our hotel properties. Island receives a base management fee of 2.5% to 3.0% of the monthly revenue of our hotel properties it manages for us. For the three months ended March 31, 2016 we incurred $4 million of base property management and other fees to Island.

NSAM purchase of common stock

In 2015, NSAM purchased 2.7 million shares of our common stock in the open market for $50 million.

Recent Sales or Commitments to Sell to NSAM Retail Companies

For the three months ended March 31, 2016 , we sold or entered into agreements to sell certain assets to NSAM Retail Companies:

•

In February 2016, we sold substantially all of our 70% interest in PE Investment II to the existing owners of the remaining 30% interest, one a third party which purchased approximately 80% of the interest sold and the other NorthStar Income which purchased the other approximate 20% of the interest sold. NorthStar Income paid $37 million for its respective interest. As part of the transaction, both buyers assumed the deferred purchase price obligation, on a pro rata basis, of the PE Investment II joint venture.


•	In February 2016, we sold a 49% interest in one loan with a total principal amount of $40 million to a third party, at par, with the remaining 51% interest sold to NorthStar Income II, also at par.


•	In February 2016, we sold one CRE security with a carrying value of $13 million to NorthStar Income II.

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•	In March 2016, we sold our 60% interest in the Senior Housing Portfolio to NorthStar Healthcare, which owned the remaining 40% interest, for $535 million. NorthStar Healthcare assumed our portion of the $648 million of mortgage borrowing as part of the transaction and we received approximately $150 million of net proceeds.

Recent Developments

Dividends

On May 4, 2016, we declared a dividend of $0.40 per share of common stock. The common stock dividend will be paid on May 20, 2016 to stockholders of record as of the close of business on May 16, 2016. On April 27, 2016, we declared a dividend of $0.54688 per share of Series A preferred stock, $0.51563 per share of Series B preferred stock, $0.55469 per share of Series C preferred stock, $0.53125 per share of Series D Preferred Stock and $0.54688 per share of Series E Preferred Stock. Dividends will be paid on all series of preferred stock on May 16, 2016 to stockholders of record as of the close of business on May 9, 2016.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance significantly more than inflation does. A change in interest rates may correlate with inflation rates. Substantially all of the leases at our manufactured housing communities and multifamily properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation on our manufactured housing communities and multifamily properties. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for additional details.

Non-GAAP Financial Measures

We use CAD and NOI, each a non-GAAP measure, to evaluate our profitability.

Cash Available for Distribution

We believe that CAD provides investors and management with a meaningful indicator of operating performance. We also believe that CAD is useful because it adjusts for a variety of cash (such as transaction costs, cash flow related to N-Star CDO equity interests and community fees) and non-cash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on investments, provision for loan losses, asset impairment, non-recurring bad debt expense and non-cash interest income and expense items). We adjust for transaction costs because these costs are not a meaningful indicator of our recurring operating performance. For instance, these transaction costs include costs such as professional fees associated with new investments or restructuring of investments, which are expenses related to specific transactions. We adjust for the cash flow related to N-Star CDO equity interests which represents the net interest generated from the N-Star CDO equity interests. We also adjusted for community fees received in cash related to our former independent living healthcare portfolio which represents a component of our aggregate net return generated related to such investment. These cash flows are a component of our ongoing return on such investments, and therefore, is adjusted in CAD as it provides investors and management with a meaningful indicator of our recurring operating performance. Furthermore, CAD adjusts N-Star CDO bond discounts to record such investments on an effective yield basis over the expected weighted average life of the investment. N-Star CDO bond discounts relates to repurchased CDO bonds of consolidated CDO financing transactions at a discount to par. These CDO bonds typically have a low interest rate and the majority of the return is generated from repurchasing the CDO bonds at a discount to expected recovery value. Because the return generated through the accretion of the discount is a meaningful contributor to our recurring operating performance, such accretion is adjusted in CAD. The computation for the accretion of the discount under U.S. GAAP and CAD is the same. However, for CDO financing transactions that are consolidated under U.S. GAAP, the CDO bonds are not presented as an investment but rather are eliminated in our consolidated financial statements. In addition, we adjust for distributions and adjustments to joint venture partners, which represent the net return generated from our investments allocated to our non-controlling interests. For our owned hotels, our CAD calculation is equivalent to earnings before interest taxes depreciation and amortization (EBITDA), the hotel industry standard metric, which does not make an adjustment for furniture, fixtures and equipment (FF&E) reserves. CAD may fluctuate from period to period based upon a variety of factors, including, but not limited to, the timing and amount of investments, repayments and asset sales, capital raised, use of leverage, changes in the expected yield of investments and the overall conditions in commercial real estate and the economy generally. Management also believes that quarterly distributions are principally based on operating performance and our board of directors includes CAD as one of several metrics it reviews to determine quarterly distributions to stockholders.

We calculate CAD by subtracting from or adding to net income (loss) attributable to common stockholders, non-controlling interests and the following items: depreciation and amortization items including depreciation and amortization, straight-line rental income or expense (excluding amortization of rent free periods), amortization of above/below market leases, amortization of deferred

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financing costs, amortization of discount on financings and other and equity-based compensation; cash flow related to N-Star CDO equity interests; accretion of consolidated N-Star CDO bond discounts; non-cash net interest income in consolidated N-Star CDOs; unrealized gain (loss) from the change in fair value; realized gain (loss) on investments and other, excluding accelerated amortization related to sales of CDO bonds or other investments; provision for loan losses, net; impairment on depreciable property; non-recurring bad debt expense; deferred tax benefit (expense); acquisition gains or losses; distributions and adjustments related to joint venture partners; transaction costs; foreign currency gains (losses); impairment on goodwill and other intangible assets; gains (losses) on sales; and one-time events pursuant to changes in U.S. GAAP and certain other non-recurring items. For example, CAD has been adjusted to exclude non-recurring gain (loss) from deconsolidation of certain N-Star CDOs. These items, if applicable, include any adjustments for unconsolidated ventures.

CAD should not be considered as an alternative to net income (loss) attributable to common stockholders, determined in accordance with U.S. GAAP, as an indicator of operating performance. In addition, our methodology for calculating CAD involves subjective judgment and discretion and 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.

The following table presents a reconciliation of CAD to net income (loss) attributable to common stockholders for the three months ended March 31, 2016 (dollars in thousands):



Net income (loss) attributable to common stockholders	$	(145,264	)
Non-controlling interests	(3,177		)

Adjustments:
Depreciation and amortization items ⁽¹⁾	104,423
N-Star CDO bond discounts ⁽²⁾	5,203
Non-cash net interest income in consolidated N-Star CDOs	(9,954		)
Unrealized (gain) loss from fair value adjustments / Provision for loan losses, net	140,192
Realized (gain) loss on investments ⁽³⁾	11,198
Distributions / adjustments to joint venture partners	(10,063		)
Transaction costs and other ⁽⁴⁾	14,526
CAD	$	107,084

____________________________________________________________

(1)

Represents an adjustment to exclude depreciation and amortization of $88.5 million (including $0.2 million related to unconsolidated ventures and $0.3 million of cash flow related to community fees), straight-line rental income of $(6.8) million, amortization of above/below market leases of $1.5 million, amortization of deferred financing costs of $14.4 million, amortization of discount on financings and other of $0.5 million and amortization of equity-based compensation of $6.3 million.


(2)	For CAD, realized discounts on N-Star CDO bonds for consolidated CDOs are accreted on an effective yield basis based on expected maturity. For deconsolidated N-Star CDOs, N-Star CDO bond accretion is already included in net income attributable to common stockholders.

(3)

Represents an adjustment to exclude a $16.7 million gain related to the sale of real estate, $(15.2) million non-cash loss related to the sale of CMBS, $(7.5) million non-cash loss related to securities in our consolidated CDOs, $(0.3) million foreign currency loss, $(1.2) million loss related to the sale of manufactured homes, $(1.0) million non-cash loss related to the sale of loans, $(1.2) million loss related to the write-off of deferred financing costs and $(1.4) million of other real estate related losses and includes a $10.0 million net cash gain related to accelerated discount from sales and repayments of securities and loans and a $1.5 million net cash gain related to the sale of REO.


(4)	Represents an adjustment to exclude $3.2 million of transaction costs, $3.3 million of deferred taxes, $5.1 million of impairment losses and include $2.9 million of cash flow related to N-Star CDO equity interests.

Net Operating Income (NOI)

We believe NOI is a useful metric of the operating performance of our real estate portfolio in the aggregate. Portfolio results and performance metrics represent 100% for all consolidated investments and represent our ownership percentage for unconsolidated joint ventures. Net operating income represents total property and related revenues, adjusted for: (i) amortization of above/below market rent; (ii) straight line rent; (iii) other items such as adjustments related to joint ventures, cash flow related to community fees and non-recurring bad debt expense; and (iv) less property operating expenses. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, transaction costs, depreciation and amortization expense, realized gains (losses) from the sale of properties and other items under U.S. GAAP and capital expenditures and leasing costs necessary to maintain the operating performance of properties, all of which may be significant economic costs. NOI may fail to capture significant trends in these components of U.S. GAAP net income (loss) which further limits its usefulness.

NOI 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 NOI involves subjective judgment and discretion and 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.

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The following table presents a reconciliation of NOI to property and other related revenues less property operating expenses for our property types in our real estate segment the three months ended March 31, 2016 (dollars in thousands):



										Manufactured							Multi-tenant
	Total			Healthcare ⁽⁵⁾			Hotel			Housing ⁽⁶⁾		Net Lease			Multifamily ⁽⁶⁾		Office
Property and other revenues
Rental and escalation income	$	191,434		$	108,637		$	—		$	49,232	$	17,689		$	10,455	$	5,421
Hotel related income	193,743			—			193,743			—		—			—		—
Resident fee income	72,777			72,777			—			—		—			—		—
Other revenue ⁽¹⁾	3,064			879			47			1,376		2			605		155
Total property and other revenues	461,018			182,293			193,790			50,608		17,691			11,060		5,576
Real estate properties—operating expenses	238,410			78,346			130,489			19,394		3,118			4,800		2,263
Adjustments:
Interest income ⁽²⁾	2,584			1,332			—			1,244		—			—		8
Equity in earnings ⁽³⁾	263			—			—			—		11			252		—
Amortization and other items ⁽⁴⁾	(4,085		)	(3,731		)	(10		)	—		(404		)	354		(294		)
NOI	$	221,370		$	101,548		$	63,291		$	32,458	$	14,180		$	6,866	$	3,027

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(1)	Certain other revenue earned is not included as part of NOI, including collateral management fees for administrative services in our N-Star CDOs, that are not part of our real estate segment.


(2)	Primarily represents interest income earned from notes receivable on manufactured homes and loans in the Griffin-American Portfolio.


(3)	Includes an adjustment related to our interest in an unconsolidated joint venture in a net lease and multifamily property.


(4)	Primarily includes amortization of straight-line rental income, amortization of above/below market leases and non-recurring bad debt.


(5)	In March 2016, we sold our 60% interest in a Senior Housing Portfolio. First quarter 2016 NOI includes approximately two months of operations.


(6)	During 2016, we entered into agreements to sell certain of our real estate portfolios, including ten multifamily properties and our manufactured housing portfolio.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are primarily subject to interest rate risk and credit risk. These risks are dependent on various factors beyond our control, including monetary and fiscal policies, domestic and international economic conditions and political considerations. Our market risk sensitive assets, liabilities and related derivative positions are held for investment and not for trading purposes.

Interest Rate Risk

Changes in interest rates affect our net income, which is the difference between the income earned on our investments and the interest expense incurred in connection with our borrowings and derivatives.

Our general financing strategy has focused on the use of “match-funded” structures. This means that we seek to align the maturities of our liabilities with the maturities on our assets as closely as possible in order to manage the risks of being forced to refinance our liabilities prior to the maturities of our assets. Substantially all of our investments are financed with non-recourse mortgage notes. In addition, we seek to match the interest rate on our assets with like-kind borrowings, so fixed-rate investments are financed with fixed-rate borrowings and floating-rate assets are financed with floating-rate borrowings, directly or indirectly, through the use of interest rate swaps, caps and other financial instruments or through a combination of these strategies. For longer duration, relatively stable investment real estate cash flows such as those derived from net lease assets, we tend to use fixed rate financing. For real estate cash flows with greater growth potential such as hotels and healthcare under a RIDEA structure, we tend to use floating rate financing which provides prepayment flexibility and may provide a better match between underlying cash flow projections and potential increases in interest rates.

Our CRE debt and securities investments bear interest at either a floating or fixed rate. The interest rate on our floating-rate assets is a fixed spread over an index such as LIBOR and typically reprices every 30 days based on LIBOR in effect at the time. Given the frequent and periodic repricing of our floating-rate assets, changes in benchmark interest rates are unlikely to materially affect the value of our floating-rate portfolio. Changes in short-term rates will, however, affect income from these investments. However, some of our non-legacy CRE debt originations have LIBOR floors that are in excess of current LIBOR. We will not benefit from an increase in LIBOR until it is in excess of the floors.

As of March 31, 2016 , a hypothetical 100 basis point increase in one-month LIBOR or the applicable index applied to our floating-rate assets and liabilities (and related derivatives) would result in a decrease in net income of approximately $43 million annually, of which $30 million of the change is attributable to floating rate financing of hotel and healthcare operating real estate and does not reflect the potential increase in cash flow associated with economic growth that may be typical in a rising interest rate environment.

A change in interest rates could affect the value of our fixed-rate CRE debt and securities investments and our real estate investments. For example, increasing interest rates could result in a higher required yield on investments, which could decrease the value on existing fixed-rate investments in order to adjust their yields to current market levels. In addition, the value of our real estate properties may be influenced by changes in interest rates and credit spreads (as discussed below) because value is typically derived by discounting expected future cash flow generated by the property using interest rates (such as the 10-year U.S. Treasury Note yield) plus a risk premium based on the property type and creditworthiness of the tenants/operators. A lower risk-free rate generally results in a lower discount rate and, therefore, a higher valuation, and vice versa; however, an increase in the risk-free rate would not impact our net income.

A change in the interest rate and credit spread may also impact our net book value as CRE securities are marked-to-market each quarter with any change in fair value reflected in unrealized gains (losses) or OCI. Generally, as interest rates increase, the value of fixed-rate securities within our CDO financing transaction, such as CMBS, decreases and as interest rates decrease, the value of these securities will increase. A change in unrealized gains (losses) do not directly affect our operating cash flow or our ability to pay a dividend to stockholders.

We use derivative instruments to manage interest rate exposure. These derivatives are typically in the form of interest rate swap or cap agreements and the primary objective is to minimize interest rate risks associated with our investments and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties and we monitor their financial condition. For example, in June 2015 we entered into a $2 billion notional 10-year fixed interest rate swap in order to seek to hedge against future refinancing costs of certain of our mortgage borrowings. This swap is currently materially out of the money and we have posted $67 million of margin as of May 5, 2016 for the benefit of our counterparty and may be subject to future margin calls. If an early termination event occurs now with respect to this swap, which could be triggered by a change of control or similar merger transaction, in addition to losing the margin we have posted we would currently be required to pay approximately $160 million to our counterparty. As of March 31, 2016 , our counterparties do not hold any cash margin as collateral against our remaining derivative contracts. As of March 31, 2016 , none of our derivatives qualify for hedge accounting treatment, therefore, gains (losses) resulting from their fair value measurement at the end of each reporting period are recognized as an increase or decrease in unrealized gain (loss) on investments and other in our consolidated statements of operations. In addition, we are, and

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may in the future be, subject to additional expense based on the notional amount of the derivative and a specified spread over the applicable LIBOR. Because the fair value of these instruments can vary significantly between periods, we may experience significant fluctuations in the amount of our unrealized gain (loss) in any given period. As of March 31, 2016 , a hypothetical 100 basis point increase (decrease) in the 10-year treasury forward curve applied to our interest rate swap would result in an unrealized gain (loss) of approximately $172 million.

Credit Spread Risk

The value of our fixed and floating-rate investments also changes with market credit spreads. This means that when market-demanded risk premium, or credit spread, increases, the value of our fixed- and floating-rate assets decrease and vice versa. Fixed-rate assets are valued based on a market credit spread over the rate payable on fixed rate U.S. Treasury of like maturity. This means that their value is dependent on the yield demanded on such assets by the market, based on their credit relative to U.S. Treasuries. Floating-rate CRE debt and securities investments are valued based on a market credit spread over the applicable LIBOR. Demand for a higher yield on investments results in higher or “wider” spread over the benchmark rate (usually the applicable U.S. Treasury yield) to value these assets. Under these conditions, the value of our portfolio should decrease. Conversely, if the spread used to value these assets were to decrease or “tighten,” the value of these assets should increase.

Credit Risk

We are subject to the credit risk of the tenant/operators of our properties. We seek to undertake a rigorous credit evaluation of each tenant and healthcare operator prior to acquiring properties. This analysis includes an extensive due diligence investigation of the tenant/operator’s business as well as an assessment of the strategic importance of the underlying real estate to the tenant/operator’s core business operations. Where appropriate, we may seek to augment the tenant/operator’s commitment to the facility by structuring various credit enhancement mechanisms into the underlying leases. These mechanisms could include security deposit requirements or guarantees from entities we deem creditworthy. In addition, we actively monitor lease coverage at each facility within our healthcare portfolio.

Credit risk in our CRE debt and securities investments relates to each individual borrower’s ability to make required interest and principal payments on scheduled due dates. We seek to manage credit risk through a comprehensive credit analysis prior to making an investment, actively monitoring our portfolio and the underlying credit quality, including subordination and diversification of our portfolio. Our analysis is based on a broad range of real estate, financial, economic and borrower-related factors which we believe are critical to the evaluation of credit risk inherent in a transaction.

Our CRE debt investments are collateral dependent, meaning the principal source of repayment is from a sale or refinancing of the collateral securing our debt. In the event that a borrower cannot repay our debt, we may exercise our remedies under the debt agreements, which may include taking title to collateral. We describe many of the options available to us in this situation in the “Portfolio Management” section in Part I, Item 1. “Business.” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. To the extent the value of the collateral underlying a CRE debt investment exceeds the carrying value of the investment (including all debt senior to us) and the expense we incur in collecting the debt, we would collect 100% of our investment. To the extent the carrying value of our CRE debt investment plus all senior debt to our position exceeds the realizable value to our collateral (net of expenses), then we would incur a loss. CMBS investments are generally junior in right of payment of interest and principal to one or more senior classes but benefit from the support of one or more subordinate classes of securities or other form of credit support within a securitization transaction.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management conducted an evaluation as required under Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended, or Exchange Act, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Internal Control over Financial Reporting

Changes in internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

We are involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations. Refer to Note 15. “Commitments and Contingencies” in Part I, Item 1. “Financial Statements” for further disclosure regarding legal proceedings.

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

The following table provides the information with respect to purchases made by us of our common stock during the three months ended March 31, 2016 :



Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program ⁽¹⁾
March 1 - March 31	3,889,700	$	12.85	10,360,068	$	332,031,738

__________________


(1)	On September 29, 2015, we announced that our board of directors authorized the repurchase of up to $500 million of our outstanding common stock. The authorization expires on September 29, 2016, unless otherwise extended by our board of directors.

Item 5. Other

On May 7, 2016, affiliates of NorthStar Realty Finance Corp. (the “Company”), RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC and MHC Portfolio IV, LLC (collectively, the “Sellers”), entered into an Interest Sale Agreement (the “MH Agreement”) with BSREP II MH Holdings LLC, a Delaware limited liability company and an affiliate of a real estate fund managed by Brookfield Asset Management Inc. (“Purchaser”), to sell all of the Sellers’ outstanding equity interests (the “MH Interests”) in the Company’s manufactured housing portfolio consisting of approximately 33,010 pads in 135 communities located in 13 states. The aggregate purchase price for all of the MH Interests is approximately $2.04 billion, subject to adjustment under certain circumstances as provided in the MH Agreement. In connection with its execution and delivery of the MH Agreement, Purchaser delivered a deposit of $50 million to the Sellers, which is generally non-refundable except in certain limited circumstances described in the MH Agreement. The Company currently holds approximately 94% of the MH Interests, with the remaining 6% held by other third party partners in the Sellers.

The obligations of the parties to consummate the transactions contemplated by the MH Agreement are subject to the satisfaction, at or prior to closing, of certain customary closing conditions including, but not limited to, the assumption by the Purchaser of approximately $1.27 billion of outstanding mortgage notes encumbering the manufactured housing portfolio, no monetary or material non-monetary defaults shall have occurred and be continuing under any of the assumed loans and title to each of the properties shall be free and clear of all liens, security interests, pledges or similar encumbrances, other than as expressly permitted pursuant to the MH Agreement.

The Company expects the closing of the sale of the MH Interests to occur in the second half of 2016. However, there is no assurance that the transaction will close in the timeframe contemplated or on the terms anticipated, if at all.

The foregoing description of the MH Agreement is qualified in its entirety by reference to a copy of the MH Agreement attached hereto as Exhibit 10.42 to this Quarterly Report on Form 10-Q.

Item 6. Exhibits



Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Merger, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., NRF Healthcare Subsidiary, LLC, NRF OP Healthcare Subsidiary, LLC, Griffin-American Healthcare REIT II Holdings, LP and Griffin-American Healthcare REIT II, Inc. (incorporated by reference to Exhibit 2.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014).
3.1		Articles of Restatement of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 7, 2014)
3.2		Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
3.3		Articles of Amendment to the Charter of NorthStar Realty Finance Corp., dated October 30, 2015 and effective November 1, 2015(incorporated by reference to Exhibit 3.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)

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Exhibit Number		Description of Exhibit
3.4		Amended and Restated Bylaws of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 3.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.1		Registration Rights Agreement relating to the 7.25% Exchangeable Senior Notes due 2027 of NorthStar Realty Finance Limited Partnership, dated June 18, 2007 (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Registration Statement on Form S-3 (File No. 333-146679))
4.2		Indenture dated as of June 18, 2007, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp., as Guarantor, and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on June 22, 2007)
4.3		Supplemental Indenture dated as of June 30, 2014, relating to the 7.25% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.4		Second Supplemental Indenture, relating to the 7.25% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 18, 2007 and supplemented by the first Supplemental Indenture thereto dated June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.5		Registration Rights Agreement relating to the 8.875% Exchangeable Senior Notes due 2032 of NorthStar Realty Finance Limited Partnership, dated as of June 12, 2012 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.6		Indenture dated as of June 12, 2012, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 12, 2012)
4.7		Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of June 30, 2014, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.8		Second Supplemental Indenture, relating to the 8.875% Exchangeable Senior Notes, dated as of March 13, 2015 and supplemented on June 30, 2014, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 12, 2012 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.9		Registration Rights Agreement relating to the 5.375% Exchangeable Senior Notes due 2033 of NorthStar Realty Finance Limited Partnership, dated as of June 19, 2013 (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.10		Indenture, dated as of June 19, 2013, among NorthStar Realty Finance Limited Partnership, as Issuer, NorthStar Realty Finance Corp. and NRFC Sub-REIT Corp., as Guarantors, and Wilmington Trust, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed June 19, 2013)
4.11		Supplemental Indenture dated as of June 30, 2014, relating to the 5.375% Exchangeable Senior Notes, by and among NorthStar Realty Finance Corp., NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) and Wilmington Trust, National Association (incorporated by referent to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
4.12		Second Supplemental Indenture, relating to the 5.375% Exchangeable Senior Notes, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association, further supplementing the Indenture, dated as of June 19, 2013 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, by and among NorthStar Realty Finance Corp. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.13		Indenture, dated as of March 31, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust, National Association, as Trustee (including the Form of Security) (incorporated by reference to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 31, 2014)
4.14		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of April 12, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.15		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of May 25, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.16		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and The Bank of New York Mellon Trust Company, N.A., further supplementing the Indenture, dated as of November 22, 2005 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and The Bank of New York Mellon Trust Company, N.A. (as successor trustee to JPMorgan Chase Bank, National Association) (incorporated by reference to Exhibit 4.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.17		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 10, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.18		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of August 1, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.8 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)

Table of Contents



Exhibit Number		Description of Exhibit
4.19		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of October 6, 2006 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.9 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.20		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of March 30, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.10 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.21		Second Supplemental Indenture, dated as of March 13, 2015, by and among NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust Company, further supplementing the Indenture, dated as of June 7, 2007 and supplemented by the first Supplemental Indenture thereto dated as of June 30, 2014, between NorthStar Realty Finance Corp. and Wilmington Trust Company (incorporated by reference to Exhibit 4.11 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
4.22		Indenture, dated as of July 1, 2015, by and among NorthStar Realty Europe Corp., NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.23		Form of Note of NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 4.2, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
4.24		Form of Guarantee of NorthStar Realty Finance Corp. and NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 4.3, which is included in Exhibit 4.1, to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2015)
		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	+	NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.31 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009)
10.2	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.26 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011)
10.3	+	Form of Amended and Restated Indemnification Agreement for directors and officers of NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.25 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011)
10.4		Subscription Agreement dated as of December 10, 2012, by and among NRFC PE Fund Investor LLC, NRFC Inception, LP, Inception GP, LLC, Teachers Insurance and Annuity Association of America and NRFC PE Fund GP, LLC, portions of which have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K/A for the year ended December 31, 2013)
10.5	+	Amendment to the NorthStar Realty Finance Corp. Executive Incentive Bonus Plan (incorporated by reference to Exhibit 10.30 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013)
10.6		Purchase and Sale Agreement, effective as of February 15, 2013 among NRFC MH II Holdings, LLC. ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.7		Amendment to Purchase and Sale Agreement, made as of March 27, 2013 among NRFC MH II Holdings, LLC, ARC Real Estate Holdings, LLC and certain of its affiliates (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K/A filed May 6, 2013)
10.8		Master Repurchase Agreement, dated as of March 11, 2013, by and among NRFC DB Loan, LLC, as master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.9		Limited Guaranty, dated as of March 11, 2013, executed and delivered by NorthStar Realty Finance Corp., NorthStar Realty Finance Limited Partnership and NRFC Sub-REIT Corp. to Deutsche Bank AG, Cayman Islands Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 12, 2013)
10.10	+	Second Amended and Restated 2004 Omnibus Stock Incentive Plan of NorthStar Realty Finance Corp. (incorporated by reference to Appendix A to NorthStar Realty Finance Corp.’s Definitive Proxy Statement on Schedule 14A filed April 19, 2013)
10.11		Agreement of Purchase and Sale, dated as of June 12, 2013, by and between Project Shore JV I, LLC and Project Shore JV II, LLC, as Buyers, and Common Pensions Fund E, as Seller (incorporated by reference to Exhibit 10.36 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
10.12		Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement dated as of March 14, 2014, by and among Seller (as defined therein) Eclipse Health Holdings-T, LLC, as Purchaser, Formation Capital Asset Management III LLC and Safanad, Inc., as Stakeholder Representatives and Madison Title Agency, LLC, as Escrow Agent (solely for the purposes of Sections 4(b), 11(l) and 34(c)) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.13		Limited Liability Company Agreement of Eclipse Investment, LLC, dated as of May 7, 2014, by and between FC Eclipse Investment, LLC and Eclipse Health Holdings-T, LLC (incorporated by reference to Exhibit A to the Portfolio Acquisition Agreement and Interest Purchase and Sale Agreement filed as Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed March 17, 2014)
10.14		Separation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)

100

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Exhibit Number		Description of Exhibit
10.15		Amended and Restated Asset Management Agreement, dated as of October 31, 2015, between NSAM J-NRF Ltd and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.16		Loan Origination Services Agreement, dated June 30, 2014, between NSAM US LLC and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.17		Tax Disaffiliation Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.18		Employee Matters Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.19		Contribution Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NRFC Sub-REIT Corp. (renamed NorthStar Realty Finance Corp.) (incorporated by reference to Exhibit 10.6 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.20		Credit Agreement, dated June 30, 2014, between NorthStar Asset Management Group Inc. and NorthStar Realty Finance Corp. (incorporated by reference to Exhibit 10.7 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on July 1, 2014)
10.21		Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.22		Debt Commitment Letter, dated as of August 5, 2014, by and among NorthStar Realty Finance Corp., Citigroup Global Markets Inc., JPMorgan Chase Bank, National Association, Barclays Bank plc, and Column Financial, Inc. (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on August 5, 2014)
10.23		Confirmation of Registered Forward Transaction, dated September 3, 2014, by and among NorthStar Realty Finance Corp., Deutsche Bank Securities Inc. and Deutsche Bank AG, London Branch, including the First Amendment thereto dated September 4, 2014(incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 9, 2014)
10.24		Asset Purchase Agreement, dated as of September 17, 2014, by and among Inland American Real Estate Trust, Inc., as Parent, IHP I Owner JV, LLC, as Buyer I, IHP West Homestead (PA) Owner LLC, as Buyer II, and NorthStar Realty Finance Corp., as Buyer Parent (solely for the purposes of Article V, Section 10.11 and Article X as it relates to Article V and Section 10.11) (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 23, 2014)
10.25		Amended and Restated Facility Agreement, dated as of March 13, 2015, by and among NorthStar Realty Finance Limited Partnership, NorthStar Realty Finance Corp. and UBS AG Stamford Branch (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.26		Form of Credit Agreement, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as guarantor, the various lenders party thereto from time to time and UBS AG Stamford Branch, as administrative agent (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 19, 2015)
10.27		Loan Agreement dated as of December 3, 2014, among the Borrowers party thereto, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.28		Facility Agreement, dated as of December 3, 2014, among GA HC REIT II CH U.K. Senior Housing Portfolio Limited (as Original Borrower upon its accession in accordance with the terms thereof), the Original Borrower and certain of its subsidiaries (as Original Guarantors upon their accession in accordance with the terms thereof), NorthStar Realty Healthcare, LLC (as Indemnitor) and arranged by Credit Suisse AG, London Branch (as Mandated Lead Arranger and Original Lender), with Elavon Financial Services Limited as Agent, and U.S. Bank Trustees Limited as Security Agent (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.29		Mezzanine A Loan Agreement dated as of December 3, 2014, among HC Mezz 1-T, LLC, Glenwood Owner MB1-T, LLC, Glenwood Ops MB2-T, LLC, MA Owner MB1-T, LLC, MA Ops MB2-T, LLC, CCRC Owner MB1-T, LLC and CCRC Ops MB2-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.30		Mezzanine B Loan Agreement dated as of December 3, 2014, among HC Mezz 2-T, LLC, Glenwood Owner MB2-T, LLC, Glenwood Ops MB3-T, LLC, MA Owner MB2-T, LLC, MA Ops MB3-T, LLC, CCRC Owner MB2-T, LLC and CCRC Ops MB3-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.31		Mezzanine C Loan Agreement dated as of December 3, 2014, among HC Mezz 3-T, LLC, Glenwood Owner MB3-T, LLC, Glenwood Ops MB4-T, LLC, MA Owner MB3-T, LLC, MA Ops MB4-T, LLC, CCRC Owner MB3-T, LLC and CCRC Ops MB4-T, LLC, as borrowers, and Citigroup Global Markets Realty Corp., JPMorgan Chase Bank, National Association, Barclays Bank PLC and Column Financial, Inc., as lenders (incorporated by reference to Exhibit 10.5 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on December 9, 2014)
10.32		Umbrella Agreement, dated December 22, 2014, by and among Prime Holdco C-T, S.à r.l., Prime GER Drehbahn - T S.à r.l., Prime GER Valentinskamp - T S.à r.l. and Trias Pool II A - T S.à r.l., as Buyers, and SEB Investment GmbH (“SEB”), SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), as Sellers (incorporated by reference to Exhibit 10.32 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2014)
10.33		Umbrella Sale and Purchase Agreement, dated as of February 16, 2015, between SEB Investment GmbH, SEB Investment GmbH, Filiale di Milano, SEB Investment GmbH, French Branch SEB Investment GmbH, Altair Issy S.A.S. and Balni bvba (SPRL), collectively as the Sellers, and certain subsidiaries of the Company listed therein, as Buyers (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on February 20, 2015)
10.34		Confirmation of Registered Forward Transaction, dated March 2, 2015, by and among the Company, the Forward Seller and the Forward Counterparty, including the First Amendment thereto dated March 3, 2015 (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on March 6, 2015)

101

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Exhibit Number		Description of Exhibit
10.35		Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, certain subsidiaries of parent guarantor, as guarantors, the various lenders party thereto from time to time, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and Deutsche Bank Securities Inc., as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.34 to NorthStar Realty Finance Corp.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015)
10.36		Second Amendment to Registered Forward Transaction, dated August 31, 2015, by and among the Company, the Forward Seller and the Forward Counterparty (incorporated by reference to Exhibit 10.1 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on September 1, 2015)
10.37		First Amendment to the Amended and Restated Agreement of Limited Partnership of NorthStar Realty Finance Limited Partnership, dated as of November 1, 2015 (incorporated by reference to Exhibit 10.2 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.38		Separation Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp.(incorporated by reference to Exhibit 10.3 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.39		Contribution Agreement, dated as of October 31, 2015, between NorthStar Realty Finance Corp. and NorthStar Realty Europe Corp. (incorporated by reference to Exhibit 10.4 to NorthStar Realty Finance Corp.’s Current Report on Form 8-K filed on November 2, 2015)
10.40		Limited Consent and First Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of September 28, 2015, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.40 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.41		Second Amendment to Amended and Restated Credit and Guaranty Agreement, dated as of February 23, 2016, by and among NorthStar Realty Finance Limited Partnership, as borrower, NorthStar Realty Finance Corp., as parent guarantor, and certain subsidiaries of NorthStar Realty Finance Corp., as guarantors, and Deutsche Bank AG New York Branch, as administrative agent, with the consent of the requisite lenders, with reference to that certain Amended and Restated Credit and Guaranty Agreement, dated as of May 5, 2015 (incorporated by reference to Exhibit 10.41 to NorthStar Realty Finance Corp.’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.42	*	Interest Sale Agreement, dated as of May 6, 2016, among RHP Western Portfolio Group, LLC, American Home Portfolio Group, LLC, AMC Portfolio Group, LLC, and MHC Portfolio IV, LLC, and BSREP II MH Holdings LLC, a Delaware limited liability company
31.1	*	Certification by the Chief Executive Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification by the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a)/15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification by the Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	*	Certification by the Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	*	The following materials from the NorthStar Realty Finance Corp. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015; (ii) Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three months ended March 31, 2016 and 2015; (iv) Consolidated Statements of Equity for the three months ended March 31, 2016 (unaudited) and year ended December 31, 2015; (v) Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements (unaudited)

____________________________________________________________

* Filed herewith.

+ Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

102

Table of Contents

SIGNATURES

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



		NorthStar Realty Finance Corp.
Date:	May 10, 2016		By:	/s/ JONATHAN A. LANGER
				Jonathan A. Langer
				Chief Executive Officer

			By:	/s/ DEBRA A. HESS
				Debra A. Hess
				Chief Financial Officer

103

Exhibit 10.42

______________________________________________________________________

INTEREST SALE AGREEMENT

among

RHP WESTERN PORTFOLIO GROUP, LLC,

AMERICAN HOME PORTFOLIO GROUP, LLC,

AMC PORTFOLIO GROUP, LLC,

MHC PORTFOLIO IV, LLC,

each a Delaware limited liability company,

collectively, as Sellers,

and

BSREP II MH HOLDINGS LLC,

a Delaware limited liability company,

as Purchaser.

Covering:

Interests of Sellers in certain Delaware limited liability companies

_____________________________________________________________________

TABLE OF CONTENTS



1.	Sale-Purchase	2
2.	Purchase Price; Adjustments	4
3.	Contracts	7
4.	Closing Date	8
5.	Violations	10
6.	Apportionments	11
7.	Closing Deliveries and Closing Conditions	19
8.	Title Insurance and Survey Matters	23
9.	Disposition of Downpayment	25
10.	Purchaser’s Default	25
11.	Representations	25
12.	Loan Assumptions	35
13.	Certain Tax Matters	38
14.	Condemnation and Destruction	41
15.	Escrow	42
16.	Closing Costs	44
17.	Sellers’ Covenants	45
18.	Contracts, Leasing and Other Matters	49
19.	Exculpation	50
20.	Sellers’ Default	51
21.	Condition of Premises	51
22.	Notices	55
23.	Entire Agreement	56
24.	Amendments	56
25.	No Waiver	56
26.	Successors and Assigns	56
27.	Partial Invalidity	56
28.	Paragraph Headings	57
29.	Governing Law	57
30.	Binding Effect	57
31.	No Recording or Lis Pendens	57
32.	Prevailing Party to Receive Attorneys’ Fees	57
33.	Brokers	57
34.	Confidentiality	58
35.	Repurchase Obligations Acknowledgment	59
36.	Multiple Interests and Sellers	62
37.	Survival/Representations and Warranties Insurance Policy	62
38.	Arbitration of Matters in Dispute	65
39.	Submission to Jurisdiction	66
40.	Waiver of Jury Trial	66
41.	Certain Definitions	66
42.	Intentionally Omitted	70
43.	No Third Party Beneficiaries	70
44.	Time of Performance	70
45.	Counterpart Execution; Execution by Facsimile Transmission/.PDF Format	70
46.	No Financing Contingency	70
47.	Ambiguities Not Construed Against Drafter	70
48.	No Special Relationship Between Sellers and Purchaser	71
49.	Provisions Pertaining to Snowbird Concessions Liquor License	71
50.	Release	71

Exhibits



Exhibit	Description

A	List of Portfolio I Subsidiary Companies
B	Portfolio I Structure Chart
C	List of Portfolio II Subsidiary Companies
D	Portfolio II Structure Chart
E	List of Portfolio III Subsidiary Companies
F	Portfolio III Structure Chart
G	List of Portfolio IV Subsidiary Companies
H	Portfolio IV Structure Chart
I	List of Real Estate Owners and Properties
J	Manufactured Home Community Legal Descriptions
K	List of Management Agreements
L	List of Manufactured Homes, Recreational Vehicles and Mobile Homes
M	List of Existing Home Contracts
N	List of Existing Leases and Rent Rolls
O	List of Material Insurance Policies
P	List of Existing Contracts
Q	List of Existing Violations
R	Form of Assignment and Assumption of Interests
S	Form of FIRPTA Certification
T	Form of Certificate Regarding Seller’s Representations and Warranties
U	Form of Certificate Regarding Purchaser’s Representations and Warranties
V	List of Title Commitments
W	List of Surveys
X	List of Permitted Existing Title/Survey Matters
Y	Seller Disclosure Schedule
Z	List of Assumed Loan Documents
AA	Form of Guaranty
BB	List of Environmental Reports
CC	List of Recourse Notes Subject to Repurchase Guaranty Obligations
DD	Arbitration Provisions Relating to Material Adverse Effect
EE-1	List of Portfolio I Loans
EE-2	List of Portfolio II Loans
EE-3	List of Portfolio III Loans
EE-4	List of Portfolio IV Loans
FF	Portfolio II Pools Allocated Downpayment Amounts and Allocated Purchase Price Amounts
GG	[Reserved]
HH	List of Non-Disregarded Entities
II	List of Subsidiary Companies Holding an Interest in a Corporation
JJ	List of Outstanding Principal Balances, Escrow and Reserves of Assumed Loans
KK	Outstanding Principal Balance of Home Contracts
LL	Reserves Under Repurchase Agreements

INTEREST SALE AGREEMENT

THIS INTEREST SALE AGREEMENT (this “ Agreement ”), is made as of this 7 ^th day of May, 2016 (the “ Effective Date ”), among RHP WESTERN PORTFOLIO GROUP, LLC, a Delaware limited liability company (“ Portfolio I Seller ”), AMERICAN HOME PORTFOLIO GROUP, LLC, a Delaware limited liability company (“ Portfolio II Seller ”), AMC PORTFOLIO GROUP, LLC, a Delaware limited liability company (“ Portfolio III Seller ”), and MHC PORTFOLIO IV, LLC, a Delaware limited liability company (“ Portfolio IV Seller ”; together with Portfolio I Seller, Portfolio II Seller and Portfolio III Seller, “ Sellers ” and each being, a “ Seller ”), each having an office at c/o NorthStar Realty Finance Corp., 399 Park Avenue, 18 ^th Floor, New York, New York 10022, and BSREP II MH HOLDINGS LLC, a Delaware limited liability company (“ Purchaser ”), having an office at 250 Vesey Street, 15 ^th Floor, New York, New York 10281.

W I T N E S S E T H :

WHEREAS, Portfolio I Seller is the sole member and owner of one hundred percent (100%) of the membership interests (such interests, collectively, the “ Portfolio I Equity Interests ”) of (i) RHP Venture Holdings, LLC, a Delaware limited liability company (“ RHP Venture Holdings ”), (ii) Bayshore West, LLC, a Delaware limited liability company (“ Bayshore West ”), and (iii) RHP Western Portfolio Holdings-1, LLC, a Delaware limited liability company (“ RHP Western Portfolio Holdings ”);

WHEREAS, RHP Venture Holdings, Bayshore West and RHP Western Portfolio Holdings, directly or indirectly, own one hundred percent (100%) of the beneficial interests of the companies set forth on Exhibit A attached hereto and made a part hereof (together with RHP Venture Holdings, Bayshore West and RHP Western Portfolio Holdings, collectively, the “ Portfolio I Subsidiary Companies ”), as shown on the structure chart attached hereto as Exhibit B ;

WHEREAS, Portfolio II Seller is the sole member and owner of one hundred percent (100%) of the membership interests (such interests, collectively, the “ Portfolio II Equity Interests ”) of (i) Venture Holdings AHP, LLC, a Delaware limited liability company (“ Venture Holdings AHP ”), (ii) Bayshore AHP, LLC, a Delaware limited liability company (“ Bayshore AHP ”), and (iii) American Home Portfolio Holdings, LLC, a Delaware limited liability company (“ American Home Portfolio Holdings ”);

WHEREAS, Venture Holdings AHP, Bayshore AHP and American Home Portfolio Holdings, directly or indirectly, own one hundred percent (100%) of the beneficial interests of the companies set forth on Exhibit C attached hereto and made a part hereof (together with Venture Holdings AHP, Bayshore AHP and American Home Portfolio Holdings, collectively, the “ Portfolio II Subsidiary Companies ”), as shown on the structure chart attached hereto as Exhibit D ;

WHEREAS, Portfolio III Seller is the sole member and owner of one hundred percent (100%) of the membership interests (such interests, collectively, the “ Portfolio III Equity Interests ”) of (i) Venture Holdings AMC, LLC, a Delaware limited liability company (“ Venture Holdings AMC ”), (ii) Bayshore AMC, LLC, a Delaware limited liability company (“ Bayshore AMC ”), (iii) AMC Portfolio SPE-4, LLC, a Delaware limited liability company (“ AMC Portfolio SPE-4 ”), (iv) AMC Portfolio SPE-5, LLC, a Delaware limited liability company (“ AMC Portfolio SPE-5 ”), (v) AMC Portfolio SPE-6, LLC, a Delaware limited liability company (“ AMC Portfolio SPE-6 ”), (vi) AMC Portfolio SPE-7, LLC, a Delaware limited liability company (“ AMC Portfolio SPE-7 ”; together with AMC Portfolio SPE-4, AMC Portfolio SPE-5 and AMC Portfolio SPE-6, collectively, the “ AMC Portfolio SPE Entities ”), and (vii) AMC Portfolio Holdings, LLC, a Delaware limited liability company (“ AMC Portfolio Holdings ”);

WHEREAS, Venture Holdings AMC, Bayshore AMC and AMC Portfolio Holdings, directly or indirectly, own one hundred percent (100%) of the beneficial interests of the companies set forth on Exhibit E attached hereto and made a part hereof (together with Venture Holdings AMC, Bayshore AMC, AMC Portfolio Holdings and the AMC Portfolio SPE Entities, collectively, the “ Portfolio III Subsidiary Companies ”), as shown on the structure chart attached hereto as Exhibit F ;

WHEREAS, Portfolio IV Seller is the sole member and owner of one hundred percent (100%) of the membership interests (such interests, collectively, the “ Portfolio IV Equity Interests ”; together with the Portfolio I Equity Interests, the Portfolio II Equity Interests and the Portfolio III Equity Interests, collectively, the “ Interests ”) of (i) Venture Holdings Portfolio IV, LLC, a Delaware limited liability company (“ Venture Holdings Portfolio IV ”), (ii) Bayshore Portfolio IV, LLC, a Delaware limited liability company (“ Bayshore Portfolio IV ”), and (iii) Portfolio IV Holdings, LLC, a Delaware limited liability company (“ Portfolio IV Holdings ”);

WHEREAS, Venture Holdings Portfolio IV, Bayshore Portfolio IV and Portfolio IV Holdings, directly or indirectly, own one hundred percent (100%) of the beneficial interests of the companies set forth on Exhibit G attached hereto and made a part hereof (together with Venture Holdings Portfolio IV, Bayshore Portfolio IV and Portfolio IV Holdings, collectively, the “ Portfolio IV Subsidiary Companies ”), as shown on the structure chart attached hereto as Exhibit H ;

WHEREAS, each Subsidiary Company set forth on Exhibit I (collectively, the “ Real Estate Owners ”, and each, a “ Real Estate Owner ”) is the owner of certain real property commonly known by the name(s) set forth on Exhibit I under the column heading “Property Name” (collectively, the “ Real Properties ”, and each, a “ Real Property ”), set forth opposite the name of such Real Estate Owner on such Exhibit I ; and

WHEREAS, Purchaser and Sellers have agreed that Sellers shall each sell their respective portions of the Interests to Purchaser, and Purchaser shall purchase each Seller’s respective share of the Interests from such Seller, upon the terms and provisions and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Sellers and Purchaser hereby agree as follows:

1. Sale-Purchase.

1.1 Each Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase from each Seller, upon the terms and conditions hereinafter set forth, all of each Seller’s right, title and interest in and to the Interests, free and clear of all liens, security interests, pledges and other encumbrances. Without limiting the foregoing, the Subsidiary Companies’ assets to be indirectly owned by Purchaser by virtue of the sale to Purchaser of the Interests consists of all of the Subsidiary Companies’, direct and/or indirect, right, title and interest in and to the following (collectively, the “ Premises ”):

(a) all those certain plots, pieces and parcels of land constituting manufactured home communities (the “ Manufactured Home Communities ”), each legally described in Exhibit J attached hereto and made a part hereof, together with all easements, rights of way, privileges, appurtenances and other rights, if any, pertaining thereto (collectively, the “ Land ”);

(b) all manufactured home sites, recreational vehicle sites, mobile home sites, buildings, structures and other improvements located on the Land and all of the applicable Subsidiary

Companies’ right, title and interest in and to any and all fixtures attached thereto (collectively, the “ Improvements ”), to the extent any of same are owned by any of the Subsidiary Companies;

(c) all equipment, machinery, apparatus, appliances, and other articles of personal property located on and used in connection with the operation of the Improvements (collectively, the “ Personal Property ”), to the extent any of same are owned by any of the Subsidiary Companies;

(d) subject to Section 6.13 , those certain manufactured homes, recreational vehicles and/or mobile homes, as applicable, set forth on Exhibit L attached hereto and made a part hereof and any manufactured homes, recreational vehicles and/or mobile homes purchased by any of the Subsidiary Companies following the Effective Date in accordance with this Agreement;

(e) the installment sale contracts, promissory notes, recourse notes and other similar instruments governing any sale and financing of manufactured homes to the occupants of the manufactured home communities, each as set forth on Exhibit M attached hereto and made a part hereof (as amended, modified, renewed or extended as of the Effective Date in accordance with this Agreement, collectively, the “ Existing Home Contracts ”), and all Home Contracts Amendments and New Home Contracts (as such capitalized terms are hereinafter defined) (the Existing Home Contracts, the Home Contracts Amendments and the New Home Contracts are referred to herein, collectively, as the “ Home Contracts ”);

(f) subject to the terms of Section 3 of this Agreement, the Contracts (as hereinafter defined);

(g) subject to the terms hereof, all licenses, franchises, permits, certificates of occupancy, authorizations and approvals used in or relating to the ownership, occupancy or operation of any part of the Improvements (collectively, the “ Permits ”);

(h) the leases and occupancy agreements affecting the Land and/or the Improvements (including, without limitation, with respect to manufactured homes, recreational vehicles, mobile homes and/or vacant pads) described on Exhibit N attached hereto and made a part hereof (as amended, modified, renewed or extended as of the Effective Date, collectively, the “ Existing Leases ”), and all Lease Amendments and New Leases (as such capitalized terms are hereinafter defined) (the Existing Leases, the Lease Amendments and the New Leases are referred to herein, collectively, as the “ Leases ”);

(i) subject to the terms hereof, any and all rights, warranties and guaranties pertaining to the Land, Improvements, Personal Property, Home Contracts, Contracts, Permits and Leases; and

(j) subject to the terms hereof, all of the interest of the applicable Subsidiary Companies (without representation or warranty of any kind, type, character or nature whatsoever) in the name of each of the Real Properties as it relates, if at all, to the Real Property that such Subsidiary Company owns.

1.2 Excluded Property .

(a) Notwithstanding the foregoing, the assets of the Subsidiary Companies contemplated by this Agreement shall not include (w) trademarks, copyrights and software owned or licensed

by RHP Properties, Inc. (“ RHP ”), Newbury Management Company or their respective affiliates (collectively, the “ Excluded Property ”), which Excluded Property is expressly excluded from such conveyance, but any computer files or other electronic files or data stored on any computer and relating to the management or operation of the Real Properties shall be specifically included in such conveyance, (x) any proprietary or confidential materials and any property owned by tenants, and (y) any refund premiums due to any of the Subsidiary Companies from the cancellation, following a Closing Date (as hereinafter defined), of any insurance policies presently insuring the Premises if such insurance policies are being cancelled on the Closing Date, and Purchaser shall use reasonable efforts to cooperate, at no cost or expense to Purchaser, with each Seller in canceling said insurance policies as of the applicable Closing Date and arranging for said refund premiums to be sent directly to each applicable Seller, and to the extent such premiums are paid to a Subsidiary Company or Purchaser after Closing, then Purchaser shall cause such premiums to be promptly paid to Seller (and such obligation shall survive the Closing). If any insurance policies are not so cancelled, then Seller shall receive a credit to the Unadjusted Purchase Price equal to the prepaid premiums of any such insurance policies that are applicable to the period after the Closing.

(b) In addition to, and without limitation of the foregoing, Purchaser acknowledges that the purchase of the Interests by Purchaser shall not entitle Purchaser or any other party to use, and Purchaser and its affiliates shall not use, the name “RHP” (without the consent of RHP) or “NorthStar” (without the consent of NorthStar or its affiliates) or any derivative thereof, or any logos, trademarks or servicemarks associated therewith. Promptly following each Closing (as hereinafter defined), Purchaser shall remove from each Real Property any signage bearing the name “RHP” (unless otherwise consented to by RHP) or “NorthStar” (unless otherwise consented to by NorthStar).

(c) For the avoidance of doubt and notwithstanding anything to the contrary set forth in this Agreement, the parties hereto acknowledge and agree that (i) Portfolio IV Seller is the sole member and owner of one hundred percent (100%) of the membership interests (such interests, the “ Creekside (NC) MHC Interests ”) of Creekside (NC) MHC, LLC, a Delaware limited liability company (“ Creekside (NC) MHC ”), (ii) the Creekside (NC) MHC Interests are expressly excluded from the transactions contemplated herein and do not form a part of the Portfolio IV Equity Interests and (iii) Portfolio IV Seller is not selling, transferring, assigning or otherwise conveying to Purchaser, and Purchaser is not purchasing or otherwise acquiring from Portfolio IV Seller, the Creekside (NC) MHC Interests (or Creekside (NC) MHC’s interests in certain real property located at 400 Stoney Creek Drive, Reidsville, North Carolina and commonly known as “Creekside Manufactured Housing Community”).

(d) The provisions of this Section 1.2 shall survive each Closing.

1.3 All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Section 14 , Section 35 or Section 41 , as applicable.

2. Purchase Price; Adjustments.

Subject to Section 6 of this Agreement, the purchase price for the Interests (the “ Unadjusted Purchase Price ”) is Two Billion Thirty-Five Million and 00/100 Dollars ($2,035,000,000.00), payable as follows:

2.1 (a) By no later than 5:00 p.m. (New York time) on May 9, 2016 (the “ Deposit Delivery Deadline ”), Purchaser shall deliver the amount of Fifty Million and 00/100 Dollars ($50,000,000.00) (the “ Deposit ”), by wire transfer of immediately available federal funds to the order of Commonwealth Land Title Insurance Company (in such capacity, “ Escrow Agent ”), receipt of which shall be promptly acknowledged by Escrow Agent and the Deposit shall be held by Escrow Agent in escrow pursuant to the

provisions of Section 15 of this Agreement. Purchaser acknowledges and agrees that time shall be of the essence with respect to Purchaser’s obligation to deliver the Deposit. As used herein, “ Downpayment ” shall mean the Deposit together with all interest accrued thereon (it being acknowledged and agreed, for the avoidance of doubt, that all references to the Downpayment in this Agreement (including, without limitation, all such references in Section 15 hereof) shall refer to the entire Downpayment if only a single Closing shall occur, or to the aggregate of the applicable remaining portions thereof (as described below in Section 2.1(b) ) if more than one Closing shall occur). It shall be a condition precedent to the effectiveness of this Agreement that Purchaser timely deliver to Escrow Agent the Deposit. If the Deposit is not received by Escrow Agent on or prior to the Deposit Delivery Deadline (time being of the essence), then this Agreement shall automatically terminate and shall be deemed null and void in all respects. The Downpayment shall automatically become nonrefundable for all purposes in this Agreement upon the Effective Date, unless Purchaser terminates this Agreement in accordance with the express provisions of this Agreement and Purchaser is entitled to the return of the Downpayment in accordance with the express provisions of Section 9 of this Agreement.

(b) Sellers and Purchaser acknowledge and agree that, in the event that the transactions contemplated herein are consummated in a single Closing, then the entire Downpayment shall be applied to the Unadjusted Purchase Price. In the event that the sale of the Interests to Purchaser is not consummated pursuant to a single Closing, then, for each Closing of a sale of a Component of the Interests (as hereinafter defined) other than the Closing of the sale of the last remaining Component of the Interests (such Closing, the “ Final Closing ”), ninety-five percent (95%) of the amount of each applicable Allocated Downpayment Amount (as hereinafter defined) shall be applied at the applicable Closing to the portion of the Unadjusted Purchase Price allocated to such Component of the Interests as set forth in Section 2.3 below and each remaining portion of the Downpayment shall continue to be held by Escrow Agent in escrow pursuant to the provisions of Section 15 of this Agreement to be applied to the allocated portion of the Unadjusted Purchase Price to be paid at the applicable subsequent Closing for the sale of the then unsold applicable Component of the Interests. At the Final Closing, the remaining five (5%) portion of each Allocated Downpayment Amount (in the aggregate, such amount, the “ Allocated Downpayment Amount Remainder ”) held by Escrow Agent in escrow from the prior Closings as provided for above, together with one hundred percent (100%) of the Allocated Downpayment Amount applicable to the Component of the Interests that is the subject of the Final Closing, shall be applied at such final Closing to the portion of the Unadjusted Purchase Price allocated to such Component of the Interests. For purposes of this Agreement, in the event that the sale of the Interests to Purchaser is not consummated pursuant to a single Closing, then the Downpayment shall be allocated as follows: (i) Nine Million Eight Hundred Seventy Eight Thousand Seven Hundred Ninety Six and 00/100 Dollars ($9,878,796.00) of the Downpayment shall be allocated to the Closing of the sale of the Portfolio I Equity Interests (the “ Portfolio I Allocated Downpayment ”); (ii) Twenty Four Million Five Hundred Eighty Nine Thousand Six Hundred Seven and 00/100 Dollars ($24,589,607.00) of the Downpayment shall be allocated to the Closing of the sale of the Portfolio II Equity Interests (the “ Portfolio II Allocated Downpayment ”) and the Portfolio II Allocated Downpayment shall be further allocated among the Portfolio II Pools (as hereinafter defined) (each, a “ Portfolio II Pools Allocated Downpayment ”) as set forth on Exhibit FF attached hereto and made a part hereof; (iii) Twelve Million Forty Three Thousand Seventy One and 00/100 Dollars ($12,043,071.00) of the Downpayment shall be allocated to the Closing of the sale of the Portfolio III Equity Interests (the “ Portfolio III Allocated Downpayment ”); and (iv) Three Million Four Hundred Eighty Eight Thousand Five Hundred Twenty Six and 00/100 Dollars ($3,488,526.00) of the Downpayment shall be allocated to the Closing of the sale of the Portfolio IV Equity Interests (the “ Portfolio IV Allocated Downpayment ”). For purposes of this Agreement, each of the Portfolio I Allocated Downpayment, Portfolio II Allocated Downpayment, Portfolio III Allocated Downpayment and Portfolio IV Allocated Downpayment shall, individually, also be referred to as an “ Allocated Downpayment Amount ”.

2.2 As further set forth in Section 12 below, in connection with Purchaser’s acquisition of the Interests, Purchaser is required to assume all of the Assumed Loans and the Assumed Loan Documents. In connection therewith, on the applicable Closing Date, Purchaser shall receive a credit against the Unadjusted Purchase Price in an amount equal to: (i) with respect to the Closing of the sale of the Portfolio I Equity Interests (such Closing, the “ Portfolio I Equity Interests Closing ”), the outstanding principal balance of the Portfolio I Loans as of such Closing Date (such amount, the “ Portfolio I Assumed Loan Amount ”); (ii) (a) with respect to the Closing of the sale of all of the Portfolio II Equity Interests in a single Closing (such Closing, the “ Portfolio II Equity Interests Complete Closing ”), the outstanding principal balance of the Portfolio II Loans as of such Closing Date (such amount, the “ Portfolio II Complete Assumed Loan Amount ”) and (b) with respect to the Closing of the sale of all of the Portfolio II Equity Interests in more than one Closing in accordance with Section 4.2 below (each such Closing, a “ Portfolio II Equity Interests Partial Closing ”), the outstanding principal balance of the Portfolio II Loans being assumed as of each such Closing Date (each such amount, a “ Portfolio II Partial Assumed Loan Amount ”); (iii) with respect to the Portfolio III Equity Interests Closing (such Closing, the “ Portfolio III Equity Interests Closing ”), the outstanding principal balance of the Portfolio III Loans as of such Closing Date (such amount, the “ Portfolio III Assumed Loan Amount ”); and (iv) with respect to the Portfolio IV Equity Interests Closing (such Closing, the “ Portfolio IV Equity Interests Closing ”), the outstanding principal balance of the Portfolio IV Loans as of such Closing Date (such amount, the “ Portfolio IV Assumed Loan Amount ”).

2.3 (a) On the applicable Closing Date, Purchaser shall pay to the applicable Seller an amount equal to the following:

(i) with respect to the Portfolio I Equity Interests Closing, the Portfolio I Allocated Purchase Price (as hereinafter defined) less the sum of (x) (I) if the sale of all of the Interests shall close concurrently in a single Closing, the Portfolio I Allocated Downpayment, (II) if there is more than one Closing and the Portfolio I Equity Interests Closing is not the Final Closing, ninety five percent (95%) of the Portfolio I Allocated Downpayment or (III) if there is more than one Closing and the Portfolio I Equity Interests Closing is the Final Closing, the Portfolio I Allocated Downpayment together with the Allocated Downpayment Amount Remainder, and (y) the Portfolio I Assumed Loan Amount (such funds, the “ Portfolio I Closing Funds ”);

(ii) with respect to the Portfolio II Equity Interests Closing, the Portfolio II Allocated Purchase Price (as hereinafter defined) or the Portfolio II Loan Pools Allocated Purchase Price (as hereinafter defined), as applicable, less the sum of (x) (I) if the sale of all of the Interests shall close concurrently in a single Closing, the Portfolio II Allocated Downpayment, or (II) (A) if there is more than one Closing and the sale of all of the Portfolio II Equity Interests shall occur in a single Closing, ninety five percent (95%) of the Portfolio II Allocated Downpayment, (B) if there is more than one Closing and the sale of the Portfolio II Equity Interests shall occur in more than a single Closing in accordance with Section 4.2 below, ninety five percent (95%) of the Portfolio II Pools Allocated Downpayment applicable to the Portfolio II Pools that are the subject of each applicable Closing or (C) if there is more than one Closing and a Portfolio II Equity Interests Partial Closing is the Final Closing, the Portfolio II Pools Allocated Downpayment applicable to the Portfolio II Pools that are the subject of the Final Closing, as applicable, together with the Allocated Downpayment Amount Remainder, and (y) the Portfolio II Complete Assumed Loan Amount or the Portfolio II Partial Assumed Loan Amount, as applicable (such funds, the “ Portfolio II Closing Funds ”);

(iii) with respect to the Portfolio III Equity Interests Closing, the Portfolio III Allocated Purchase Price (as hereinafter defined) less the sum of (x) (I) if the sale of all of the Interests shall close concurrently in a single Closing, the Portfolio III Allocated Downpayment, (II) if there is more than one Closing and the Portfolio III Equity Interests Closing is not the Final Closing, ninety five

percent (95%) of the Portfolio III Allocated Downpayment or (III) if there is more than one Closing and the Portfolio III Equity Interests Closing is the Final Closing, the Portfolio III Allocated Downpayment together with the Allocated Downpayment Amount Remainder, and (y) the Portfolio III Assumed Loan Amount (such funds, the “ Portfolio III Closing Funds ”); and

(iv) with respect to the Portfolio IV Equity Interests Closing, the Portfolio IV Allocated Purchase Price (as hereinafter defined) less the sum of (x) (I) if the sale of all of the Interests shall close concurrently in a single Closing, the Portfolio IV Allocated Downpayment, (II) if there is more than one Closing and the Portfolio IV Equity Interests Closing is not the Final Closing, ninety five percent (95%) of the Portfolio IV Allocated Downpayment or (III) if there is more than one Closing and the Portfolio IV Equity Interests Closing is the Final Closing, the Portfolio IV Allocated Downpayment together with the Allocated Downpayment Amount Remainder, and (y) the Portfolio IV Assumed Loan Amount (such funds, the “ Portfolio IV Closing Funds ”),

in each such case, as adjusted for prorations, apportionments, credits and other adjustments as herein provided (and referred to herein following such prorations, apportionments, credits and other adjustments, as applicable, as the “ Purchase Price ”), by wire transfer of immediately available federal funds to an account or accounts designated by the applicable Seller.

(b) Sellers and Purchaser acknowledge and agree that the Unadjusted Purchase Price shall be allocated among the Portfolio I Equity Interests, the Portfolio II Equity Interests, the Portfolio III Equity Interests and the Portfolio IV Equity Interests in the following manner: (i) Four Hundred Two Million Sixty Seven Thousand and 00/100 Dollars ($402,067,000.00) of the Unadjusted Purchase Price shall be allocated to the Portfolio I Equity Interests Closing (the “ Portfolio I Allocated Purchase Price ”); (ii) One Billion Seven Hundred Ninety Seven Thousand and 00/100 Dollars ($1,000,797,000.00) of the Unadjusted Purchase Price shall be allocated to the Portfolio II Equity Interests Closing (the “ Portfolio II Allocated Purchase Price ”) and the Portfolio II Allocated Purchase Price shall be further allocated among the Portfolio II Pools as set forth on Exhibit FF attached hereto and made a part hereof (the “ Portfolio II Loan Pools Allocated Purchase Price ”); (iii) Four Hundred Ninety Million One Hundred Fifty Three Thousand and 00/100 Dollars ($490,153,000.00) of the Unadjusted Purchase Price shall be allocated to the Portfolio III Equity Interests Closing (the “ Portfolio III Allocated Purchase Price ”); and (iv) One Hundred Forty One Million Nine Hundred Eighty Three Thousand and 00/100 Dollars ($141,983,000.00) of the Unadjusted Purchase Price shall be allocated to the Portfolio IV Equity Interests Closing (the “ Portfolio IV Allocated Purchase Price ”). In addition, the Unadjusted Purchase Price shall be allocated among the various Real Properties encumbered by the Assumed Loans in accordance with Exhibit FF .

2.4 Purchaser and the Escrow Agent, as applicable, shall be entitled to deduct and withhold from amounts otherwise payable under this Agreement, all amounts as are required to be deducted or withheld from such amounts under the Code, the rules and regulations promulgated thereunder, or any other provision of U.S. federal, state, local or non-U.S. Tax or other laws. Any such withheld amounts (i) shall be timely paid or remitted to the applicable Governmental Authority and (ii) treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction or withholding was made.

3. Contracts.

Purchaser acknowledges that Sellers have disclosed to Purchaser that certain of the Subsidiary Companies are a party to the contracts and agreements regarding the assets of the Subsidiary Companies, including, without limitation, the Premises, described on Exhibit P attached hereto and made a part hereof (as amended, modified, renewed or extended as of the Effective Date, the “ Existing Contracts ”). Subject to

the terms and provisions of Section 7.1(h) , at the applicable Closing, by virtue of Purchaser’s acquisition of the Interests, Purchaser shall indirectly assume all of the Subsidiary Companies’ obligations under the Existing Contracts, the Contract Amendments (as hereinafter defined) and the New Contracts (as hereinafter defined) to which the Subsidiary Companies are then a party (the Existing Contracts, the Contract Amendments and the New Contracts are referred to herein, collectively, as the “ Contracts ”). If any required approval for the transfer of the Interests under any Contract is not obtained by the applicable Closing Date, then the applicable Subsidiary Companies shall nonetheless remain a party to such Contract, such Contract shall not terminate and the parties shall nevertheless proceed to the applicable Closing. Purchaser agrees that the failure of Sellers to obtain any such consent to the transfer of the Interests shall not constitute a default by Sellers hereunder, constitute a failure of a condition precedent in favor of Purchaser or grant Purchaser any right or remedy whatsoever.

4. Closing Date.

4.1 The closing of the transactions contemplated hereunder (the “ Closing ”) shall occur on the later to occur (but no later than the Outside Closing Date) of (x) the date that is ninety (90) days after the Effective Date and (y) the date that is twelve (12) Business Days after the last condition to Closing set forth in Sections 7.3 and 7.4 has been fulfilled or waived in accordance herewith (other than any such conditions that by their terms cannot be satisfied until the Closing Date, which conditions shall be required to be so satisfied or waived on the Closing Date) (such date, as it may be adjourned pursuant to this Agreement, the “ Scheduled Closing Date ”; and the actual date of the Closing, the “ Closing Date ”), and shall take place by means of an escrow closing through Escrow Agent, or at the offices of Sellers’ counsel, Duval & Stachenfeld LLP, located at 555 Madison Avenue, 6th Floor, New York, New York 10022; provided that (A) Sellers shall have the adjournment rights provided in Section 8.2 , (B) the Closing Date may be automatically adjourned in accordance with the provisions of Section 44 or Exhibit DD (C) Purchaser and each Seller shall have a one-time right with respect to each Closing, by delivering written notice to the other party at least two (2) Business Days prior to the then Scheduled Closing Date, to adjourn such Closing to a date no later than ten (10) Business Days from such Scheduled Closing Date, and (D) unless otherwise agreed in writing by the parties hereto, the Closing Date may not be extended beyond (and this Agreement shall terminate in accordance with the terms hereof on) September 30, 2016 (the “ Outside Closing Date ”); provided , however , (1) each Seller and Purchaser shall have the right to extend the Outside Closing Date up to four (4) times, each for a period of thirty (30) days, by delivering written notice to the other party at least two (2) Business Days prior to the then Outside Closing Date; provided, that, in no event shall the Outside Closing Date be extended beyond the date that is one hundred twenty (120) days in the aggregate for all extensions under this clause (1) after the initial Outside Closing Date, (2) the Outside Closing Date may be automatically adjourned in accordance with the provisions of Section 44 or Exhibit DD , and (3) the Outside Closing Date may be further extended by a Seller pursuant to and in accordance with the provisions of Section 8.2 (in which event the Outside Closing Date shall be the last date on which such adjournment period expires). Notwithstanding the foregoing, Sellers and Purchaser acknowledge that the Loan Assumption Condition (as hereinafter defined) may not be satisfied such that all Assumed Loans are capable of being consummated in a single Closing and therefore desire, subject to Section 4.2 and the satisfaction or waiver of the closing conditions set forth in Sections 7.3 and 7.4 with respect to such Component of the Interests, to provide for two or more separate Closings, as applicable for each Assumed Loan and the corresponding Component of the Interests applicable thereto, to occur sequentially as the Loan Assumption Condition is satisfied with respect to each Assumed Loan (and the “ Scheduled Closing Date ” and “ Closing Date ” defined above shall apply with respect to each such Closing); provided that , (x) (i) the Portfolio II Equity Interests or (ii) if elected by Sellers in accordance with Section 4.2 , a portion of the Portfolio II Equity Interests having an aggregate allocated purchase price equal to at least seventy five percent (75%) of the Portfolio II Allocated Purchase Price and (y) either the Portfolio I Equity Interests or the Portfolio III Equity Interests are acquired

by Purchaser in the first Closing in accordance with Section 4.2 of this Agreement. For the avoidance of doubt, if the Closing of the sale of all of the Interests and assumption of all of the Assumed Loans does not occur in a single Closing, then, other than with respect to the Component of the Interests and the corresponding Assumed Loans that closed on the first Closing Date (if any), each separate Closing of the remaining Component of the Interests and corresponding Assumed Loans shall occur on the date which is twelve (12) Business Days after the last condition to Closing set forth in Sections 7.3 and 7.4 has been fulfilled or waived in accordance herewith with respect to such Component of the Interests (other than any such conditions that by their terms cannot be satisfied until the Closing Date, which conditions shall be required to be so satisfied or waived on the Closing Date).

4.2 (a) Notwithstanding the foregoing or anything to the contrary set forth in this Agreement (but subject in all respects to Section 4.3 below), (A) in no event shall any Closing contemplated in this Agreement occur prior to the contemporaneous occurrence of the Portfolio II Equity Interests Closing and either (x) the Portfolio I Equity Interests Closing or (y) the Portfolio III Equity Interests Closing (collectively, as the case may be, the “ First Equity Interest Closing ”), which First Equity Interest Closing shall occur following the satisfaction or waiver of the closing conditions set forth in Sections 7.3 and 7.4 (other than any such conditions that by their terms cannot be satisfied until the Closing Date, which conditions shall be required to be so satisfied or waived on the Closing Date); provided , however , in the event that the conditions precedent to (A) either (x) the Portfolio I Equity Interests Closing or (y) the Portfolio III Equity Interests Closing have been satisfied or waived in accordance with the terms and provisions of this Agreement and (B) the Closing for a portion of the Portfolio II Equity Interests having an aggregate allocated purchase price equal to at least seventy five percent (75%) of the Portfolio II Allocated Purchase Price have been satisfied or waived in accordance with the terms and provisions of this Agreement (collectively, as the case may be, the “ Sellers-Elected First Equity Interest Closing ”), then, in such case, Sellers (in their respective sole discretion) shall have the right to elect (the “ First Equity Interest Closing Election ”) to cause the Sellers-Elected First Equity Interest Closing to occur (it being acknowledged and agreed that (i) for purposes of this Agreement, the occurrence of the Sellers-Elected First Equity Interest Closing shall constitute the First Equity Interest Closing for all purposes under this Agreement, (ii) if Purchaser bears any incremental cost as a result of such election or the steps required to effectuate such election, Seller shall reimburse Purchaser for such cost and (iii) the First Equity Interest Closing Election shall not cause any Subsidiary Company being acquired by Purchaser at the First Equity Interest Closing to incur any additional liability arising from such First Equity Interest Closing Election); and (B) upon the occurrence of the First Equity Interest Closing in accordance with this Section 4.2 , any subsequent Closing contemplated hereunder (including, without limitation, the Closing of each Portfolio II Pool that was not a part of the First Equity Interest Closing) shall be permitted to occur in any order upon the satisfaction of all of the conditions precedent (including, without limitation, the applicable Loan Assumption Condition) applicable thereto.

(b) With respect to each Portfolio II Pool that was not a part of the First Equity Interest Closing (each, a “ Remaining Portfolio II Pool ”), Sellers and Purchaser acknowledge and agree that upon the satisfaction or waiver in accordance with the terms and provisions of this Agreement of all of the conditions precedent applicable to the Closing of a Remaining Portfolio II Pool, then Portfolio II Seller and Purchaser shall proceed to close such Remaining Portfolio II Pool on the date which is twelve (12) Business Days after the date upon which the last condition to Closing set forth in Sections 7.3 and 7.4 has been fulfilled or waived in accordance herewith (other than any such conditions that by their terms cannot be satisfied until the Closing Date, which conditions shall be required to be so satisfied or waived on the Closing Date).

(c) Purchaser and Sellers acknowledge and agree that in the event that Sellers exercise the First Equity Interest Closing Election, then, in such case, the following shall apply: (i) Bayshore AHP and American Home Portfolio Holdings shall be deemed the “Seller” for purposes of such Closing

solely with respect to effectuating the transfer of the Portfolio II Equity Interests under this Agreement (it being understood that American Home Portfolio Group LLC shall remain the Seller for all other purposes under this Agreement, including with respect to any obligation owed to Purchaser under this Agreement) and the “Portfolio II Equity Interests” shall be deemed to refer to (x) the interests of Bayshore AHP in the applicable Subsidiary Companies owning homes located on such real property that are the subject of such Closing and (y) the interests of American Home Portfolio Holdings in the applicable Subsidiary Companies owning the Real Property that is the subject of such Closing; (ii) Venture Holdings AHP shall transfer to Purchaser or an entity designated by Purchaser all of the applicable Home Contracts and homes pertaining to the Portfolio II Equity Interests that are the subject of such Closing; (iii) Bayshore AHP shall transfer to Purchaser or an entity designated by Purchaser all of the applicable homes pertaining to the Portfolio II Equity Interests that are the subject of such Closing; and (iv) the parties shall reasonably cooperate with one another to facilitate the conveyance of the applicable Portfolio II Pools to Purchaser in accordance with the foregoing (provided that (i) if Purchaser bears any incremental cost as a result of Seller exercising the Sellers Elected First Equity Interest Closing or the steps required to effectuate such election, Seller shall reimburse Purchaser for such cost and (ii) the First Equity Interest Closing Election shall not cause any Subsidiary Company being acquired by Purchaser at the First Equity Interest Closing to incur any additional liability arising from such First Equity Interest Closing Election). Subsequent to the Sellers-Elected First Equity Interest Closing, any Closing with respect to a Remaining Portfolio II Pool shall be structured between the applicable parties hereto in the same manner as provided in the preceding sentence.

4.3 Notwithstanding anything to the contrary contained herein, if at any time there is an Allocated Portfolio MAE (as hereinafter defined), then Purchaser shall not have the right to terminate this Agreement (in its entirety or with respect to the then remaining Component of the Interests to which the Allocated Portfolio MAE applies), and the Closing of the sale of all of the then remaining Component of the Interests and assumption of all of the then remaining Assumed Loans shall occur in a single Closing, upon the satisfaction or waiver of the closing conditions set forth in Sections 7.3 and 7.4 with respect to all of the then remaining Component of the Interests, and Purchaser shall only have the right to terminate this Agreement in its entirety at such single Closing if there exists an Aggregate Material Adverse Effect (as hereinafter defined). If Purchaser elects to proceed with a Closing for a Component of the Interests where an Allocated Portfolio MAE occurs with respect to a Component of the Interests, then the Allocated Portfolio MAE for the remaining Component of the Interests shall not be reduced, altered or otherwise modified by any such excess in the Allocated Portfolio MAE for such Component of the Interests.

5. Violations.

Purchaser shall acquire the Interests with the applicable Subsidiary Companies holding title to the Premises subject to all violations of law or municipal ordinances, regulations, orders, or requirements issued by the departments of buildings, fire, labor, health or other federal, state, county, municipal or other departments and governmental agencies having jurisdiction against or affecting the Premises, and any outstanding work orders, whether any of the foregoing are outstanding as of the Effective Date (each, an “ Existing Violation ”) or noticed after the Effective Date (each, a “ New Violation ”; together with the Existing Violations, the “ Violations ”). Purchaser shall not, without first obtaining the prior written consent of Sellers, request that any Governmental Authority inspect or otherwise evaluate the condition of the Premises (or any part thereof) in respect of the existence of Violations, provided that the foregoing shall not prohibit Purchaser from making customary inquiries of Governmental Authorities as to whether Violations have been noticed by any such Governmental Authorities. Purchaser (i) acknowledges that Sellers have disclosed to Purchaser and/or Purchaser is otherwise aware of the existence of the matters listed on Exhibit Q attached hereto and made a part hereof, (ii) agrees that same constitute Existing Violations for purposes of this Section 5 , and (iii) acknowledges that Sellers have not made any representation regarding such Existing Violations nor

made any representation that such matters constitute all Existing Violations. Notwithstanding the foregoing, at Closing, the applicable Seller shall pay all fines, interest and penalties assessed against the Premises as of the Closing Date for the Existing Violations and New Violations issued, noted or of record, but solely to the extent such fines, interest and penalties exceed $25,000 in the aggregate.

6. Apportionments.

6.1 All prorations and other adjustments described in this Section 6 shall be made at the Closing between the applicable Seller and Purchaser at such Closing based on the closing statement or settlement statement (“ Closing Statement ”) prepared by the applicable Seller and delivered to the Purchaser in accordance with Section 6.16 . The net amount of credits to the Purchaser and the Sellers for Proration Items, as reflected on the Closing Statement, shall result in an increase or decrease of the Unadjusted Purchase Price with respect to each Closing. All prorations and other adjustments made pursuant to this Section 6 shall be made without duplication whatsoever.

6.2 The parties hereto agree that the following (including all proration items set forth in this Section 6 (other than Section 6.13 ), the “ Proration Items ”) shall be apportioned between the applicable Seller and Purchaser at each Closing (to the extent applicable thereto), as of 11:59 P.M. of the day immediately preceding the applicable Closing Date (the “ Adjustment Time ”) on the basis of the actual number of days of the month that shall have elapsed as of the applicable Closing Date and based upon the actual number of days in the month and a 365 day year, and the net aggregate amount thereof either shall be paid by Purchaser to the applicable Seller or credited to Purchaser towards the Unadjusted Purchase Price, as the case may be, at such Closing:

(a) Real property taxes and assessments (including, without limitation, any assessments relating to Permitted Title/Survey Matters (as hereinafter defined), business improvement district assessments or similar charges), personal property taxes, water rates and charges, and sewer taxes, in each case, not otherwise payable directly to the applicable taxing authority by any tenant under a Lease.

(b) Subject to Section 6.7 , if and to the extent applicable, fixed, base, escalation, storage charges, additional and percentage rent, parking charges, storage charges and all other charges under the Leases (including, without limitation, electricity and utility surcharges, administrative fees in connection with security deposits held by Seller under the Leases, pass-through payments due from tenants for trash collection and other services and cleaning fees, redecorating fees, amenity fees and pet fees), if, as and when collected (all of the foregoing being collectively referred to as “ Rents ”).

(c) Charges under the Contracts, other than Contracts related to the provision of cable services at any of the Real Properties which required payment of a single initial installment thereunder (which, for the avoidance of doubt, the parties acknowledge and agree shall not be apportioned under this Section 6 and any amounts previously paid thereunder shall be the sole property of Sellers).

(d) Taxes not otherwise payable directly to the applicable taxing authority by any tenant under a Lease.

(e) Annual license, permit, franchise and inspection fees.

(f) Deposits, if any, on account with utility companies servicing the Premises and any reimbursements for utility fees.

(g) Amounts held in the Repurchase Agreement Reserves (as hereinafter defined), which shall be apportioned pursuant to Section 35 .

(h) All other items customarily apportioned in connection with the sale of similar properties similarly located.

6.3 (a) If the real property taxes and assessments (including, without limitation, any assessments relating to Permitted Title/Survey Matters, business improvement district assessments or similar charges), personal property taxes, water rates and charges, and sewer taxes, in each case, not otherwise payable directly to the applicable taxing authority by any tenant under a Lease are not finally fixed before the applicable Closing Date for non-Michigan Properties, the apportionments thereof made at such Closing shall be based on the real property taxes and assessments or personal property taxes, as applicable, assessed for the preceding fiscal year or the applicable billing period, or on estimated water and sewer charges and after the real property taxes or assessments, personal property taxes or water and sewer charges are finally fixed, the applicable Seller and Purchaser shall, within thirty (30) days after the date such taxes or rates and charges are fixed, make a recalculation or the apportionment of the same, and the applicable Seller or Purchaser, as the case may be, shall promptly make an appropriate settlement with the other based upon such recalculation. For Michigan Properties only, any tax bill which is required to be prorated and which has not yet been received by the Closing Date will be estimated using the current year’s assessment and the prior year’s millage rate; provided , however , if the current year’s assessment is not available as of such Closing Date, then such estimate will use the prior year’s tax bill.

(b) Purchaser and each Seller acknowledge and agree that, from and after each Closing, Purchaser shall have the sole right, at its sole cost and expense, to file, prosecute, settle or take other actions with respect to real estate tax appeal proceedings for any and all tax years during such Seller’s indirect ownership of the applicable Real Estate Owners ending prior to such Closing Date (a “ Pre-Closing Tax Year ”); provided , however , that Purchaser shall not settle any such proceeding for any Pre-Closing Tax Year without the prior written consent of the applicable Seller (such consent not to be unreasonably withheld so long as such proposed settlement would not have an adverse impact on the real estate taxes and assessments for any Pre-Closing Tax Year). If any real property tax assessment protests and proceedings affecting the Properties for any Pre-Closing Tax Year are pending at the time of a Closing, such proceedings may continue to be prosecuted under Seller’s direction and control; provided , that Seller shall not be entitled to settle or compromise the same without the consent of Purchaser if such settlement or compromise would have an impact on the real estate taxes for the fiscal year in which the Closing occurs (a “ Closing Tax Year ”) or any subsequent tax year (a “ Post-Closing Tax Year ”). From and after each Closing, Purchaser shall have the sole right, at its sole cost and expense, to file, prosecute, settle or take other actions with respect to real estate tax appeal proceedings for a Closing Tax Year and any and all Post-Closing Tax Years, in each such case, without the consent of the applicable Seller; provided , however , that Purchaser shall not settle any such proceeding for any Closing Tax Year without the prior written consent of the applicable Seller if such proposed settlement would have an adverse impact on the real estate taxes and assessments for any Pre-Closing Tax Year. Any refunds from a real estate tax appeal proceeding that are obtained by Purchaser (net of the documented, reasonable out-of-pocket third party costs actually incurred by Purchaser in connection with such tax appeal proceeding) with respect to (i) a Pre-Closing Tax Year shall be the sole property of such Seller, (ii) a Closing Tax Year shall be apportioned between the applicable Seller and Purchaser on a pro rata basis (based on the parties’ respective periods of indirect ownership of the applicable Real Estate Owners in the Closing Tax Year) and (iii) a Post-Closing Tax Year shall be the sole property of Purchaser, except to the extent that such refunds were included in the determination of the Unadjusted Purchase Price. If any such refunds which are due to a Seller in accordance with this Section 6.3(b) are paid to or received by Purchaser, then Purchaser shall promptly pay over the same to the applicable Seller. If Purchaser receives

a credit against future real estate taxes in settlement of a tax certiorari proceeding to which a Seller is entitled pursuant to this Section 6.3(b) , then Purchaser shall pay over the amount thereof to the applicable Seller promptly following the realization of such credit by Purchaser, except to the extent that such credits were included in the determination of the Unadjusted Purchase Price.

(c) Notwithstanding the foregoing terms and provisions of this Section 6.3 or anything to the contrary set forth in this Agreement, solely with respect to the Properties located in Michigan, current city, county and/or state ad valorem real property taxes affecting such Properties shall be prorated between Purchaser and the applicable Seller as of the applicable Closing Date on a due date basis (and not based on the lien date or the fiscal year of the applicable taxing authority) as if paid in advance and using the assumption of December 1 and July 1 due dates (i.e., the summer 2016 taxes shall be deemed to relate to the period from July 1, 2016-June 30, 2017 and the winter 2015 taxes shall be deemed to relate to the period from December 1, 2015-November 30, 2016).

6.4 (a) If the Premises or any part thereof shall be or shall have been affected by any bond or special assessment prior to a Closing Date, such bond or special assessment due and relating to the period of time prior to such Closing Date shall be paid by the applicable Seller and such bond or special assessment due or relating to the period of time from and after the applicable Closing Date shall be paid by Purchaser. If any bond or special assessment on the Premises is payable in installments, then the installment for the period in which the Closing occurs shall be prorated (with Purchaser assuming the obligation to pay any installments due from and after the applicable Closing Date).

(b) If the Premises or any part thereof shall be or shall have been affected by any bond or special assessment subsequent to the applicable Closing Date, whether or not payable in annual installments, the entire amount of such bond or assessment shall be paid by Purchaser.

6.5 If there are any water meters on the Premises (other than meters measuring water consumption costs which are the obligation of tenants to pay under Leases), the applicable Seller shall furnish readings, and the unfixed water rates and charges and sewer taxes and rents, if any, based thereon for the intervening time, shall be apportioned on the basis of such last readings. If there is any fuel on hand, the applicable Seller shall furnish a reading, and the unfixed charges for such fuel, for the period from the date of such reading until the applicable Closing Date shall be apportioned based upon such reading.

6.6 The amount of (i) any unpaid taxes, assessments, water charges and sewer taxes and/or rents and vault charges and taxes which the applicable Subsidiary Companies are obligated to pay and discharge, with interest and penalties thereon calculated through and including the date two (2) days after the applicable Closing Date and (ii) any other liens or encumbrances which any Seller is paying and discharging pursuant to Section 8 of this Agreement, may, at the option of the applicable Seller, be paid from the Purchase Price at Closing, provided , that the Title Company (as hereinafter defined) shall be willing to insure Purchaser against collection of the foregoing, including interest and penalties. If Seller so elects with respect to clause (ii) , such liens and encumbrances shall not be objections to title.

6.7 At a Closing, Rent for the month of Closing shall be prorated (on the basis of the actual number of days elapsed in such month) based on actual Rent received for the calendar month prior to Closing. After the Closing, the actual Rents received in respect of the month of Closing shall be calculated and re-prorated in accordance with Section 6.17 , and Seller shall receive an amount equal to ninety percent (90%) of any Rents not actually received. In addition, at a Closing, the applicable Seller shall receive a credit against the Purchase Price in an amount equal to ninety percent (90%) of all Rents that are less than sixty (60) days delinquent (it being agreed that in determining delinquent Rents, such determination shall

be made as of the calendar month prior to Closing not as of the month of the Closing). Seller shall receive no credit for all Rents that are delinquent as of end of the calendar month prior to the applicable Closing Date by more than sixty (60) days.

6.8 The amount of all payments of principal, interest and other amounts under the Home Contracts that are delinquent as of the applicable Closing Date (“ Home Contract Delinquent Amounts ”) shall be adjusted and prorated on an if, as and when collected basis. Home Contract Delinquent Amounts collected by each Subsidiary Company after the Closing Date shall be applied, (A) first to all delinquent amounts due and payable for the calendar months preceding the calendar month in which the applicable Closing occurs, then (B) to all amounts due and payable for the calendar month in which the Closing occurs, then (C) to all amounts due and payable for the calendar months following the month in which the Closing occurs. Purchaser shall promptly remit any amounts due to Seller promptly upon receipt.

6.9 With respect to utility service charges, each Seller shall furnish readings of the applicable utility meters to a date not more than thirty (30) days prior to the applicable Closing Date, and the unfixed charges, if any, based thereon for the intervening time, shall be apportioned on the basis of such last readings.

6.10 Purchaser acknowledges that certain of the Subsidiary Companies may be responsible for the payment of lease and finder’s fees and commissions payable to brokers and leasing agents (collectively, “ Finder’s Fees ”) and other out-of-pocket costs and expenses with respect to Leases, including, without limitation, rent abatement, referral fees, other similar fees, legal fees, costs and disbursements (collectively, “ Other Leasing Costs ”; together with any Finder’s Fees, “ Leasing Costs ”), arising out of Leases that were executed during the time period in which such Subsidiary Company was the owner of the Premises. Subject to this Section 6.10 and Section 6.13 below, Sellers agree that the applicable Seller (through the applicable Subsidiary Companies) shall be responsible for the payment of the Leasing Costs arising out of Leases that were executed on, before or after the Effective Date; provided , however , the foregoing shall not extend to any obligation to pay Leasing Costs that are accrued after an applicable Closing Date (as, for example, Leasing Costs that are accrued in respect of the renewal or expansion in respect of an Existing Lease that occurs subsequent to the applicable Closing Date). Notwithstanding the foregoing, Purchaser agrees that Purchaser shall (I) be responsible for 50% of all Leasing Costs arising out of, under or in connection with: (a) a renewal of, or expansion or extension under, any Existing Lease that occurs subsequent to the Effective Date and prior to the applicable Closing Date and (b) any Lease Amendments and New Leases that occurs subsequent to the Effective Date and prior to the applicable Closing Date, and (II) be responsible for the payment of all Leasing Costs arising out of, under or in connection with: (a) a renewal of, or expansion or extension under, any Existing Lease that occurs subsequent to the applicable Closing Date and (b) any Lease Amendments and New Leases that occurs subsequent to the applicable Closing Date. In connection with the foregoing, Purchaser hereby (x) assumes, effective as of the Closing Date, as applicable, the obligation to pay all Leasing Costs with respect to the leasing matters described in the foregoing clauses (I) and (II) , (y) indemnifies the applicable Seller against any liability effective as of the Closing Date arising under such Leasing Costs with respect to the leasing matters described in the foregoing clauses (I) and (II) , and (z) agrees that if a Seller pays more than its 50% share of any such amount in respect of any such leasing matters described in clause (I) or any amount in respect of leasing matters described in clause (II) prior to the applicable Closing Date, then, at the applicable Closing, Seller shall receive a credit to the Unadjusted Purchase Price in an amount equal to the full amount of such Leasing Costs. Notwithstanding the foregoing, the parties agree that any costs paid after the Effective Date to a dealer, resident or other person to induce a person to move a home onto a Manufactured Home Community shall not be deemed a Leasing Cost and Seller shall receive a credit to the Unadjusted Purchase Price for such costs.

6.11 It is the intention of the parties for the applicable Subsidiary Companies to retain all security deposits of tenants under the Leases, then held by the applicable Subsidiary Companies, together with any interest accrued on such security deposits; provided , however , prior to each Closing, the applicable Seller shall have the right to deduct from any security deposit any amount due from a tenant of the Premises as a result of a default by such tenant under such tenant’s Lease; provided that any such deduction is done in the ordinary and customary course of the applicable Seller’s operation of the Properties and Seller shall promptly notify Purchaser of any such deduction.

6.12 Unless otherwise required by applicable law, all indemnity payments made pursuant to this Agreement shall be treated for all U.S. federal, state and local income tax purposes as adjustments to the Unadjusted Purchase Price.

6.13 At each Closing, the following shall occur (in each case, if and to the extent applicable to the Component of the Interests being sold at such Closing):

(a) In the event that, after May 5, 2016 and prior to the applicable Closing Date:

(i) a manufactured home located at a Manufactured Home Community is vacant on the Effective Date (or becomes vacant after the Effective Date) or a Repurchased Home (as hereinafter defined) is acquired and any of the Subsidiary Companies incurs any reasonable and customary costs or expenses in order to re-lease or sell such manufactured home to a third party (including, without limitation, reasonable refurbishment or renovation costs applicable to such manufactured home, set-up costs, freight costs and lot preparation and modification costs and any other costs for improvement or addition thereto), subject in all cases to Section 17.1 , then, at such Closing, the applicable Seller shall receive a credit against the Unadjusted Purchase Price equal to the full amount of such costs and expenses;

(ii) any of the Subsidiary Companies repurchases any existing manufactured home pursuant to any of the Repurchase Agreements (the “ Repurchased Homes ”), then, at such Closing, the applicable Seller shall receive a credit against the Unadjusted Purchase Price in an amount equal to the product of (1) $0.90, multiplied by (2) an amount equal to the outstanding principal balance of the Home Contract that was secured by such Repurchased Home(s), plus any and all reasonable and customary costs, expenses, commissions and fees incurred by any Subsidiary Companies in connection therewith as evidenced by a closing statement or other bill of sale, in each case, subject to Section 17.1 ;

(iii) any of the Subsidiary Companies forecloses on any existing manufactured home, then Seller shall receive a credit against the Unadjusted Purchase Price in an amount equal to the outstanding balance of the loan that encumbered such foreclosed home and any costs incurred by Seller in connection with the enforcement of such foreclosure;

(iv) any existing manufactured home located at a Manufactured Home Community (other than a Repurchased Home) becomes available for purchase and any of the Subsidiary Companies acquires such manufactured home, or any manufactured home is obtained from another Property, in each case, subject to Section 17.1 , then at such Closing, the applicable Seller shall receive a credit against the Unadjusted Purchase Price equal to the acquisition price paid (or hypothetical price, in the case of a transfer from another Property) for such manufactured home, plus any and all reasonable and customary costs, expenses, commissions and fees incurred by such Subsidiary Companies (including, without limitation, any of the foregoing relating to set-up, freight and lot preparation and modification and any improvement or addition thereto);

(v) any of the Subsidiary Companies sells any manufactured homes (including any Repurchased Homes) or transfers any manufactured home to another Property, then at such Closing, Purchaser shall receive a credit against the Unadjusted Purchase Price equal to the gross (or hypothetical, in the case of a transfer) sale price from such sale, minus such costs, expenses, commissions and fees actually paid by any Subsidiary Companies in connection therewith as evidenced by a closing statement or other bill of sale;

(vi) any Subsidiary Company purchases a new or used manufactured home to locate at a Manufactured Home Community, then, at such Closing, the applicable Seller shall receive a credit against the Unadjusted Purchase Price equal to the acquisition price paid by the applicable Subsidiary Companies with respect to such manufactured home, plus any and all reasonable and customary costs, expenses, commissions and fees incurred by such Subsidiary Companies (including, without limitation, any of the foregoing relating to set-up, freight and lot preparation and modification and any improvement or addition thereto); or

(vii) any Subsidiary Company has made a deposit in connection with the purchase of any existing manufactured home located at a Manufactured Home Community or any new manufactured home to locate at a Manufactured Home Community and the acquisition of such manufactured home has not been consummated by the applicable Closing Date, then, at such Closing, the applicable Seller shall receive a credit against the Unadjusted Purchase Price equal to the amount of such deposit delivered for such manufactured home, plus any interest accrued thereon as of such Closing Date.

(b) Purchaser shall receive a credit to the Purchase Price in an amount equal to the sum of (1) the outstanding principal balance of all Home Contracts as of April 30, 2016 (as set forth on Exhibit KK ) minus (2) the outstanding principal balance of all Home Contracts as of the applicable Closing Date (the “ Closing OPB ”) (and if such amount results in a negative number, then Purchaser shall receive no credit). Seller shall receive a credit to the Purchase Price in an amount equal to the sum of (1) the Closing OPB minus (2) the outstanding principal balance of all Home Contracts as of April 30, 2016 (as set forth on Exhibit KK ) (and if such amount results in a negative number, then Seller shall receive no credit). The parties acknowledge and agree that in determining the Closing OPB, the parties shall determine the outstanding principal balance of the applicable Home Contracts as of the end of the calendar month immediately preceding the Closing. Once the applicable information is available, after the Closing, the parties shall recalculate the Closing OPB using the outstanding principal balance of the applicable Home Contracts as of the end of the calendar month in which the Closing occurred in the same manner as Proration Items in Section 6.2 . Interest received with respect to the Home Contracts in the month of a Closing shall be prorated.

(c) To the extent owned by a Subsidiary Company, prior to the applicable Closing Date, the applicable Seller shall cause all monies to be removed from all vending machines, laundry machines, pay telephones and other coin or dollar operated equipment as of the Adjustment Time and such Seller shall retain all monies collected therefrom as of the Adjustment Time, and Purchaser shall be entitled to any monies collected therefrom after the Adjustment Time.

6.14 At each Closing, Seller shall receive a credit to the Purchase Price for the full amount of each of the following items not otherwise prorated pursuant to this Section 6 : (x) any cash on hand, held by, or on behalf of, or for the benefit of Seller or any Subsidiary Company (including, without limitation, cash on deposit in bank accounts and reserves, escrows and deposits held by or for the benefit of a Lender as set forth in Section 12 below and the Repurchase Agreement Reserve (as hereinafter defined) pursuant to Section 35 below), cash equivalents, receivables (excluding, for the avoidance of doubt, those receivables set forth in Sections 6.7 and 6.8 ), insurance proceeds or condemnation awards previously paid to the

Subsidiary Companies (other than any such insurance proceeds and/or condemnation awards, if any, due Purchaser pursuant to Section 14 below), or funds in the Subsidiary Companies’ bank accounts, in each case through the applicable Closing Date, and surety, licenses or utility bonds; (y) any prepaid expenses previously paid by any Subsidiary Company to fulfill any obligation or liability of such party, in each such case, only to the extent not inconsistent or duplicative with Section 2.4 or Section 6.1 through Section 6.13 ; and (z) any amortization payment made with respect to an Assumed Loan that has not yet been applied to reduce the outstanding principal balance of such Assumed Loan, in all cases as determined in accordance with GAAP as applied in a manner consistent with the accounting practices and methodology used in preparing the Financial Statements.

6.15 At each Closing, Purchaser shall receive a credit to the Purchase Price for (i) the full amount of accounts payable of the Subsidiary Companies as of the applicable Closing Date, (ii) the amount of any accrued liabilities of the applicable Subsidiary Companies not otherwise prorated pursuant to this Section 6 as of the applicable Closing Date, (iii) all prepaid Rent and other revenues with respect to the operation of the Properties collected by the Seller or the Company Subsidiaries prior to the Closing Date which are allocable to the period after the Closing Date and (iv) the outstanding principal amount of indebtedness of any Company Subsidiary (other than the Assumed Loans (which are being prorated in accordance with Section 12 )) not otherwise prorated pursuant to this Section 6 plus any accrued interest thereon, in each case, as of the applicable Closing Date, in all cases of clauses (i)-(iv) above, as determined in accordance with GAAP as applied in a manner consistent with the accounting practices and methodology used in preparing the Financial Statements.

6.16 No later than five (5) Business Days and not more than ten (10) Business Days prior to the then Scheduled Closing Date, the applicable Seller shall deliver to the Purchaser for its review and comment a preliminary written statement setting forth the estimated Proration Items and other credits and adjustments to the Unadjusted Purchase Price under this Agreement on a Property by Property basis for the applicable Component of the Interests being sold at such Closing (the “ Estimated Closing Statement ”). The Estimated Closing Statement shall be accompanied by reasonable documentation supporting the determination of the estimated Proration Items and other credits and adjustments to the Unadjusted Purchase Price under this Agreement.

6.17 Subject to the provisions of Section 37 of this Agreement, in the event a Closing occurs, the provisions of this Section 6 and all other credits and adjustments to the Unadjusted Purchase Price under this Agreement shall survive each such Closing Date for one hundred twenty (120) days (each such period, an “ Apportionments Correction Period ”) and either party hereto shall have the right prior to expiration of the applicable Apportionments Correction Period to require that errors related to computations, calculations and estimated information be corrected and the parties agree that any adjustments not raised prior to the expiration of the applicable Apportionments Correction Period shall be deemed to be waived. For the avoidance of doubt, the parties hereto acknowledge and agree that after the expiration of an Apportionments Correction Period, the indemnification obligations of the applicable Seller, if any, and Purchaser, if any, contained in this Section 6 with respect to such Apportionments Correction Period, shall expire. From and after each Closing until the expiration of the applicable Apportionments Correction Period, Sellers shall at all times have, on reasonable advance notice and during normal business hours, reasonable access to, and the right to inspect, Purchaser’s work papers, schedules, statements and information to confirm the computations and calculations of the apportionments as provided in this Agreement. If the Purchase Price, as corrected for adjustments after a Closing, exceeds the Purchase Price set forth on the Closing Statement, Purchaser will promptly (but in no event later than ten (10) Business Days after receipt of written notice from a Seller) pay the amount of such excess to such Seller, by wire transfer of immediately available funds to an account specified in writing by such Seller; and if the Purchase Price as corrected for adjustments

after a Closing is less than the Purchase Price set forth on the Closing Statement, such Seller will promptly (but in no event later than ten (10) Business Days after receipt of written notice from Purchaser) pay the amount of such shortfall to Purchaser, by wire transfer of immediately available funds to an account specified in writing by Purchaser and such payment covenant by such Seller and Purchaser shall survive the applicable Closing until the expiration of the applicable Apportionments Correction Period; provided , however , if any request for payment is duly made by a Seller or Purchaser, as the case may be, under this Section 6.17 prior to the expiration of the applicable Apportionments Correction Period and such request has not been fully paid (or otherwise resolved) as of the last day of the applicable Apportionments Correction Period, then such unpaid (or unresolved) payment request shall survive until such time as such request has been fully paid (or finally resolved). In the event of any objections to any computations or calculations made by any Seller or Purchaser pursuant to this Section 6.17 , the objecting party shall deliver to the non-objecting party a statement setting forth the items with which the objecting party disagrees with reasonably detailed support in respect of any such disagreement (the “ Objection Statement ”). The applicable Seller and the Purchaser shall negotiate in good faith to resolve any objections set forth in the Objection Statement, but if they do not reach a final resolution within fifteen (15) days after the delivery of the Objection Statement, the applicable Seller and the Purchaser shall submit the issues remaining in dispute for final resolution to an independent certified public accounting firm of national reputation mutually agreed by the Purchaser and the applicable Seller (and if the parties cannot agree to such alternative firm, each of the applicable Seller and the Purchaser shall name an independent certified public accounting firm of national reputation and those two shall select an independent certified public accounting firm of national reputation to serve as arbitrator) (the firm so determined, the “ Financial Arbitrator ”). Each party agrees to execute, if requested by the Financial Arbitrator, a reasonable and customary engagement letter, including customary indemnities for the benefit of the Financial Arbitrator. The Financial Arbitrator shall (i) consider only those items and amounts which are identified in the Objection Statement and which the Purchaser and the applicable Seller are unable to resolve, (ii) apply only the provisions of this Section 6, and (iii) make a final determination in writing. In resolving any item of dispute, the Financial Arbitrator may not assign a value to any item greater than the greatest value for such item claimed by either the Purchaser or the applicable Seller or less than the smallest value for such item claimed by either the Purchaser or the applicable Seller. The applicable Seller and the Purchaser shall use their reasonable best efforts to cause the Financial Arbitrator to resolve all disagreements and make a final determination in writing as soon as practicable and in any event within thirty (30) days after the submission of any dispute to the Financial Arbitrator. The Purchaser and the applicable Seller shall promptly comply with all reasonable requests by the Financial Arbitrator for information, books, records and similar items. The fees and expenses of the Financial Arbitrator shall be borne by Purchaser, on the one hand, and the applicable Seller, on the other hand, in such amount(s) as shall be determined by the Financial Arbitrator based on the proportion that the aggregate amount of disputed items submitted to the Financial Arbitrator that is unsuccessfully disputed by the Purchaser, on the one hand, or the applicable Seller, on the other hand, as determined by the Financial Arbitrator, bears to the total amount of such disputed items so referred to the Financial Arbitrator for resolution. The resolution of the dispute by the Financial Arbitrator shall be final and binding on the parties hereto and non-appealable.

6.18 Prorations and other adjustments pursuant to this Section 6 shall not affect, be limited by, or be applied against any deductibles, thresholds or maximum amounts relating to the indemnification obligations and claims for damages contained in Section 37 .

6.19 For the avoidance of doubt and notwithstanding anything to the contrary set forth in this Agreement, in the event of multiple Closings hereunder, the apportionments, prorations, credits and other adjustments set forth in this Section 6 and elsewhere in this Agreement shall be determined and calculated at each Closing for the applicable Component of the Interests that is the subject of such Closing.

7. Closing Deliveries and Closing Conditions.

7.1 At each Closing (except to the extent otherwise provided below), each Seller shall deliver (or cause to be delivered through Escrow Agent) to Purchaser the following with respect to the Component of the Interests owned by such Seller (i.e., the Portfolio I Equity Interests, the Portfolio II Equity Interests (or portion thereof in connection with a partial sale of the Portfolio II Equity Interests), the Portfolio III Equity Interests or the Portfolio IV Equity Interests, as applicable) that is being conveyed to Purchaser at such Closing:

(a) an assignment and assumption of interests, in the form attached hereto as Exhibit R and made a part hereof (each, an “ Assignment and Assumption of Interests ”), executed by such Seller;

(b) a “non-foreign person certification” that meets the requirements of Section 1445(b)(2) of the Code and the Treasury Regulations promulgated thereunder, in the form attached hereto as Exhibit S and made a part hereof, executed by (or on behalf of) such Seller;

(c) at the first Closing under this Agreement, the applicable Seller shall either (x) agree to maintain a net worth and liquidity equal to the product of (A) $5,000,000 and (B) a fraction, the numerator of which is the applicable Purchase Price for the Component of the Interests and the denominator of which is the Unadjusted Purchase Price, to satisfy Seller’s Post-Closing Obligations under this Agreement, which net worth and liquidity obligation of Seller shall be guaranteed by NorthStar Realty Finance Limited Partnership, a Delaware limited partnership, or any successor entity thereto acquiring all or substantially all of such entity’s assets (any such entity, “ Guarantor ”) in the form of Exhibit AA , attached hereto and made a part hereof or (y) cause to be delivered a Guaranty, in the form of Exhibit AA , attached hereto and made a part hereof, executed by Guarantor;

(d) all forms, affidavits and certificates required to be filed in connection with the imposition and/or payment of any and all Transfer Taxes (collectively, the “ Transfer Tax Documents ”), in the proper form for submission, prepared, executed and acknowledged by such Seller;

(e) such documents (such as limited liability company resolutions, corporate resolutions or partnership authorizations of Seller and the Subsidiary Companies and certified limited liability company, corporate or partnership organizational documents of the Subsidiary Companies) as are reasonably required to evidence the authorization of the transactions contemplated by this Agreement and the delivery by the applicable Seller of all of the applicable Closing documents required by this Agreement;

(f) the Closing Statement agreed to by the applicable Seller and Purchaser in accordance with Section 6 of this Agreement;

(g) (i) to the extent same are in the possession of or under the reasonable control of such Seller (A) copies of the applicable Subsidiary Companies’ executed originals (or copies) of all Leases, Contracts and Home Contracts relating thereto and (B) keys and access, alarm and security codes to all doors located at, and equipment and utility rooms located in, the Premises; and (ii) to the extent same are in the possession of or under the reasonable control of such Seller and are transferable to Purchaser (A) all plans and specifications with respect to the Premises and books and records related to the management and operation of the Premises and (B) all original licenses, certificates and permits

pertaining to the Premises and required for the use or occupancy thereof (or copies thereof, to the extent originals are unavailable);

(h) evidence reasonably satisfactory to Purchaser of the termination of the existing asset management agreements and property management agreements to which any Subsidiary Company is a party;

(i) evidence reasonably satisfactory to Purchaser of the resignation or removal of all individuals that serve as officers, directors or managers, as applicable, of any of the Subsidiary Companies, each effective on or prior to the applicable Closing Date;

(j) subject to Section 11.3 , a certificate in the form attached hereto as Exhibit T and made a part hereof updating the representations and warranties given by such Seller pursuant to Section 11.1 hereof as of the applicable Closing Date, executed by such Seller;

(k) for each of the Subsidiary Companies (the “ Florida Subsidiaries ”) with Premises in Florida (“ Florida Premises ”), a Clearance Letter from the Florida Department of Revenue, evidencing that no tax, penalty, or interest is due to the Florida Department of Revenue; and

(l) such other documents, instruments and/or deliveries as are required to be delivered by such Seller pursuant to the terms of this Agreement or applicable law.

7.2 At each Closing (except to the extent otherwise provided below), Purchaser shall deliver (or cause to be delivered) to the applicable Seller the following:

(a) the Purchase Price with respect to the Component of the Interests being acquired;

(b) each Assignment and Assumption of Interests, executed by Purchaser;

(d) such documents (such as limited liability company resolutions, corporate resolutions or partnership authorizations) as are reasonably required by a Seller evidencing the authorization of the purchase of the Interests (or any Component of the Interests) by Purchaser and the delivery by Purchaser of all of the applicable Closing documents required by this Agreement;

(e) the Closing Statement agreed to by the applicable Seller and Purchaser in accordance with Section 6 of this Agreement;

(f) a certificate in the form attached hereto as Exhibit U and made a part hereof updating the representations and warranties given by Purchaser pursuant to Section 11.2 hereof as of the applicable Closing Date, executed by Purchaser;

(g) with respect to each applicable Subsidiary Company, such documents, instruments, certificates and/or deliveries required to be filed with the Secretary of State of Delaware and all of the applicable governmental authorities of each jurisdiction in which such Subsidiary Company is qualified to transact business in order to change the name of such Subsidiary Company to remove and exclude any reference to “NS”, “NRF”, “NorthStar” or words and phrases of similar import in the name of such Subsidiary Companies;

(h) with respect to all of the applicable Subsidiary Companies, such documents, instruments, certificates and/or deliveries required or appropriate to be filed with the Secretary of State of Delaware and the applicable governmental authorities of each jurisdiction in which such Subsidiary Company is qualified to transact business in order to effectuate a change of the principal place of business and/or other information pertaining to, or associated with, NorthStar Realty Finance Corp., RHP Properties, Inc. and/or any affiliates thereof;

(i) such other documents, instruments, certificates and/or deliveries as are required by the Corporate Trust Company, the Corporation Service Company, or any other applicable corporate service provider (and/or their respective affiliates) (collectively, the “ Corporate Service Providers ” and each, a “ Corporate Service Provider ”) to, with respect to the Subsidiary Companies, change the service of process and notice delivery instructions (including, without limitation, a change of the recipient parties, billing parties and their respective addresses) on file with the applicable Corporate Service Providers to such new service of process delivery instructions provided by Purchaser;

(j) at the Closing of each assumption of the Assumed Loans (as hereinafter defined), an amendment to each staffing agreement or similar document (relating to independent members, independent managers, independent directors, springing members and/or similar parties) between a Subsidiary Company and a Corporate Service Provider, which amendment shall (A) be entered into with such Corporate Service Provider on the Closing Date of such loan assumption (and effective as of such date), and (B) change the business address and notice delivery information (including, without limitation, billing parties and related details) of each applicable Subsidiary Company to such new business address and notice delivery information provided by Purchaser; and

(k) such other documents, instruments and/or deliveries as are required to be delivered by Purchaser pursuant to the terms of this Agreement or applicable law.

7.3 Conditions to Obligations of Seller . The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to each Closing to the extent applicable to the Component of the Interests that is the subject of such Closing, of each of the following conditions precedent, any of which may be waived in writing by Sellers in their sole discretion:

(a) Purchaser shall have paid to the applicable Seller the full amount of the Portfolio I Allocated Purchase Price, Portfolio II Allocated Purchase Price (or the applicable portion thereof in the event that there is more than one Closing with respect to the Portfolio II Equity Interests in accordance with Section 4.2 of this Agreement), Portfolio III Allocated Purchase Price and/or Portfolio IV Allocated Purchase Price, as applicable, subject to apportionments, prorations, credits and other adjustments in accordance with the terms and provisions of this Agreement;

(b) each of the Purchaser’s Representations set forth in Section 11.2 being true and correct as of the Effective Date and as of the applicable Closing Date, as if made as of such date;

(c) Purchaser shall have delivered all agreements, instruments, certificates and other documents required to be delivered by Purchaser pursuant to the terms and provisions of this Agreement;

(d) Purchaser having performed or complied in all material respects with all of the covenants and obligations of Purchaser required by this Agreement to be performed or complied with by Purchaser at or prior to such Closing and Purchaser shall have satisfied all of its obligations pursuant to Section 7.2 of this Agreement; and

(e) each applicable Lender shall have approved the assumption of the Assumed Loan applicable to the subject transfer of the Component of the Interests to Purchaser in accordance with Section 12 of this Agreement and such approval shall be in full force and effect on the applicable Closing Date.

7.4 Conditions to Obligations of Purchaser . The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to each Closing to the extent applicable to the Component of the Interests that is the subject of such Closing, of each of the following conditions precedent, any of which may be waived in writing by Purchaser in its sole discretion:

(a) each of (i) the Sellers’ Fundamental Representations (as hereinafter defined) being true and correct in all respects as of the Effective Date and as of the applicable Closing Date, as if made as of such date (except for representations and warranties which refer to facts, events or circumstances existing as of a specific date, which representations and warranties shall be true and correct only as of such specified date) and (ii) the Sellers’ Other Representations (as hereinafter defined) being true and correct (without regard to any qualification as to materiality or material adverse effect (or any correlative terms)) as of the Effective Date and as of the applicable Closing Date, as if made as of such date (except for representations and warranties which refer to facts, events or circumstances existing as of a specific date, which representations and warranties shall be true and correct in all material respects only as of such specified date), except where the failure of such representations and warranties to be true and correct has not had, or would not be reasonably expected to have, a Material Adverse Effect;

(b) each applicable Seller shall have delivered all agreements, instruments, certificates and other documents required to be delivered by Seller pursuant to the terms and provisions of this Agreement;

(c) each applicable Lender shall have approved the assumption of the Assumed Loan applicable to the subject transfer of the Component of the Interests to Purchaser in accordance with the provisions of Section 12 of this Agreement and such approval shall be in full force and effect on the applicable Closing Date, and no monetary or material non-monetary defaults shall have occurred and be continuing under any of the Assumed Loans;

(d) title to each of the Properties shall be free and clear of all liens, security interests, pledges or similar encumbrances, other than the Permitted Title/Survey Matters or as otherwise expressly permitted pursuant to this Agreement; and

(e) each applicable Seller having performed or complied with in all material respects all of the covenants and obligations of Seller required by this Agreement to be performed or complied with by Seller at or prior to such Closing. Each Seller shall have satisfied all of its respective obligations pursuant to Section 7.1 of this Agreement.

7.5 Notwithstanding anything to the contrary in Section 7.3 or Section 7.4 above, neither Sellers nor Purchaser may rely on the failure or non-satisfactions of any condition precedent set forth in Section 7.3 or Section 7.4 , as applicable, if such failure or non-satisfaction was primarily caused by such

party’s own failure to comply with, or breach with respect to, its covenants and obligations under this Agreement.

7.6 The acceptance of transfer of the Portfolio I Equity Interests, Portfolio II Equity Interests (or the applicable portion(s) thereof in the event that the Portfolio II Equity Interests are conveyed to Purchaser in more than a single Closing), Portfolio III Equity Interests and/or the Portfolio IV Equity Interests shall, in each such instance, be deemed to be the full performance and discharge of any and all obligations on the part of the applicable Seller to be performed pursuant to the provisions of this Agreement with respect to the Portfolio I Equity Interests, Portfolio II Equity Interests (or the applicable portion(s) thereof in the event that the Portfolio II Equity Interests are conveyed to Purchaser in more than a single Closing), Portfolio III Equity Interests and/or the Portfolio IV Equity Interests, as applicable, except where such agreements and obligations are specifically stated herein to survive a Closing (it being acknowledged and agreed that the acceptance of transfer of the Interests by Purchaser shall be deemed to be full performance and discharge of any and all obligations on the part of Sellers to be performed pursuant to the provisions of this Agreement, except where such agreements and obligations are specifically stated herein to survive a Closing).

7.7 Subject to the terms and conditions set forth herein and to applicable legal requirements, each of the parties shall reasonably cooperate and use commercially reasonable efforts to take, or cause to be taken, all appropriate action, and do, or cause to be done, and assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated hereunder, including the satisfaction of the respective conditions set forth in this Section 7 ; provided , that there shall be no obligation on any party to incur any liability or obligation not expressly contemplated by this Agreement, or to impair the rights of any party.

8. Title Insurance and Survey Matters.

8.1 Purchaser and Sellers acknowledge that (A) Sellers have made available to Purchaser those certain title reports and/or title commitments referenced on Exhibit V attached hereto and made a part hereof with respect to the Premises (individually and collectively, the “ Title Commitment ”) from Commonwealth Land Title Insurance Company, Chicago Title Insurance Company and Fidelity National Title Insurance Company (collectively, in such capacity, the “ Title Company ”), and (B) Sellers have made available to Purchaser those certain surveys referenced on Exhibit W attached hereto and made a part hereof with respect to the Premises (individually and collectively, the “ Survey ”). Purchaser acknowledges and agrees that (x) (i) all matters stated in the Title Commitment and the Survey, and (ii) all matters referenced on Exhibit X attached hereto and made a part hereof are, in each such case, acceptable to Purchaser, and (y) subject to this Section 8 , Sellers have no obligation to cure any title matter or survey condition in respect of the Premises. As used herein “ Permitted Existing Title/Survey Matters ” shall mean the items referred to in clauses (i) and (ii) above. Notwithstanding the foregoing, however, Sellers shall be obligated to and shall, prior to or at Closing, remove or cause to be removed all title matters (I) voluntarily recorded by Sellers or any of the Subsidiary Companies or otherwise placed or affirmatively permitted to be placed by Sellers or any of the Subsidiary Companies against any of the Properties after the date hereof consisting of mortgages, deeds of trust, security agreements, financing statements or other instruments which evidence or secure indebtedness (other than the Assumed Loans), (II) mechanics’ liens pertaining to work performed by or on behalf of Sellers, tax liens, real estate taxes, water rates and charges and sewer rents and taxes, each of which remain unpaid or of record as of the Closing Date, (III) the items listed on Schedule 8.1 attached hereto and (IV) not covered by clauses (I) , (II) and (III) above and which can be satisfied and discharged of record by the payment of a liquidated sum not equal to or in excess of Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00)

in the aggregate (the items under clauses (I) , (II) , (III) and (IV) above are collectively referenced herein as the “ Required Clearance Exceptions ”), and all such matters shall be deemed to be “ Title Objections ” (as hereinafter defined) for all purposes under this Agreement.

8.2 If any new matters or conditions are shown on any update of the Title Commitments or the Surveys which both (A) are not Permitted Existing Title/Survey Matters and (B) have a Material Adverse Effect (such matters and/or conditions, the “ Title Objections ”), Purchaser shall have the right to object to the same by delivering notice (each such notice, a “ Purchaser’s Title/Survey Update Notice ”) thereof to the applicable Seller prior to the earlier of the applicable Closing Date or the date that is seven (7) Business Days after Purchaser receives actual notice thereof (and if Purchaser fails to deliver such notice within such seven (7) Business Day (or shorter) period, then Purchaser shall be deemed to have accepted such matters or conditions). To the extent that the same do not constitute Required Clearance Exceptions, such Seller shall have five (5) Business Days following the receipt of any Purchaser’s Title/Survey Update Notice (and if the expiration of such five (5) Business Day period is after the applicable Closing Date, then, at the option of such Seller, the applicable Closing shall be adjourned to the date three (3) Business Days after the expiration of such five (5) Business Day period) in which to give Purchaser notice (each such notice, a “ Seller’s Title/Survey Update Response ”) that such Seller will, at such Seller’s expense, either (1) cause such new matter or condition to be deleted from the Title Commitment or Survey, or (2) not cause such new matter or condition to be deleted from the Title Commitment or removed from the Survey. If such Seller gives notice pursuant to clause (1) , then such Seller will cause such new matter or condition to be deleted from the Title Commitment or Survey prior to the applicable Closing Date, as same may be adjourned pursuant to the foregoing provisions of this Section 8.2 (and such Seller shall have the further right to adjourn the applicable Closing Date one or more times (but for not more than sixty (60) days in the aggregate) in order to effectuate same); provided , however , if, at a Closing, such Seller has failed to cause any such new matter or condition to be deleted from the Title Commitment or the Survey, then Purchaser, in its sole and absolute discretion, may elect to (a) subject to Section 4.3 , terminate this Agreement at such Closing and such failure shall constitute a willful breach of Seller (in which event the provisions of Section 9 and Section 20 of this Agreement shall apply to such termination), or (b) waive the right to terminate this Agreement as a result of any such Title Objection. If such Seller (i) fails to give any Seller’s Title/Survey Update Response within said five (5) Business Day period, or (ii) gives notice pursuant to clause (2) , then Purchaser will deliver written notice to such Seller on or before the earlier of (I) one (1) Business Day prior to the applicable Closing Date (as same may be adjourned pursuant to the foregoing provisions of this Section 8.2 ) or (II) five (5) Business Days following the earlier of the expiration of such five (5) Business Day period or the giving of the Seller’s Title/Survey Update Response either (X) terminating this Agreement (in which event the provisions of Section 9 of this Agreement shall apply to such termination) or (Y) waiving the right to terminate this Agreement as a result of any such new matter or condition. If Purchaser fails to deliver such notice terminating this Agreement pursuant to clause (X) within said five (5) Business Day (or shorter) period, then Purchaser shall be deemed to have elected under clause (Y) above. If Purchaser elects to waive the right (or is deemed to have elected to waive the right) to terminate this Agreement pursuant to clause (Y) above, then any new matter or condition previously objected to by Purchaser shall become Permitted Title/Survey Matters (as hereinafter defined). Purchaser acknowledges that each Seller shall be entitled to deliver such Seller’s notice under clause (1) or clause (2) above in Seller’s sole and absolute discretion. Except with respect to the Required Clearance Exceptions, Purchaser acknowledges that each Seller shall be entitled to deliver such Seller’s notice under clause (1) or clause (2) of Section 8.2 above in Seller’s sole and absolute discretion. As used herein “ Permitted Title/Survey Matters ” shall mean (x) the Permitted Existing Title/Survey Matters and (y) all additional matters and conditions that are acceptable to Purchaser (or deemed acceptable to Purchaser) pursuant to the provisions of this Section 8.2 .

8.3 Notwithstanding anything contained herein to the contrary, Sellers shall have no obligation to take any steps, bring any action or proceeding or incur any effort or expense whatsoever to cure any title or survey objection other than Required Clearance Exceptions, or any Title Objections which Sellers has elected to remove. In the event that, as of the then Scheduled Closing Date, Sellers shall have failed to remove any Required Clearance Exceptions or any Title Objections which Sellers have elected to remove prior to the Closing, then Sellers shall be deemed to be in default under this Agreement.

9. Disposition of Downpayment.

If (a) Sellers are unable to transfer the Interests in accordance with the terms of this Agreement on or before the Outside Closing Date, (b) Purchaser is entitled to and does elect to terminate this Agreement in accordance with the provisions of Sections 7.4 , 8 , 11.3 , 14 or 20 of this Agreement, or (c) a Seller is entitled to and does elect to terminate this Agreement in accordance with the provisions of Sections 7.3 or 10 of this Agreement, then Sellers and Purchaser shall direct Escrow Agent to refund to Purchaser the Downpayment (or such portion thereof as shall have been deposited with Escrow Agent). Upon such delivery of the Downpayment to Purchaser, this Agreement shall terminate and neither party to this Agreement shall have any further rights or obligations hereunder, except for the Post-Termination Obligations (as hereinafter defined), which shall survive such termination.

10. Purchaser’s Default.

If (i) each Seller has performed all of its respective obligations hereunder (other than those obligations which Sellers cannot perform due to a breach by Purchaser hereunder) and (ii) either (a) the Closing is not consummated because of Purchaser’s breach or default under this Agreement or (b) Purchaser has failed to comply with its material obligations under Section 12 or Section 35 in any material respect within 10 business days’ after receiving written notice from Seller of such non-compliance, then Sellers, as Sellers’ sole remedy, shall have the right to cause Escrow Agent to deliver to Sellers the Downpayment, as and for Sellers’ liquidated damages (the parties hereto acknowledging that it would be difficult or impossible to accurately ascertain the amount of Sellers’ damages), which amount represents a bona fide good faith estimate of the damages that Sellers would suffer in such event. Upon Sellers’ receipt of the Downpayment, this Agreement shall terminate and neither party shall have any further rights or obligations under this Agreement other than the Post-Termination Obligations, which shall survive such termination. The parties agree that Sellers’ receipt of the Downpayment as the liquidated damages shall be the sole and exclusive relief to which Sellers might otherwise be entitled as a result of the Closing not being consummated due to Purchaser’s default, Sellers hereby specifically waiving any and all other rights which Sellers may have to damages, specific performance or any other remedy as a result of the Closing not being consummated due to a Purchaser default. The provisions of this Section 10 shall survive the Closing or the earlier termination of this Agreement.

11. Representations.

11.1 Each Seller hereby represents and warrants, for itself and for no other Seller (and subject to and in accordance with Section 36.1 ), to Purchaser that, as of the Effective Date or such other specified date as set forth in any representation or Exhibit or Schedule, subject to such exceptions as are disclosed in the disclosure schedule supplied by Sellers and attached to this Agreement as Exhibit Y or any other Schedule attached to this Agreement (the “ Seller Disclosure Schedule ”) (it being agreed that disclosure of any item or matter in any section or subsection of the Seller Disclosure Schedule shall be deemed disclosure with respect to any other section or subsection to which the relevance of such item is reasonably apparent to be so applicable to such other section or subsection):

(a) Organization . Such Seller is a duly formed and validly existing Delaware limited liability company, in existence and in good standing (or will be by the Closing applicable to such Seller) under the laws of the State of Delaware. Each Subsidiary Company owned by such Seller is a duly formed and validly existing limited liability company in its jurisdiction of formation. Such Seller has delivered or made available to Purchaser correct and complete copies of the current limited liability company operating agreement, and any amendments thereto, as applicable, of each of the Subsidiary Companies.

(b) Authority . The execution, delivery and performance of this Agreement and of all documents contemplated hereunder and the consummation of the transactions contemplated hereby by such Seller (i) is within such Seller’s corporate, partnership, limited liability company or other applicable powers and (ii) have been duly authorized by all necessary corporate, partnership, limited liability company or other applicable action. This Agreement has been duly executed and delivered by such Seller constitutes the legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, fraudulent conveyance, fraudulent transfer or similar laws relating to or affecting creditors’ rights and remedies generally, and (ii) general principles of equity (regardless of whether considered in a proceeding in equity or at law).

(c) Interests . (i) Portfolio I Seller is the sole owner, beneficially, legally and of record, of the Portfolio I Equity Interests, except for liens, encumbrances, claims and other rights imposed under applicable securities laws or set forth or otherwise reflected in the applicable Subsidiary Company’s organizational documents and any rights or interests of the applicable Lender under the Assumed Loan Documents applicable to the Portfolio I Loans; (ii) Portfolio II Seller is the sole owner, beneficially, legally and of record, of the Portfolio II Seller Interests, except for liens, encumbrances, claims and other rights imposed under applicable securities laws or set forth or otherwise reflected in the applicable Subsidiary Company’s organizational documents and any rights or interests of the applicable Lender under the Assumed Loan Documents applicable to the Portfolio II Loans; (iii) Portfolio III Seller is the sole owner, beneficially, legally and of record, of the Portfolio III Seller Interests, except for liens, encumbrances, claims and other rights imposed under applicable securities laws or set forth or otherwise reflected in the applicable Subsidiary Company’s organizational documents and any rights or interests of the applicable Lender under the Assumed Loan Documents applicable to the Portfolio III Loans; and (iv) Portfolio IV Seller is the sole owner, beneficially, legally and of record, of the Portfolio IV Seller Interests, except for liens, encumbrances, claims and other rights imposed under applicable securities laws any rights or interests of the applicable Lender under the Assumed Loan Documents applicable to the Portfolio IV Loans. Except for the transfers of the Interests contemplated by this Agreement (including, without limitation, modifications required in connection with the assumption of the Assumed Loans), each entity shown on the current structure charts attached hereto as Exhibit B , Exhibit D , Exhibit F and Exhibit H (collectively, the “ Structure Charts ”), as applicable, is the owner, beneficially, legally and of record, of a membership interest in each entity indicated to be owned (in the applicable percentage interest) by such entity on said structure chart, except for encumbrances imposed under applicable securities laws or set forth or otherwise reflected in the Subsidiary Company’s organizational documents and any rights or interests held by any Lender under any Assumed Loan. Except for rights created pursuant to this Agreement, there are no (A) outstanding Interests in any Subsidiary Company (in each case, other than those shown on the Structure Charts) or outstanding securities convertible into or exchangeable or exercisable for Interests in any Subsidiary Company, (B) bonds, debentures, notes, or other indebtedness with respect to any Subsidiary Company granting a third party the right to vote on any matters, (C) outstanding options, warrants, rights, contracts, commitments, understandings or arrangements by which any Subsidiary Company is bound to issue, repurchase or

otherwise acquire or retire any Interests of any of such entities, or (D) voting agreements, voting trusts, buy-sell agreements (other than any buy-sell agreements with respect to the members of Seller), rights of first refusal, options or rights or obligations relating to the members of the Subsidiary Companies or the Interests in any Subsidiary Company.

(d) Litigation . Other than as set forth on the Seller Disclosure Schedule and except for evictions, collections and repossessions in the ordinary course of business, there is no current or pending action, suit, arbitration, claim or proceeding (including, without limitation, with respect to any homeowner’s association) with respect to such Seller, the Subsidiary Companies or the Interests or, to the knowledge of such Seller, threatened in writing against such Seller, the Subsidiary Companies or the Interests, except those of the foregoing which are fully covered by insurance. Other than as set forth on the Seller Disclosure Schedule, no Seller, Subsidiary Company or any of their respective assets or properties is subject to any outstanding order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority (each, a “ Governmental Order ”) nor, to the knowledge of Seller, are there any such Governmental Orders threatened to be imposed by any Governmental Authority, other than judgments relating to evictions, collections or repossessions.

(e) Purchase Rights . Except with respect to Purchaser or pursuant to rights granted to homeowner associations under applicable laws, such Seller has not granted to any Person any option, right of first refusal, right of first offer or other right to purchase the Interests or the Premises that remains outstanding.

(f) Bankruptcy . Neither such Seller nor any of the Subsidiary Companies owned by such Seller have (i) made a general assignment for the benefit of creditors, (ii) filed a petition for voluntary bankruptcy or filed a petition or answer seeking reorganization or any arrangement or composition, extension or readjustment of its indebtedness, (iii) consented, in any creditor’s proceeding, to the appointment of a receiver or trustee of such Seller, any of such Subsidiary Companies or any of their respective property or any part thereof, or (iv) been named as a debtor in an involuntary bankruptcy proceeding or received a written notice threatening the same.

(g) No Foreign Person . Such Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

(h) Consents and Approvals; No Conflicts . Except as set forth on the Seller Disclosure Schedule, and subject to the Loan Assumption Documents (as hereinafter defined) and the completion of the assumption of each of the Assumed Loans, neither such Seller nor any Subsidiary Companies owned by such Seller are required to obtain any consent, approval or order of any court or Governmental Authority in order to execute, deliver or perform any of such Seller’s or any such Subsidiary Companies’ obligations under this Agreement, other than such of the foregoing as have been obtained or will be obtained by the applicable Closing Date; provided , however , that no representation is made with respect to any liquor license held by Snowbird Concessions, Inc., a Texas corporation. Except as set forth on the Seller Disclosure Schedule, and subject to the Loan Assumption Documents (as hereinafter defined) and the completion of the assumption of each of the Assumed Loans, neither the execution, delivery or performance of this Agreement nor compliance herewith, nor the consummation of the transactions contemplated hereby, results in the creation or imposition of any lien or encumbrance on the Interests or any asset of the Subsidiary Companies or conflicts with or violates (i) any provision of the organizational documents of any Seller, (ii) any law or any order, writ, injunction or decree of any court or Governmental Authority applicable to such Seller or the Subsidiary Companies,

or (iii) any material provision of any contract, bond, note or other instrument of indebtedness, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which Sellers or any of the Subsidiary Companies are a party.

(i) OFAC . Such Seller is in compliance with all applicable anti-money laundering and anti-terrorist laws, regulations, rules, executive orders and government guidance, including the reporting, record keeping and compliance requirements of the Bank Secrecy Act, as amended by The International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, Title III of the USA PATRIOT Act, and other authorizing statutes, executive orders and regulations administered by OFAC (as hereinafter defined), and related Securities and Exchange Commission, SRO or other agency rules and regulations, and has policies, procedures, internal controls and systems that are reasonably designed to ensure such compliance. Neither: (i) such Seller nor (ii) any Person who owns a controlling interest in or otherwise controls such Seller is a prohibited country, territory, Person, organization, or entity under any economic sanctions program administered or maintained by OFAC. For the purposes of this Agreement, “ OFAC ” means the U.S. Department of the Treasury’s Office of Foreign Assets Control and “ OFAC List ” is any list of prohibited countries, individuals, organizations and entities that is administered or maintained by OFAC, including: (i) Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001) issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), any related enabling legislation or any other similar executive orders, (ii) the List of Specially Designated Nationals and Blocked Persons maintained by OFAC, and/or on any other similar list maintained by OFAC pursuant to any authorizing statute, executive order or regulation, or (iii) a “Designated National” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515.

(j) Existing Contracts . Exhibit P sets forth a true, correct and complete list of all Existing Contracts for the Premises in effect as of the date set forth on such exhibit, of which Sellers have made true, correct and complete copies available to Purchaser. Each Seller and Subsidiary Company is in compliance in all material respects with each Material Contract (as hereinafter defined) and no Seller or Subsidiary Company is in any material respects in breach or violation of, or default under, any Material Contract. The transactions contemplated by this Agreement shall not cause a default under any Material Contract. No Seller or Subsidiary Company has sent nor received written notice of material breach or default under any such Material Contracts. It is hereby agreed that for purposes of this Section 11.1(j) , “Material Contracts” shall mean:

(i) any Existing Contract with an annual aggregate payment obligation thereunder in excess of One Million and 00/100 Dollars ($1,000,000.00);

(ii) any Existing Contract relating to the management or operation of any Property;

(iii) any Existing Contract relating to the acquisition or disposition, directly or indirectly (by merger or otherwise), of assets (other than park homes, manufactured homes or inventory) or capital stock or other equity interests of, or otherwise relating to any investment in, another Person;

(iv) any Existing Contract relating to the development or construction of, or additions or expansions to, the Properties, under which any Seller or Subsidiary Company has, or expects to incur, an obligation in excess of One Million and 00/100 Dollars ($1,000,000.00) per Property, following the Closing Date, other than Existing Contracts for ordinary repair and maintenance entered into in the ordinary course of business consistent with past practice; or

(v) any Existing Contract under which a Seller or Subsidiary Company has agreed to provide a monetary loan to any Person in excess of One Million and 00/100 Dollars ($1,000,000.00) individually.

(k) Existing Leases; Rent Rolls . Attached hereto as Exhibit N are lists of the Existing Leases for the Premises, which is accurate in all material respects as of the date set forth on such exhibit. The rent rolls attached hereto as Exhibit N (the “ Rent Rolls ”) are true, complete and accurate in all material respects as of the date set forth on such exhibit and there are no rental concessions with any tenants except as otherwise set forth on the schedule of concessions attached to the Rent Rolls. Except as otherwise set forth on the Rent Rolls and any schedules appended thereto, to Sellers’ Knowledge, there has been no rent strike or other tenant organized protest of rents or conditions at the Premises.

(l) Home Contracts . Attached hereto as Exhibit M are lists of Existing Home Contracts, which, to the actual knowledge of such Seller, is accurate in all material respects as of the date set forth on such exhibit.

(m) Assumed Loans . Sellers have made available to Purchaser true, correct and complete copies of the Assumed Loan Documents listed on Exhibit Z , which is a true and complete list of all Assumed Loan Documents. To Sellers’ knowledge based solely on information Sellers have received from the applicable servicers for the Assumed Loans, Exhibit JJ sets forth the outstanding principal amount, and the amount of reserves, escrows and holdbacks held by any lender with respect to each Assumed Loan as of the date set forth on such exhibit. There does not exist any default or event of default with respect to any economic terms under any such Assumed Loan Documents. Except for the Assumed Loans, no Subsidiary Company has any outstanding indebtedness for borrowed money and no Subsidiary Company has guaranteed the payment or performance of the obligations of any Person other than pursuant to the Assumed Loan Documents.

(n) Financial Statements; No Unknown Liabilities .

(i) Sellers have furnished Purchaser with true and correct copies of the unaudited consolidated balance sheet of Sellers and Subsidiary Companies as of the date set forth thereof (the “ Financial Statements ”).

(ii) Except as set forth on the Seller Disclosure Schedule, the Financial Statements (A) have been prepared based on the separate books and records of Sellers and Subsidiary Companies, (B) have been prepared in accordance with generally accepted accounting principles in the United States of America as of the date of the applicable reports (“ GAAP ”) consistently applied (subject, in the case of unaudited statements, to normal year-end adjustments which will not be material in nature or amount to Sellers and Subsidiary Companies) and (C) fairly present in all material respects the financial condition of Sellers and Subsidiary Companies as of the respective dates they were prepared and the results of the operations of the Sellers and Subsidiary Companies for the periods indicated.

(iii) Except as set forth on the Seller Disclosure Schedule, no Subsidiary Companies have any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) that would be required by GAAP to be recorded on or reflected in the consolidated financial statements of Sellers or Subsidiary Companies, except for liabilities and obligations (i) incurred pursuant to this Agreement, or (ii) incurred in the ordinary course of business and in a manner substantially consistent with past practice since the date of the last Financial Statement. Except as set forth on the Seller Disclosure Schedule, no Subsidiary Companies are a party to, or have any commitment to become a party to, any joint venture, off

balance sheet partnership or any similar Contract (including any structured finance, special purpose or limited purpose vehicle or other “ off-balance sheet arrangements ”). From the date of the last Financial Statement to the Effective Date, there has not been any event, circumstance, change, or effect that, individually or in the aggregate, has had or would reasonably be expected to have, an Aggregate Material Adverse Effect under clause (ii) of the definition thereof. From the date of the last Financial Statement to the Effective Date, except in connection with the negotiation and execution of this Agreement, the Subsidiary Companies have conducted their respective business only in the ordinary course of business and in a manner consistent with past practice in all material respects.

(o) Repurchase Agreements . Exhibit CC sets forth a true, correct and complete list of all Repurchase Agreements (as hereinafter defined) in effect as of the date set forth on such exhibit, of which Sellers have made true, correct and complete copies available to Purchaser. To Sellers’ knowledge based solely on information Sellers have received from the applicable servicers for the Recourse Notes, Exhibit LL sets forth the amount of reserves held by any servicer with respect to the Repurchase Guaranty Obligations as of the date set forth on such exhibit. To Seller’s knowledge, there does not exist any default or event of default with respect to any economic terms under any such Repurchase Agreement. No Seller or Subsidiary Company has sent nor received written notice of material breach or default under any such Repurchase Agreement.

(p) Insurance . Attached hereto as Exhibit O is a complete and correct list of all material insurance policies owned or held by or on behalf of Sellers and Subsidiary Companies.

(q) Management of Properties . The Subsidiary Companies are not party to any management agreements with respect to the Premises, other than as listed on Exhibit K attached hereto and made a part hereof (collectively, the “ Management Agreements ”), which agreements shall be terminated as of the applicable Closing. No Subsidiary Company has sent nor received written notice of material breach or default under any such Management Agreements.

(r) Taxes .

(i) All material Returns required to have been filed by or with respect to the Subsidiary Companies have been timely filed (taking into account any extension of time to file granted or obtained), and all such Returns are true, complete and correct in all material respects.

(ii) All Taxes shown to be payable on such Returns have been paid, and all other material Taxes required to be paid by the Subsidiary Companies have been timely paid, except for Taxes being contested in good faith by appropriate proceedings.

(iii) The Subsidiary Companies have timely withheld and paid to the proper Governmental Authorities all material Taxes required to have been withheld and paid, and the Subsidiary Companies have duly and timely filed all Returns with respect to such withheld Taxes.

(iv) There are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which a Subsidiary Company is subject, except as may result from the valid and timely extension of the deadline for filing a Return.

(v) None of the Subsidiary Companies are a party to, or bound by, any obligation under any Tax sharing or similar agreement or arrangement covering any potential assumption of Tax liability of another Person.

(vi) None of the Subsidiary Companies are required to make any disclosure with the IRS with respect to a “listed transaction” or “reportable transaction” pursuant to Treasury Reg. § 1.6011-4(b).

(vii) None of the Subsidiary Companies have requested any private letter rulings from the IRS or comparable rulings from other taxing authorities or entered into any “closing agreement” as described in Section 7121 of the Code or similar arrangement.

(viii) None of the Subsidiary Companies have received a written claim by any taxing authority in a jurisdiction where the Subsidiary Companies do not file Returns that they are or may be subject to income taxation by the jurisdiction.

(ix) No deficiency for any amount of Tax has been asserted or assessed by a governmental authority in writing against any Subsidiary Company that has not been satisfied by payment, settled or withdrawn.

(x) None of the Subsidiary Companies have rescinded or revoked any material Tax election, settled or compromised any material Tax liability or amended any Return filed before the date hereof. No material Tax elections have been made following the filing of the Subsidiary Companies’ 2014 U.S. federal income tax returns

(xi) To the Seller’s knowledge, there are no material Tax liens on the assets of any Subsidiary Company, other than Encumbrances for Taxes or assessments that are not yet due or delinquent (or which may be paid without interest or penalties) or the validity or amount of which is being contested in good faith by appropriate proceedings.

(xii) Except as provided on Exhibit HH attached hereto and made a part hereof, each Subsidiary Company has been since its formation treated for U.S. federal income tax purposes as a disregarded entity within the meaning of Treasury Regulation Section 301.7701-3(b)(1)(ii), and not as a partnership, corporation or an association taxable as a corporation for U.S. federal income tax purposes.

(xiii) Except as provided on Exhibit II attached hereto and made a part hereof, none of the Subsidiary Companies holds any interest treated as equity for U.S. federal income tax purposes in an entity treated as a corporation for U.S. federal income tax purposes (not including equity interests treated as cash for purposes of Section 856 of the Code pursuant to IRS Revenue Ruling 2012-17).

(xiv) None of the Subsidiary Companies has ever been a member of an affiliated, combined, consolidated or unitary tax group, and has no liability for Taxes of any other Person under Section 1.1502-6 of the Treasury Regulations (or similar provision under state, local or foreign law), as a transferee or successor, by contract or otherwise.

(s) Employee Benefit Plans . None of the Sellers or the Subsidiary Companies is (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (an “ Employee Benefit Plan ”), or (ii) an entity any of whose assets include the assets of one or more Employee Benefit Plans.

(t) Labor and Employment Matters . None of Sellers or the Subsidiary Companies has or has ever had any employees.

(u) Brokerage . With respect to each Property, there are no brokerage agreements entered into by Sellers or the Subsidiary Companies, relating to finder’s fees or commissions payable to brokers and leasing agents with respect to Leases at such Property.

(v) Transactions with Affiliates . Except (a) as set forth on the Seller Disclosure Schedule and (b) for Sellers’ organizational documents, to Sellers’ knowledge, no director, officer or other Affiliate of any of the Sellers or Subsidiary Companies (including Sellers and Subsidiary Companies): (i) has any contract with any Seller or Subsidiary Company; (ii) owns or leases any real property used in the business or operations of any of Sellers or Subsidiary Companies; or (iii) provides goods or services to Sellers or Subsidiary Companies.

(w) No Florida Conduit Entity . As of the Closing Date, none of the Real Estate Owners owning Real Property in Florida is a “conduit entity” pursuant to Section 201.02(1)(b) of the Florida Statutes. Notwithstanding anything to the contrary in this Agreement, a breach of this representation shall not be taken into account for purposes of Section 7.4(a) .

(x) Environmental Representations . Except as set forth on Exhibit Q or the environmental reports set forth on Exhibit BB , as of the date reflected at the top of such Exhibit Q , no Seller or Subsidiary Company has received written notice (i) that any Seller, any Subsidiary Company or the Premises currently materially violates or may be subject to any material obligations or liability under any law, any material judicial or administrative ruling, order or decree or any permit, license or registration or agency or another Governmental Authority interpretation applicable to Sellers, any Subsidiary Companies or the Premises that relates to the use, handling, transportation, treatment, storage, disposal, release or discharge of (A) those substances, materials or wastes defined, listed, designated, requested or classified as “toxic”, “hazardous”, “acutely hazardous”, “pollutants” or “contaminants” under any Environmental Law; (B) petroleum and petroleum products, by-products and breakdown products; and (C) toxic mold, polychlorinated biphenyls and asbestos containing materials (such substances, collectively, “Hazardous Materials”, and such laws, collectively, “Environmental Laws” ) or (ii) regarding any material release (that has not been cured or remediated in compliance with Environmental Law) or threatened release of any Hazardous Materials from, at, on, or under the Premises.

11.2 Purchaser hereby represents and warrants to Seller that, as of the Effective Date:

(a) Intentionally Omitted .

(b) Organization . Purchaser is a duly organized and validly existing entity in its jurisdiction of organization or formation and in good standing under the laws of the State of its jurisdiction of formation or organization, and is (or will be by each applicable Closing) qualified to do business and in good standing under the laws of the States where qualification is required.

(c) Authority . The execution, delivery and performance of this Agreement by Purchaser (i) are within Purchaser’s corporate, partnership, limited liability company or other applicable powers, and (ii) have been duly authorized by all necessary corporate, partnership, limited liability company or other applicable action. This Agreement has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms.

(d) Consents and Approvals; No Conflicts . Purchaser is not required to obtain any consent, approval or order of any court or Governmental Authority in order to execute, deliver or

perform any of Purchaser’s obligations under this Agreement. Neither the execution, delivery or performance of this Agreement nor compliance herewith, nor the consummation of the transactions contemplated hereby, conflicts in any material respect with, or is prohibited by, any law or any order, writ, injunction or decree of any court or Governmental Authority applicable to Purchaser.

(e) ERISA . Purchaser is not and is not acting on behalf of (i) an “employee benefit plan” within the meaning of Section 3(3) of ERISA, (ii) a “plan” within the meaning of Section 4975 of the Code or (iii) an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. §2510.3-101, as modified by Section 3(42) of ERISA, of any such employee benefit plan or plan.

(f) OFAC . Purchaser is in compliance with all applicable anti-money laundering and anti-terrorist laws, regulations, rules, executive orders and government guidance, including the reporting, record keeping and compliance requirements of the Bank Secrecy Act, as amended by The International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, Title III of the USA PATRIOT Act, and other authorizing statutes, executive orders and regulations administered by OFAC, and related Securities and Exchange Commission, SRO or other agency rules and regulations, and has policies, procedures, internal controls and systems that are reasonably designed to ensure such compliance. Neither: (i) Purchaser, any affiliate of Purchaser or any Person controlled by Purchaser; nor (ii) any Person who owns a controlling interest in or otherwise controls Purchaser; nor (iii) if Purchaser is a privately held entity, any Person otherwise having a direct beneficial interest (other than with respect to an interest in a publicly traded entity) in Purchaser; nor (iv) any Person for whom Purchaser is acting as agent or nominee in connection with this investment, is a country, territory, Person, organization, or entity named on an OFAC List, or is a prohibited country, territory, Person, organization, or entity under any economic sanctions program administered or maintained by OFAC.

(g) Litigation . There is no action, suit, arbitration, claim, judgment, order, decree or governmental or other proceeding or investigation pending with respect to Purchaser or threatened by or against Purchaser or any of Purchaser’s affiliates, which, if adversely determined, would (i) restrain, limit, enjoin or prohibit the consummation of the transactions contemplated by this Agreement, (ii) declare unlawful the transactions or events contemplated by this Agreement or (iii) cause any of such transactions to be rescinded, unwound or terminated either in part or in their entirety.

11.3 (a) Each of the representations and warranties set forth in Section 11.1 of this Agreement (collectively, “ Sellers’ Representations ”) not made as of a specified date shall be deemed to have been remade at and as of the applicable Closing Date but solely with respect to the Component of the Interests being sold on such Closing Date with the same force and effect as if first made on and as of the applicable Closing Date.

(b) If prior to the applicable Closing, Sellers’ Representations, as made as of the Effective Date, are determined to be untrue as of the Effective Date or if Sellers’ Representations, as remade on the applicable Closing Date, shall result in Sellers’ Representations being untrue in either instance and such misrepresentation has a Material Adverse Effect as of such Closing Date, then, Purchaser may, at Purchaser’s option, either (i) subject to Section 4.3 , terminate this Agreement by notice in writing to Sellers, in which event (subject to the provisions of this Section 11.3 ) the provisions of Section 9 of this Agreement shall apply to such termination, or (ii) waive the same and purchase the Interests without any abatement of the Purchase Price.

(c) If prior to the applicable Closing, Sellers’ Representations, as made as of the Effective Date, are determined to be untrue as of the Effective Date or if Sellers’ Representations,

as remade on the applicable Closing Date, shall result in Sellers’ Representations being untrue (a “ Pre-Closing Breach ”), and such Pre-Closing Breach has or could reasonably be expected to result in Losses to Purchaser in an amount equal to or greater than the Floor (as hereafter defined) but does not result in a Material Adverse Effect as of such Closing Date, then Seller may, at Sellers’ option, either:

(x) cause the Pre-Closing Breach to be corrected so that it no longer has or could reasonably be expected to result in losses to Purchaser in an amount equal to or greater than the Floor at or before the applicable Closing (and such Seller shall be entitled to adjourn the applicable Closing Date one or more times (but for not more than sixty (60) days in the aggregate) to effectuate such cure), and if such Seller fails to effectuate such cure on or before the applicable Closing Date (as same may have been adjourned), then Purchaser shall have the right at such Closing to either (i) terminate this Agreement by notice in writing to Sellers, in which event (subject to the provisions of this Section 11.3 ) the provisions of Section 9 of this Agreement shall apply to such termination, or (ii) waive the same and purchase the Interests without any abatement of the Purchase Price; or

(y) credit Purchaser at the applicable Closing with an amount equal to the diminution of value of the Interests caused by the Pre-Closing Breach so that it no longer has or could reasonably be expected to result in losses to Purchaser in an amount equal to or greater than the Floor (it being agreed that if there is a dispute as to the amount of the credit under this subparagraph (y) then the provisions of Section 6.17 of this Agreement shall apply).

(d) In the event that Purchaser becomes aware that any of Sellers’ Representations are untrue in any respect that constitutes a Material Adverse Effect prior to the applicable Closing Date and nonetheless proceeds to such Closing without making a claim under this Section 11.3 , then same shall be deemed to be an automatic, permanent and irrevocable waiver by Purchaser of any further right to make a claim arising out of such untrue nature of such Sellers’ Representation(s). Purchaser shall be deemed to be aware that any Sellers’ Representation is untrue, inaccurate or incorrect to the extent that, prior to the applicable Closing Date, (i) Purchaser is or becomes aware or otherwise has knowledge of any fact, circumstance, event or other information which is inconsistent or contradictory with any such Sellers’ Representation or (ii) this Agreement or any information or documentation (including, without limitation, the Title Commitment, the Survey or any studies, tests, reports or analyses prepared by or for or otherwise obtained by Purchaser or any of Purchaser’s Representatives (as hereinafter defined) in connection with the Interests or the Premises (or any part thereof)) with respect to Sellers, the Subsidiary Companies, the Interests and/or the Premises (or any portion thereof) delivered or made available to Purchaser (whether through a diligence datasite or otherwise) contains provisions inconsistent with or contradictory to any of Sellers’ Representations.

11.4 Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, if, after a Closing, any of Sellers’ Representations with respect to a particular Component of the Interests that was the subject of a prior Closing is discovered after such Closing to be untrue or inaccurate in any respect that constitutes a Material Adverse Effect, then such untruth or inaccuracy shall not affect Purchaser’s obligations hereunder to consummate the acquisition of any remaining Component of the Interests or entitle Purchaser to terminate this Agreement.

11.5 For purposes of this Agreement, the term “to the actual knowledge of such Seller” or “Sellers’ knowledge” and words of similar import, shall mean the actual, present and conscious (but not the constructive or imputed) knowledge of John Katz (the “ Sellers’ Knowledge Party ”) without any obligation or duty to make inquiry or investigation of any kind other than to make inquiry of Ross Partrich and Joel Brown (it being acknowledged and agreed by Purchaser that such individual is named solely for

the purpose of defining and narrowing the scope of Sellers’ knowledge and not for the purpose of imposing any liability on or creating any duties or obligations running from such individual to Purchaser). Sellers and Purchaser acknowledge and agree that Purchaser shall not have any recourse or claim whatsoever against the Sellers’ Knowledge Party individually and that Sellers’ Knowledge Party has no liability under this Agreement.

12. Loan Assumptions.

Sellers and Purchaser acknowledge and agree that (a) each of the Premises is currently subject to the applicable Assumed Loan encumbering such Premises, as set forth on Exhibits EE-1 through EE-4 , pursuant to the terms of the applicable Assumed Loan Documents, (b) in connection with Purchaser’s proposed acquisition of the Interests, Purchaser is required to assume all of the Assumed Loans and the Assumed Loan Documents and (c) each applicable Lender’s consent to the sale of the Interests and the assumption of the applicable Assumed Loan by Purchaser is required pursuant to the terms of the applicable Assumed Loan Documents (including, without limitation, the replacement of the applicable guarantor and/or indemnitor under each and every Assumed Loan with a guarantor and/or indemnitor that satisfies the requirements of the applicable Assumed Loan Documents). In connection with the foregoing, the following shall apply:

12.1 In connection with the assumption of the Assumed Loans by Purchaser, (a) promptly after the execution of this Agreement, the Real Estate Owners shall deliver written notice to the Lenders, as applicable, of the prospective sale of the Interests to Purchaser in accordance with the requirements of the Assumed Loan Documents and (b) thereafter, Sellers and Purchaser shall use commercially reasonable efforts to obtain written consent of the Lenders to the transactions contemplated by this Agreement. In connection with the foregoing:

(a) Purchaser shall promptly and diligently provide such information as is required by the Lenders pursuant to the Assumed Loan Documents or as otherwise reasonably requested by any of the Lenders to facilitate the consummation of the transactions contemplated hereunder regarding Purchaser and its members, in each case, to the extent such information is customarily requested for such transactions, and deliver such documents, agreements, certificates, instruments and legal opinions as are required by the terms of the Assumed Loan Documents or as otherwise reasonably requested by any of the Lenders (including, without limitation, organizational documents of, and an organizational structure chart reflecting ownership of, Purchaser and its members, non-consolidation opinions, enforceability opinions, Delaware opinions, consents and resolutions, certificates and any other information or documentation reasonably required by the Lenders);

(b) Purchaser and Seller shall coordinate with and assist the Lenders to the extent reasonably requested in obtaining confirmation from the rating agencies, as applicable, that a re-qualification, reduction or withdrawal of the then current rating assigned to the loans or any class thereof in any securitization of any of the Assumed Loans shall not occur as a result of the assumption of the Assumed Loans by Purchaser, and such other criteria as any rating agency shall reasonably require in connection with the assumption of the Assumed Loans by Purchaser;

(c) Purchaser shall cause its organizational structure to satisfy the special purpose entity/separateness/bankruptcy remoteness requirements of the applicable Lender and the applicable Assumed Loan Documents;

(d) Purchaser shall cause the new property manager(s) and management agreement(s), if any, and/or any amendments, modifications, renewals or extensions to any of the existing management agreements that Purchaser intends to remain in place following the assumption of any of the Assumed Loans by Purchaser to satisfy the requirements of the applicable Assumed Loan Documents;

(e) Purchaser shall timely remit to the Lenders (or to the Real Estate Owners to permit the Real Estate Owners to remit same to the Lenders) the assumption fee and other fees and expenses, advances or reimbursements required to be paid pursuant to the Assumed Loan Documents;

(f) Purchaser shall cause to be provided a substitute guarantor and/or indemnitor for each of the Assumed Loans that complies with the provisions of the applicable Assumed Loan Documents, if required by the applicable lender;

(g) Purchaser shall not be obligated to accept any Lender consent if the same imposes obligations on Purchaser or any guarantor of the Assumed Loan not otherwise set forth in the Assumed Loan Documents;

(h) Purchaser shall have the right to request amendments to the Assumed Loan Documents to reflect permitted transfers and related provisions thereof relevant to Purchaser’s corporate structure as may be reasonably required by Purchaser and solely to the extent such transfers are customarily provided in other loan documents that affiliates of Purchaser are a party to; and

(i) Purchaser shall take such other reasonable steps and deliver such other reasonable and customary documents, instruments, certificates and agreements as are required to be taken or delivered to the Lenders (it being acknowledged and agreed that any application fee, assumption fee set forth in the applicable Assumed Loan Documents, underwriting and rating agency fee, and the fees, expenses, advances or reimbursements and other costs charged by the Lenders, including, without limitation, attorneys’ fees, and any other parties in connection with reviewing the assumptions, approving Purchaser, preparing the assumption documents, any title charges, appraisal costs, recording and filing fees and costs and other amounts charged by the Lenders (or the respective servicers of the Assumed Loans) in approving Purchaser in accordance with the applicable Assumed Loan Documents (collectively, the “ Loan Assumption Fees ”) shall be paid solely by Purchaser, which payment obligation shall survive each Closing or any earlier termination of this Agreement).

12.2 Notwithstanding anything to the contrary, Purchaser shall keep Seller fully informed in connection with any and all material submissions and communications with the Lender as well as, upon request by Seller, in connection with Purchaser’s compliance with its obligations under this Section 12 . In connection with the foregoing, Purchaser shall, promptly after any Lender’s request therefor: (A) comply with any Lender’s reasonable requests for information and documentation to the extent in Purchaser’s possession at such time and (B) participate in telephone calls and, if required, personal face-to-face meetings to discuss and negotiate the assumption of any of the Assumed Loans, in each case, following reasonable prior written notice thereof (which notice may be given by email to the designated individuals working on such assumption). With respect to the initial loan assumption package to be submitted to the Lenders, Purchaser shall provide all requested information (other than such information that customarily is not included in the initial loan assumption package or is to be provided by Sellers) reasonably available or in the possession of Purchaser at such time within ten (10) Business Days of receipt of the requirements letter or other initial loan assumption request from the Lenders and provide copies of all material correspondence to Sellers. In connection with Purchaser’s assumption of the Assumed Loans and the negotiation of the Loan Assumption Documents, no Lender shall be required to

agree to (x) any amendment, alteration, supplementation, modification, revision or other change to the Assumed Loan Documents (other than with respect to modifications to the Assumed Loan Documents to reflect permitted transfers and related provisions relevant to Purchaser’s corporate structure as may be reasonably required by Purchaser and solely to the extent such transfers are customarily provided in other loan documents that affiliates of Purchaser are a party to) or (y) any request for approval of supplemental or additional financing or indebtedness requested by Purchaser or any other party in connection with Purchaser’s assumption of the Assumed Loan Documents and Purchaser agrees that Purchaser’s obligation to assume each of the Assumed Loans and the Assumed Loan Documents is not conditioned upon or subject to any right of Purchaser to obtain, or any obligation of any Lender to agree to any approval of supplemental or additional financing or indebtedness. Accordingly, Purchaser will not request from any Lender any amendment, alteration, supplementation, modification, revision or other change to any of the Assumed Loan Documents (other than with respect to modifications to the Assumed Loan Documents to reflect permitted transfers and related provisions relevant to Purchaser’s corporate structure as may be reasonably required by Purchaser and solely to the extent such transfers are customarily provided in other loan documents that affiliates of Purchaser are a party to) or any approval of supplemental or additional financing or indebtedness.

12.3 Upon receipt thereof, Purchaser shall deliver to Sellers evidence (in form reasonably satisfactory to Sellers) that:

(a) Each of the Lenders has consented, as applicable, to (i) the acquisition of the Interests by Purchaser and to the assumption of the Assumed Loans by Purchaser (including, without limitation, to the extent required pursuant to the terms of the Assumed Loan Documents, approval of the substitute guarantor and/or indemnitor, approval of the form of legal opinions to be delivered by Purchaser, confirmation from the applicable rating agencies and other deliveries or matters required from Purchaser by the Lenders (or the respective servicers of the Assumed Loans) or required for the Assumed Loans to be assumed by Purchaser);

(b) Each of the Lenders and Purchaser have agreed upon the form of loan assumption documents to be entered into by Purchaser and/or the substitute guarantor and/or indemnitor, if required by such Lender, at the applicable Closing and the Lenders have agreed to execute and deliver such agreed-upon forms without condition other than (i) the payment by Purchaser of the Loan Assumption Fees, including, without limitation, the assumption fees and costs required to be paid pursuant to the loan agreements, (ii) the execution and delivery of the Loan Assumption Documents by Purchaser, (iii) delivery by Purchaser of the legal opinions, certificates, documents and other deliveries required by the Lenders pursuant to the Assumed Loan Documents, and (iv) such other conditions as Lender may reasonably request that are customarily included in assumptions similar to the contemplated assumption (the documents agreed to between Purchaser and the Lenders, the “ Loan Assumption Documents ”);

(c) The Loan Assumption Documents provide, among other things, upon execution and delivery thereof that Purchaser assumes any and all liability under the Assumed Loan Documents (including, without limitation, under any guaranties and/or environmental indemnities) first accruing from and after the applicable Closing Date; and

(d) Purchaser has agreed to indemnify, defend and hold Sellers and the Seller Exculpated Parties harmless from and against any liability arising with respect to the Assumed Loans from and after each Closing (the conditions set forth in the preceding subclauses (a) , (b) , (c) and (d) , collectively, the “ Loan Assumption Condition ”).

12.4 Notwithstanding anything to the contrary contained herein or in the Assumed Loan Documents, and subject to and without duplication for the adjustments in this Agreement, the parties hereto acknowledge and agree that each Seller shall be entitled to a credit against the Unadjusted Purchase Price, at any Closing applicable to such Seller, in an amount equal to any and all (i) deposits, reserves, impounds and escrows being held as of the applicable Closing Date by, on behalf of, or for the benefit of any Subsidiary Company (whether held by the Lender or the respective servicers of the Assumed Loans) under any of the Assumed Loan Documents and (ii) other funds derived from the Premises held by, on behalf of, or for the benefit of any Subsidiary Company (whether held by the Lender or the respective servicers of the Assumed Loans) in any lockbox or other account or sub-account, in each case, to the extent that the Lenders have not remitted such funds directly to the Real Estate Owners and such amounts were not liquidated with the proceeds distributed to Seller at the applicable Closing. At each Closing, the monthly recurring debt service payments and any other amounts due and payable under the Assumed Loans shall be prorated as of the Adjustment Time.

13. Certain Tax Matters.

13.1 Indemnification Obligations with Respect to Taxes.

(a) Subject to and in accordance with the provisions of Section 37 , and without duplication, Sellers shall indemnify, defend and hold harmless Purchaser from and against all Taxes of the Subsidiary Companies (other than those for which the Purchaser was provided with a credit against the Unadjusted Purchase Price) that are due or payable in respect of Pre-Closing Tax Periods.

(b) For purposes of this Section 13 , whenever it is necessary to determine the liability for Taxes of a Subsidiary Company for a Straddle Period, the determination of the Taxes for the portion of the Straddle Period ending before, and the portion of the Straddle Period beginning on and including, the applicable Closing Date shall be determined by assuming that the Straddle Period consists of two taxable years or periods, one of which ends at the close of the day before the applicable Closing Date and the other of which begins at the beginning of the day of the applicable Closing Date, and items of income, gain, deduction, loss or credit, and state and local apportionment factors of such Subsidiary Company for the Straddle Period shall be allocated between such two taxable years or periods on a “closing of the books basis” by assuming that the books of the Subsidiary Company are closed at the close of business on the day before the applicable Closing Date, provided , however , that (i) exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation; and (ii) periodic taxes, such as real and personal property taxes, shall be apportioned ratably between such periods on a daily basis.

(c) No Person shall be entitled to recover any Losses pursuant to this Section 13 unless written notice of a claim therefor is delivered to the Party against whom indemnity is sought prior to 60 days after the expiration of the applicable statute of limitations period (including any extensions thereof).

13.2 Returns and Payment Responsibility.

(a) Sellers will be responsible for and will cause to be prepared and duly filed, at Seller’s sole cost and expense, all Returns of the Subsidiary Companies and all consolidated, combined or unitary Returns that include the Subsidiary Companies for all taxable periods ending on or before the Closing Date (and shall also timely prepare and file any interim filings required to be filed prior to the

applicable Closing Date). Purchaser shall file or cause to be filed when due all Returns with respect to the Subsidiary Companies, other than those that are the responsibility of Sellers pursuant to this paragraph.

(b) All Returns that are to be prepared and filed by Purchaser pursuant to the preceding paragraph and that relate to Taxes for any Straddle Period shall be submitted to Sellers not later than fifteen (15) days prior to the due date for filing of such Returns (or, if such due date is within forty-five (45) days following the Closing Date, as promptly as practicable following the Closing Date). Sellers shall have the right to review such Returns and all work papers and procedures used to prepare them, and Sellers shall have the right to access any other information of or controlled by Purchaser relating to such Returns that reasonably is necessary for Sellers to perform such review. Notwithstanding anything to the contrary herein, neither Purchaser nor any affiliate shall be required to make available to Sellers or any other Person any information relating to the indirect ownership of the Subsidiary Companies. If Sellers, within ten (10) days after delivery of any such Return, notify Purchaser that it objects to any item in such Return, the parties shall attempt in good faith to resolve the dispute and, if they are unable to do so, any disputed item shall be resolved (within a reasonable time, taking into account the deadline for filing such Return) by a nationally recognized independent accounting firm chosen by both Purchaser and Sellers. Upon resolution of all disputed items, the relevant Return shall be filed on such basis. The costs, fees and expenses of such accounting firm shall be borne equally by Purchaser and Sellers.

(c) All Returns that are to be prepared and filed by Sellers pursuant to Section 13.2(a) shall be submitted to Purchaser not later than fifteen (15) days prior to the due date for filing of such Returns (or, if such due date is within forty-five (45) days following the applicable Closing Date, as promptly as practicable following the applicable Closing Date). Purchaser shall have the right to review such Returns and all work papers and procedures used to prepare them, and Purchaser shall have the right to access any other information of or controlled by Sellers relating to such Returns that reasonably is necessary for Purchaser to perform such review. If Purchaser, within ten (10) days after delivery of any such Return, notifies Sellers that it objects to any item in such Return, the parties shall attempt in good faith to resolve the dispute and, if they are unable to do so, any disputed item shall be resolved (within a reasonable time, taking into account the deadline for filing such Return) by an internationally recognized independent accounting firm chosen by both Purchaser and Sellers. Upon resolution of all disputed items, the relevant Return shall be filed on such basis. The costs, fees and expenses of such accounting firm shall be borne equally by Purchaser and Sellers, and the accounting firm’s determination shall be binding on the parties for purposes of filing such Returns.

(d) Purchaser shall not (and shall not cause or permit the Subsidiary Companies to) amend, re-file or otherwise modify (or grant an extension of any statute of limitations with respect to (other than as may be the result of the filing of a timely and valid extension to the deadline for filing a Return)) any Return relating in whole or in part to the Subsidiary Companies with respect to any Pre-Closing Tax Period or Straddle Period without the prior consent of Sellers, which consent shall not be unreasonably withheld, conditioned or delayed. Sellers shall have no right to amend, re-file or otherwise modify (or grant an extension of any statute of limitations with respect to (other than as may be the result of the filing of a timely and valid extension to the deadline for filing a Return)) any Return relating in whole or in part to the Subsidiary Companies without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed.

13.3 Contest Provisions .

(a) In the event (i) Sellers or their affiliates or (ii) Purchaser or its affiliates receives notice of any pending or threatened Tax audit or assessment or other dispute concerning Taxes with respect to which the other party may incur liability under this Section 13 , the party in receipt of such notice promptly shall notify the other party of such matter in writing, provided that failure of a party to comply with this provision shall not affect any party’s right to indemnification hereunder unless such failure materially adversely affects the ability of the party that did not receive notice to challenge such Tax audits or assessments.

(b) Sellers shall have the sole right to represent the interests of any Company in any Tax audit or administrative or court proceeding relating to any Tax for any taxable period ending on or before the applicable Closing Date (or for which Sellers may otherwise be required to indemnify Purchaser under this Agreement), and to employ counsel of its choice at Sellers’ expense. Notwithstanding the foregoing, Sellers shall not be entitled to settle, either administratively or after the commencement of litigation, any claim regarding Taxes with respect to any Return of any Subsidiary Company (or modify any such Return) that adversely would affect the liability for Taxes of Purchaser or any Subsidiary for any period beginning on or after the applicable Closing Date or create an indemnity obligation on the part of Purchaser without the prior written consent of Purchaser, which consent shall not be unreasonably conditioned, withheld or delayed; provided , however , that such consent shall not be required to the extent that Sellers indemnify Purchaser against the effects of such settlement.

(c) Purchaser shall have the sole right to represent the interests of any Subsidiary Company in any Tax audit or administrative or court proceeding relating to Taxes with respect to taxable periods including (but not ending before), or beginning after, the applicable Closing Date and to employ counsel of its choice at its expense; provided , however , that Purchaser shall not be entitled to settle, either administratively or after the commencement of litigation, any claim regarding Taxes that would affect the liability of Sellers (including any Taxes that may be payable by any indirect owners of Sellers) for any Tax or create an indemnity obligation on the part of Sellers, without the prior consent of Sellers, which consent shall not be unreasonably conditioned, withheld or delayed. Where consent to settlement is withheld by Sellers pursuant to this Section 13.3 , Sellers may continue or initiate any further proceedings at its own expense.

13.4 Assistance and Cooperation . After the applicable Closing Date, Seller, on the one hand, and Purchaser, on the other hand, shall (and shall cause their respective affiliates to): (a) assist the other party in preparing and filing any Return or report that such other party is responsible for preparing and filing in accordance with this Section 13 ; (b) cooperate fully in preparing for any audit of, or dispute with taxing authorities regarding, any Return of any Subsidiary Company relating to taxable periods for which the other party may have a liability under this Section 13 ; (c) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the applicable Subsidiary Company; (d) provide timely notice to the other in writing of any pending or threatened Tax audit or assessment of any Subsidiary Company for taxable periods for which the other party may have a liability under this Section 13 ; and (e) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any such taxable period described in this Section 13.4 .

13.5 Retention of Records . After the applicable Closing Date, Sellers and Purchaser will, and Purchaser shall cause the Subsidiary Companies to, preserve all information, records or documents relating to liabilities for Taxes of the Subsidiary Companies until six months after the expiration of any applicable statute of limitations (including extensions thereof) with respect to the assessment of such

Taxes; provided , that prior to disposing of such information, records or documents, Seller shall provide Purchaser with the opportunity take possession of such information, records or documents.

14. Condemnation and Destruction.

14.1 If, prior to a Closing Date, a Taking (as hereinafter defined) occurs, then (i) Sellers shall notify Purchaser of such fact and provide reasonably detailed information with respect thereto, (ii) Purchaser shall not have any right or option to terminate this Agreement as a result of such Taking and this Agreement shall continue in full force and effect, (iii) at such Closing, Purchaser shall continue to purchase the Interests or the applicable Component of the Interests that is the subject of such Closing (notwithstanding the occurrence of such Taking); provided , that, the Unadjusted Purchase Price shall be reduced by an amount equal to the amount of any such Taking award collected by any of the Sellers or the Subsidiary Companies, and (iv) at such Closing, the applicable Seller or the applicable Subsidiary Company, as applicable, shall assign and turn over to Purchaser, and Purchaser shall be entitled to receive and keep, all of such Seller’s or such Subsidiary Company’s, as applicable, interest in and to all awards for such Taking not collected before the Closing; provided , however , notwithstanding the foregoing, if prior to a Closing Date one or more Taking occurs and the same shall, individually or in the aggregate, have a Material Adverse Effect, then Purchaser shall have the right, in its sole discretion, but subject to Section 4.3 , to terminate this Agreement (in accordance with this Section 14.1 ) solely with respect to such Component of the Interests that have not been conveyed to Purchaser pursuant to a prior Closing by delivering notice of such termination to Sellers on or before the earlier of the applicable Closing Date or the date ten (10) days after Purchaser receives such notice from Sellers. In the event that Purchaser fails to exercise such termination right within such ten (10) day (or shorter) period, Purchaser shall be deemed to have waived such termination right, in which event Purchaser shall not have any right or option to terminate this Agreement with respect to such Taking and this Agreement shall continue in full force and effect and otherwise pursuant to the terms of this Section 14.1 as if such Taking did not result in a Material Adverse Effect. In the event that Purchaser delivers a notice of termination within such ten (10) day (or shorter) period, then the provisions of Section 9 of this Agreement shall apply to such termination.

14.2 If, prior to a Closing Date, a Casualty (as hereinafter defined) occurs, then (i) Sellers shall notify Purchaser of such fact and provide reasonably detailed information with respect thereto, (ii) Purchaser shall not have any right or option to terminate this Agreement and this Agreement shall continue in full force and effect, (iii) at such Closing, Purchaser shall continue to Purchase the Interests or the applicable Component of the Interests that is the subject of such Closing (notwithstanding the occurrence of such Casualty) in the then “as is” condition; provided , that, the Unadjusted Purchase Price shall be reduced by an amount equal to (x) the amount of any such Casualty proceeds collected by any of the Sellers or the Subsidiary Companies, plus (y) the amount of any deductible on such casualty insurance policy minus (z) any Casualty proceeds or other funds expended by any of the Sellers or the Subsidiary Companies toward restoration or repair of the Premises, and (iv) at such Closing, the applicable Seller or the applicable Subsidiary Company, as applicable, shall assign and turn over to Purchaser, and Purchaser shall be entitled to receive and keep, all of such Seller’s or such Subsidiary Company’s, as applicable, interest in and to all awards for such Casualty not collected before closing; provided , however , notwithstanding the foregoing, if prior to a Closing Date one or more Casualty occurs and the same shall, individually or in the aggregate, have a Material Adverse Effect, then Purchaser shall have the right, in its sole discretion, but subject to Section 4.3 , to terminate this Agreement (in accordance with this Section 14.2 ) solely with respect to such Component of the Interests that have not been conveyed to Purchaser pursuant to a prior Closing by delivering notice of such termination to Sellers on or before the earlier of the applicable Closing Date or the date ten (10) days after Purchaser receives such notice from Sellers. In the event that Purchaser fails to exercise such termination right within such ten (10) day (or shorter)

period, Purchaser shall be deemed to have waived such termination right, in which event (x) Purchaser shall not have any right or option to terminate this Agreement with respect to such Casualty and this Agreement shall continue in full force and effect, (y) at the applicable Closing, Purchaser shall accept the Interests (notwithstanding the occurrence of such Casualty) in the then “ as is ” condition and otherwise pursuant to the terms of this Section 14.2 as if such Casualty did not result in a Material Adverse Effect. In the event that Purchaser delivers a notice of termination within such ten (10) day (or shorter) period, then the provisions of Section 9 of this Agreement shall apply to such termination.

14.3 Notwithstanding anything to the contrary set forth in this Section 14 , Sellers shall have no obligation to repair any damage or destruction to the Premises (or any portion thereof) caused by any Casualty or to otherwise restore the Premises (or any portion thereof) after any Taking, and Sellers shall have no other obligation or liability of any kind, type, character or nature in respect of any Casualty or Taking affecting the Premises (or any portion thereof).

14.4 As used herein, the following terms shall have the following meanings:

“ Casualty ” means the destruction of all or a portion of the Premises by fire or other casualty.

“ Taking ” means any taking of any portion of the Premises by condemnation or eminent domain.

14.5 WITH RESPECT TO THOSE PORTIONS OF THE PREMISES SITUATED IN THE STATE OF NEW YORK, THIS SECTION 14 IS AGREED TO BE AN EXPRESS PROVISION TO THE CONTRARY PURSUANT TO SECTION 5-1311 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED FROM TIME TO TIME, AND, ACCORDINGLY, PURCHASER AND SELLER AGREE THAT THE UNIFORM VENDOR AND PURCHASER RISK ACT EMBODIED IN SAID STATUTE SHALL HAVE NO APPLICATION TO THIS AGREEMENT.

15. Escrow.

15.1 Escrow Agent shall deposit the Deposit in an interest bearing money market escrow account at Bank of America (“ BOA ”) in the name of Commonwealth Land Title Insurance Company, as holder for Purchaser and whose Taxpayer Identification Number is 81-2512907.

15.2 If a Closing takes place, Escrow Agent shall deliver the Downpayment in accordance with the Closing Statement.

15.3 If Purchaser or a Seller terminates this Agreement pursuant to the provisions of Section 9 of this Agreement or if a Closing does not take place under this Agreement by reason of the failure of Purchaser or a Seller to comply with Purchaser’s or such Seller’s obligations, as applicable, hereunder, then Escrow Agent shall pay the Downpayment as required by the terms of this Agreement; provided , however , that notwithstanding the foregoing, Escrow Agent shall not pay over the Downpayment to any party hereunder unless and until the following procedure is complied with:

(a) the party requesting disbursement of the Downpayment (the “ Requesting Party ”) shall deliver notice to Escrow Agent and the other party hereto requesting such disbursement;

(b) within five (5) days after receipt of such notice of request, Escrow Agent shall deliver notice to all other parties hereto stating that the Requesting Party has requested such disbursement (and including a copy of the Requesting Party’s notice);

(c) within ten (10) days after receipt of Escrow Agent’s notice, the non-requesting party shall either (i) agree to permit such disbursement by Escrow Agent, or (ii) inform Escrow Agent that the non-requesting party does not agree to permit such disbursement;

(d) if the non-requesting party acts under clause (i) of Section 15.3(c) then Escrow Agent shall make the disbursement as requested by the Requesting Party;

(e) if the non-requesting party acts under clause (ii) of Section 15.3(c) , then Escrow Agent shall not make any disbursement except as provided in Section 15.5 of this Agreement; and

(f) if the non-requesting party fails to respond during the foregoing ten (10) day period, same shall be deemed to be the response of the non-requesting party under clause (i) of Section 15.3(c) on the last day of such ten (10) day period.

15.4 It is agreed that:

(a) the duties of Escrow Agent are only as herein specifically provided and are purely ministerial in nature, and Escrow Agent shall incur no liability except by reason of its willful misconduct, gross negligence or willful disregard of the terms of this Agreement, as long as Escrow Agent has acted in good faith;

(b) in the performance of Escrow Agent’s duties hereunder, Escrow Agent shall be entitled to rely upon any document, instrument or signature believed by it to be genuine and signed by either or both of Purchaser and any Seller or their respective successors;

(c) Escrow Agent may assume that any Person purporting to give any notice or instructions in accordance with the provisions hereof has been duly authorized to do so;

(d) Escrow Agent shall not be bound by any modification, cancellation or rescission of this Agreement unless in writing and signed by Sellers and Purchaser, and to the extent such modification, cancellation or rescission of this Agreement would affect Escrow Agent’s rights or obligations under this Agreement, by Escrow Agent;

(e) Escrow Agent shall not be responsible for any levies imposed by taxing authorities based upon the taxpayer identification number used to establish the interest bearing money market escrow account; and

(f) Sellers and Purchaser shall jointly and severally reimburse and indemnify Escrow Agent for, and hold Escrow Agent harmless against, any and all loss, liability, costs or expenses in connection herewith, including reasonable attorneys’ fees and disbursements, incurred without willful misconduct, gross negligence or willful disregard of the terms of this Agreement on the part of Escrow Agent arising out of or in connection with Escrow Agent’s acceptance of, or the performance of Escrow Agent’s duties and obligations under, this Agreement and liability resulting from the depositing of the Downpayment with BOA, including, but not limited to, failure, insolvency or inability of BOA to pay the Downpayment or accrued interest on demand for withdrawal as well as any delay in conversion, disbursement or reinvestment, as well as the reasonable out-of-pocket costs and expenses of defending against any claim or

liability arising out of or relating to this Agreement, except to the extent that it is determined that Escrow Agent was guilty of gross negligence, willful misconduct or willful disregard of the terms of this Agreement.

15.5 Escrow Agent is acting as a stake-holder only with respect to the Downpayment. If there is any dispute as to whether Escrow Agent is obligated to deliver all or any portion of the Downpayment or as to whom the proceeds of the Downpayment are to be delivered, Escrow Agent shall not be required to make any delivery, but in such event Escrow Agent shall hold the Downpayment until receipt by Escrow Agent of an authorization in writing, signed by all of the parties having any interest in such dispute, directing the disposition of the Downpayment, or, in the absence of such authorization, Escrow Agent shall hold the Downpayment, until the final determination of the rights of the parties in an appropriate proceeding. If such written authorization is not given, or proceedings for such determination have not begun within ninety (90) days after the date Escrow Agent receives written notice of such dispute, and thereafter diligently continued, Escrow Agent may, but is not required to, bring an appropriate action or proceeding for leave to deposit the Downpayment in court, pending such determination. Escrow Agent shall be reimbursed for all costs and expenses of such action or proceeding including, without limitation, reasonable attorneys’ fees and disbursements, by the party determined not to be entitled to the Downpayment, or if the Downpayment is split between the parties hereto, such costs of Escrow Agent shall be split, pro rata , between Sellers and Purchaser, based upon the amount of Downpayment received by each. Upon making delivery of the Downpayment, in the manner provided in this Agreement, Escrow Agent shall have no further liability hereunder.

15.6 Escrow Agent has executed this Agreement solely to confirm (i) that Escrow Agent will promptly provide notice to Sellers and Purchaser upon receipt of the Deposit and (ii) that Escrow Agent, upon receipt thereof, will hold the Downpayment in escrow, pursuant to the provisions of this Agreement.

16. Closing Costs.

Purchaser shall pay (a) to the appropriate Governmental Authority, fifty percent (50%) of any and all Transfer Taxes, (b) if Purchaser elects to obtain title insurance with respect to one or more Properties, all title insurance premiums (including, without limitation, any and all premiums charged by the Title Company for endorsements and affirmative coverages to the title policy and the title policy of any lender to Purchaser (or any of the Subsidiary Companies) and all other title insurance company charges and all survey costs with respect to such Properties in connection with the transaction contemplated by this Agreement, (c) fifty percent (50%) of any escrow fees charged by Escrow Agent, (d) all due diligence costs, (e) fifty percent (50%) all recording and filing fees and charges for the documentation to be recorded or filed in connection with the transactions contemplated by this Agreement, (f) one hundred percent (100%) of all Loan Assumption Fees in connection with Purchaser’s assumption of the Assumed Loans pursuant to Section 12 of this Agreement and (g) one hundred percent (100%) of all premiums due and payable in connection with the Representations and Warranties Insurance Policy. Sellers shall pay (i) fifty percent (50%) of any escrow fees charged by Escrow Agent, (ii) fifty percent (50%) all recording and filing fees and charges for the documentation to be recorded or filed in connection with the transactions contemplated by this Agreement, and (iii) fifty percent (50%) of any and all Transfer Taxes. Sellers shall provide Purchasers with draft copies of all Transfer Tax Documents ten (10) days prior to the applicable Closing Date for Purchaser’s review and comment. Sellers agree to consider in good faith Purchaser’s comments regarding any Transfer Tax Documents submitted for Purchaser’s review. Purchaser shall be responsible for filing all Transfer Tax Documents. If Purchaser, within seven (7) days after delivery of any such Transfer Tax Return, notifies Sellers that it objects to any item in such Document, the parties shall attempt in good faith to resolve the dispute and, if they are unable to do so, any disputed item shall be resolved (within a reasonable time, taking into account the deadline for

filing such Transfer Tax Return) by an internationally recognized independent accounting firm chosen by both Purchaser and Sellers. The costs, fees and expenses of such accounting firm shall be borne equally by Purchaser and Sellers, and the accounting firm’s determination shall be binding on the parties for purposes of filing such Transfer Tax Documents. Except as expressly provided above, each party hereto shall pay such party’s own legal fees and all of such party’s other expenses in connection with the transactions contemplated in this Agreement. The provisions of this Section 16 shall survive each Closing or any earlier termination of this Agreement.

17. Sellers’ Covenants.

Sellers agree as follows:

17.1 Conduct of Business . Between the Effective Date and each Closing Date or earlier termination of this Agreement, Sellers will and will cause, in each such case, to the extent within Sellers’ power and control, each Subsidiary Company to, except as otherwise contemplated by this Agreement or required by applicable law, conduct its business and operations in the ordinary course of business reasonably consistent with past practices and provide or cause to be provided by Sellers or the Subsidiary Companies such services with respect to the Premises that have been provided by Sellers or the Subsidiary Companies in the past in accordance with Sellers’ or the Subsidiary Companies’, as applicable, customary practice, in each such case, so long as any deviation from past practice is not material, taking into account the facts and circumstances in existence from time to time (including, without limitation, emergency situations at the Premises, material changes in market conditions and actions or omissions taken in satisfaction of Sellers’ obligations hereunder).

17.2 Insurance . Between the Effective Date and each Closing Date or earlier termination of this Agreement, Sellers or the Subsidiary Companies, as applicable, will maintain casualty and liability insurance with respect to the Premises (which insurance may be effected under a blanket policy or policies of insurance) substantially in accordance with the ordinary course of business and the applicable Sellers’ or the applicable Subsidiary Companies’, as applicable, past practice.

17.3 Information . The Subsidiary Companies shall maintain all books and records relating to the Premises in the ordinary course of Sellers’ business. Between the Effective Date and each Closing Date or earlier termination of this Agreement, subject to Section 34 of this Agreement, Sellers will make all books, records, billing information, Leases, Contracts, Home Contracts and other documents relating to the operation of the Premises available to Purchaser and Purchaser’s accountants and attorneys, upon advance written request therefor, and will permit Purchaser’s accountants and attorneys to examine the same, during regular business hours, at Purchaser’s sole cost and expense, provided , however , notwithstanding the foregoing, Sellers shall not be required to make available to Purchaser any of the foregoing to the extent that same constitutes (i) privileged information pertaining to any potential or existing litigation or other proceeding or (ii) confidential or proprietary information prepared by any Seller or any of the Subsidiary Companies pertaining to the Premises, the Interests and/or the Assumed Loans (including, without limitation, internal evaluations, appraisals, reports or other documentation and information pertaining to the business relationships among the members comprising any Seller). The making available to Purchaser of the foregoing shall in no event be deemed to constitute a representation by any Seller as to the accuracy, correctness or completeness thereof.

17.4 Inspections . Between the Effective Date and each Closing Date or earlier termination of this Agreement, subject to the rights of all tenants and other occupants of the Premises, Sellers or the Subsidiary Companies, as applicable, will permit Purchaser and Purchaser’s engineers, at Purchaser’s sole cost and expense, to inspect, in strict compliance with all applicable laws, the Premises and all portions

thereof from time to time upon reasonable advance request therefor and accompanied by a representative of the applicable Seller or the applicable Subsidiary Companies; provided , however , Purchaser will not be permitted to perform any such inspection unless and until Purchaser delivers to the applicable Seller reasonably satisfactory evidence that Purchaser has obtained such insurance as such Seller shall reasonably require in connection with any such inspection, which insurance shall name such Seller, the applicable Subsidiary Companies and such Seller’s managing agent/manager as additional insureds (it being agreed by Purchaser that such insurance shall include (i) policies of workers’ compensation and employers’ liability for all employees of Purchaser, (ii) commercial general liability insurance which insure Purchaser (and Purchaser’s directors, officers, lenders, employees, agents, counsel, consultants, engineers and representatives (collectively, “ Purchaser’s Representatives ”) engaged or otherwise involved in the conduct of such due diligence) with liability insurance limits of not less than $3,500,000 combined single limit per occurrence and in the aggregate for personal injury and property damage, coverage shall be on a per location/project basis and shall be primary and noncontributory, and (iii) professional errors and omissions and contractors pollution liability coverage of not less than $3,500,000 per claim/annual aggregate for any of Purchaser’s environmental consultants). Each insurance policy shall also provide that it may not be canceled or modified without at least thirty (30) days’ prior written notice to the applicable Seller, except ten (10) days’ notice in the event of non-payment of premium. In no event shall Purchaser be permitted to conduct any drilling or other invasive testing of the Premises (or any portion thereof) without the prior written consent of the applicable Seller in its sole and absolute discretion (and, if such consent is given, Purchaser shall be obligated to pay to such Seller on demand the cost of repairing and restoring any borings or holes created or any other damage resulting from such invasive testing). Purchaser hereby agrees to repair and restore any portion of the Premises damaged as a result of any inspection of the Premises by Purchaser and, in addition, hereby indemnifies, defends and holds harmless each Seller, the Subsidiary Companies and each Seller Exculpated Party from and against any and all reasonable out-of-pocket damages, demands, claims, losses, liabilities, injuries, liens, judgments, fines, penalties, costs (including, without limitation, the cost of remediation, if necessary) and expenses (including, without limitation, reasonable out-of-pocket attorneys’ fees and disbursements and costs incurred in the enforcement of the foregoing indemnity) actually incurred by any Seller, any of the Subsidiary Companies and any Seller Exculpated Party by reason of Purchaser’s or Purchaser’s Representatives’ entry onto, or inspection of, the Premises, which indemnity shall survive the Final Closing or earlier termination of this Agreement. Purchaser and Purchaser’s Representatives shall keep the Premises free and clear of any and all mechanics’ and materialmen’s liens and other liens, encumbrances and claims arising out of any of Purchaser’s and/or Purchaser’s Representatives’ entry onto, and inspections and other evaluations of, the Premises as set forth herein. Notwithstanding the foregoing or anything to the contrary set forth herein, in the event that Purchaser shall become entitled under any other provision of this Agreement to a return of the Downpayment and, at such time, any repair or restoration cost of Purchaser pursuant to this Section 17.4 remains outstanding, then the amount of any such outstanding repair or restoration cost shall be withheld from the Downpayment and promptly paid to the applicable Seller by Escrow Agent before any remaining balance of the Downpayment is returned to Purchaser (and, for the avoidance of doubt, the foregoing provisions shall survive the termination of this Agreement).

17.5 Repair and Maintenance . Between the Effective Date and each Closing Date or earlier termination of this Agreement, Sellers or the applicable Subsidiary Companies, as applicable, will cause to be performed all normal operational repairs required to be made to the Premises in order to maintain the Premises substantially in the condition of the Premises as of the Effective Date, reasonable wear and tear and natural deterioration and damage by fire or other casualty or condemnation excepted, provided that the foregoing shall not have the effect of requiring any Seller or any of the Subsidiary Companies, as applicable, to make any repairs, replacements or improvements of a capital nature to the Premises (or any portion thereof).

17.6 Tax Matters . Except as otherwise contemplated by this Agreement, between the date of this Agreement and the applicable Closing Date, without the prior consent of Purchaser, none of the Sellers will cause any Subsidiary Company to make, rescind, or revoke any Tax election, settle or compromise any income Tax liability, or amend any Return.

17.7 Employees . Between the Effective Date and each Closing Date, no Subsidiary Company shall hire any employee.

17.8 Assumed Loans . Between the Effective Date and each Closing Date, (a) Seller shall make the debt service payments required under the Assumed Loan Documents or cause such debt service payments to be made and otherwise comply with the borrower’s monetary obligations thereunder in all material respects, (b) Sellers shall not make any voluntary prepayments of principal under any of the Assumed Loans or allow any voluntary prepayments of principal under any of the Assumed Loans to be made; and (c) other than in connection with the satisfaction of the Loan Assumption Condition, without Purchaser’s consent (not to be unreasonably withheld, conditioned or delayed), Sellers shall not amend or modify any of the Assumed Loan Documents other than as may be required or permitted herein or allow such Assumed Loan Documents to be amended or modified other than as may be required or permitted herein.

17.9 Zoning . Between the Effective Date and each Closing Date, no Seller, Subsidiary Company or Real Estate Owner shall apply for or consent to any zoning change, variance, subdivision, lot line adjustment or similar change with respect to any of the Properties.

17.10 Conduct of Business Prior to the Closing . Sellers and the Subsidiary Companies covenant and agree that, during the period from the Effective Date through the Closing Date, except to the extent required by law and as may be required or expressly permitted pursuant to this Agreement (including without limitation, Section 18 hereof), Sellers shall not, and shall not cause or permit any of the Subsidiary Companies to do any of the following without the consent of Purchaser:

(a) other than in connection with the acquisition of Snowbird Concessions, Inc. as set forth in Section 49 or the transactions contemplated in this Agreement, amend or propose to amend any organizational documents of the Subsidiary Companies other than to provide for de minimis changes to such organizational documents;

(b) split, combine, reclassify or subdivide any equity securities or ownership interests of any Subsidiary Company;

(c) declare, set aside or pay any dividend on or make any other distributions (whether in stock, equity interests, property or otherwise) with respect to the equity securities or ownership interests of the Subsidiary Companies;

(d) redeem, repurchase or otherwise acquire, directly or indirectly, any equity securities or ownership interests of any Subsidiary Company;

(e) issue, sell, pledge, dispose, encumber or grant any equity securities or ownership interests of any Subsidiary Company, or any options, warrants, convertible securities or other rights of any kind to acquire any equity securities or ownership interests of any Subsidiary Company;

(f) acquire or agree to acquire (including by merger, consolidation or acquisition of stock or assets) any real property, personal property (other than personal property at a total

cost of less than One Million and 00/100 Dollars ($1,000,000.00) in the aggregate), intellectual property, corporation, partnership, limited liability company, other business organization or any division or material amount of assets thereof;

(g) divest, sell, pledge, assign, transfer, dispose of or encumber, or effect a deed in lieu of foreclosure with respect to, any portion of the Real Property;

(h) make to any third party, any loans or advances to, or investments in, any other Person (including to any of its officers, directors, employees, Affiliates, agents or consultants) in excess of One Million and 00/100 Dollars ($1,000,000.00) in the aggregate for all such loans and advances, or make any change in its existing borrowing or lending arrangements for or on behalf of such Persons, other than by Sellers and/or Subsidiary Companies;

(i) incur, assume or guarantee any indebtedness other than (a) pursuant to the Existing Contracts and (b) indebtedness in an amount not to exceed One Million and 00/100 Dollars ($1,000,000.00) in the aggregate (which Indebtedness is permitted to be repaid in connection with the Closing (and any liens securing such Indebtedness released upon such repayment in full));

(j) settle, pay, discharge, satisfy or compromise any pending or threatened action, other than with respect to claims relating solely to monetary damages (including any claims that are covered by insurance);

(k) fail to use its commercially reasonable efforts to maintain in full force and effect the existing insurance policies or to replace such insurance policies with substantially equivalent policies covering the Sellers, the Subsidiary Companies and the Properties;

(l) cause a Subsidiary Company to enter into any new line of business;

(m) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization, bankruptcy or other method of reorganization or resolutions providing for or authorizing such merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization, bankruptcy or other method of reorganization; or

(n) authorize or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.

17.11 No Shop . Between the date hereof and earlier of (i) the Closing Date with respect to all of the Component of the Interests, (ii) the termination of this Agreement in its entirety and (iii) the date that is six (6) months after the Effective Date (such earlier date, the “ Exclusivity Expiration Date ”), none of the Sellers, the Subsidiary Companies or any of their Affiliates shall solicit any proposals or offers regarding, continue or enter into discussions or negotiations with respect to, or enter into or consummate any agreement or understanding in connection with any proposal regarding, any purchase or other acquisition of all or any portion of the assets or properties of any of the Subsidiary Companies (other than the sale of products or services in the ordinary course of business consistent with past practices) or any equity securities or interests (whether newly issued or currently outstanding) of any of the Subsidiary Companies, any merger, business combination or recapitalization involving any of the Subsidiary Companies, the liquidation, dissolution or reorganization of any Subsidiary Company, or any similar transaction, and the Sellers and the Subsidiary Companies shall cause each Subsidiary Company’s and Affiliates’ directors, officers, employees,

agents, representatives to refrain from any of the foregoing. If the First Equity Interest Closing has occurred, then the Exclusivity Expiration Date shall be extended until the Outside Closing Date.

18. Contracts, Leasing and Other Matters.

18.1 Notwithstanding anything to the contrary set forth in this Agreement (including, without limitation, Section 17 hereof), from and after the Effective Date through the earlier of each Closing Date or the termination of this Agreement in accordance with the terms hereof, each Seller and the applicable Subsidiary Companies shall each have the unfettered right and power (but not the obligation), without the consent of Purchaser, in the exercise of each such parties’ respective business judgment in the ordinary course of business reasonably consistent with past practices, in each such case, so long as any deviation from past practice is not material, taking into account the facts and circumstances in existence from time to time (including, without limitation, emergency situations at the Premises, material changes in market conditions and actions or omissions taken in satisfaction of Sellers’ obligations hereunder) to, among other things:

(a) (i) Terminate, amend, modify, renew, extend or accept cancellation of, any Existing Leases, (ii) enter into new Leases and (iii) terminate, amend, modify, renew, extend or accept cancellation of, any new Leases; provided that the applicable Seller shall deliver a copy of any such termination, amendment, modification, renewal or extension or any such new Lease, as applicable, to Purchaser promptly after the execution thereof by the applicable Subsidiary Company and upon such execution and delivery, the same shall be deemed to be a “Lease Amendment” or “New Lease”, as the case may be, for purposes of this Agreement.

(b) (i) Enter into, execute and deliver (I) any amendment, modification, renewal, extension or termination of any Home Contract or II) any new Home Contract affecting any Subsidiary Company or any portion of the Premises, (ii) accept or obtain title to a manufactured home from a borrower or other counterparty under a Home Contract in exchange for a full or partial release under the Home Contract securing same, (iii) originate loans or other financing arrangements for manufactured homes and (iv) institute proceedings to foreclose on manufactured homes, recreational vehicles and mobile homes that are security collateral under Home Contracts, effectuate such foreclosures and exercise any remedies available under the loan documents related to such Home Contracts, at law or in equity; provided that the applicable Seller shall deliver a copy of any such amendment, modification, renewal, extension, termination, any such new Home Contract or other document, as applicable, to Purchaser promptly after the execution thereof by the applicable Subsidiary Company and upon such execution and delivery, the same shall be deemed to be a “Home Contract Amendment” or “New Home Contract”, as the case may be, for purposes of this Agreement.

(c) (i) Purchase manufactured homes, recreational vehicles and mobile homes for and at the Premises (whether pursuant to an obligation under a Repurchase Agreement or otherwise), (ii) sell manufactured homes, recreational vehicles and mobile homes for and at the Premises and (iii) enter into lease-to-own arrangements with tenants with respect to manufactured homes, recreational vehicles and mobile homes at the Premises.

(d) Where not prohibited by law, contract or otherwise, Sellers shall increase rents for the year 2016 for those Real Properties where they have not yet increased rent.

18.2 Contracts . Without Purchaser’s prior consent, which consent shall not be unreasonably withheld, between the Effective Date and the Closing Date, Sellers shall not enter into, extend, renew, replace or modify any contract (other than Leases, which are addressed in Section 18.1 above or Contracts) that has an aggregate annual payment in excess of One Million and 00/100 Dollars ($1,000,000.00) unless such contract (i) as so entered into, extended, renewed, replaced or modified, is

terminable by the owner of the Property without penalty on not more than thirty (30) days’ advance notice, (ii) is a contract that automatically renews or extends by its terms for a period not to exceed ninety (90) days, or (iii) is a contract for waste services or cable services and such contract automatically renews by its terms for a period not to exceed one (1) year.

18.3 Termination of Management Agreements . As of each Closing Date, each Seller shall terminate (or cause to be terminated) and satisfy all obligations of the applicable Subsidiary Companies under their respective property management agreements.

18.4 No Homes Removed . From the Effective Date through the Closing Date, neither Sellers nor Affiliates of Sellers shall remove any manufactured homes from any Property (other than to another Property); provided , that, Sellers and Affiliates of Sellers shall be permitted to sell and demolish homes in accordance with past business practices (the parties acknowledging and agreeing that Purchaser shall not receive a credit against the Purchase Price at Closing for any demolished homes and any credit for sold homes shall be governed by Section 6.13(a)(v) ).

18.5 No Sale of MH Notes . From the Effective Date through the Closing Date, neither Seller nor any Subsidiary Company shall cause or permit to be caused the sale, assignment, transfer or disposal of any Home Contract.

19. Exculpation.

Notwithstanding anything to the contrary contained in this Agreement:

19.1 Purchaser acknowledges and agrees that no director, officer, employee, shareholder, member, manager, partner or agent of Sellers or any of the Subsidiary Companies nor any of the directors, officers, employees, shareholders, members, managers, partners, joint venturers or agents of any of the directors, officers, employees, shareholders, members, managers, partners, joint venturers or agents of Sellers, the Subsidiary Companies nor any other Person, as principal of ant Seller or any of the Subsidiary Companies, whether disclosed or undisclosed (collectively, the “ Seller Exculpated Parties ”) shall have any personal obligation or liability whatsoever hereunder, and Purchaser (i) shall not seek to (a) assert (and hereby unconditionally and irrevocably waives) any claim or cause of action of any kind, type, character or nature whatsoever that Purchaser may now or hereafter have against the Seller Exculpated Parties or (b) enforce any of Purchaser’s rights hereunder against any Seller Exculpated Party and (ii) hereby unconditionally and irrevocably releases and discharges the Seller Exculpated Parties from and any all liability whatsoever which may nor or hereafter accrue in favor of Purchaser against any Seller Exculpated Party in connection with or arising out of this Agreement or the transactions contemplated hereby.

19.2 Sellers acknowledge and agree that no director, officer, employee, shareholder, member, manager, partner or agent of Purchaser nor any of the directors, officers, employees, shareholders, members, managers, partners, joint venturers or agents of any of the directors, officers, employees, shareholders, members, managers, partners, joint venturers or agents of Purchaser nor any other Person, as principal of Purchaser, whether disclosed or undisclosed (collectively, the “ Purchaser Exculpated Parties ”) shall have any personal obligation or liability whatsoever hereunder, and Sellers (i) shall not seek to (a) assert (and hereby unconditionally and irrevocably waive) any claim or cause of action of any kind, type, character or nature whatsoever that Sellers may now or hereafter have against the Purchaser Exculpated Parties or (b) enforce any of Sellers’ rights hereunder against any Purchaser Exculpated Party and (ii) hereby unconditionally and irrevocably release and discharge the Purchaser Exculpated Parties from and any all liability whatsoever which may nor or hereafter accrue in favor of Sellers against any

Purchaser Exculpated Party in connection with or arising out of this Agreement or the transactions contemplated hereby.

20. Sellers’ Default.

Subject to the provisions of Sections 19 and 37 of this Agreement, if any Seller shall default under this Agreement in any material respect and a Closing does not occur, then Purchaser, as Purchaser’s sole and exclusive remedy (Purchaser specifically waiving any right to bring an action for monetary damages, including, without limitation, consequential, speculative or punitive damages), may either:

20.1 deliver written notice to Sellers that Purchaser elects to terminate this Agreement, in which event the provisions of Section 9 of this Agreement shall apply to such termination; or

20.2 provided that Purchaser is not otherwise in default under this Agreement, bring an action against a Seller to seek specific performance of such Seller’s obligations hereunder within thirty (30) days following the earlier of (x) the applicable Scheduled Closing Date or (y) the date of Seller’s breach. Such action for specific performance will not be construed to require any Seller to cure any title defect, cure any untrue representation, comply with any covenant hereunder, cure any physical condition (including, without limitation, any structural condition) existing at the Premises, or cause any third party to take any action with respect to the Interests, the Premises, the Subsidiary Companies or Sellers.

If Purchaser believes that a Seller has defaulted as aforesaid prior to the applicable Closing Date, then Purchaser shall be required to elect one (1) of the remedies set forth in either Section 20.1 or Section 20.2 prior to the applicable Closing Date and if Purchaser fails to make such an election within such time period same shall conclusively mean that Purchaser has determined to proceed under Section 20.1 of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, in the event that Purchaser becomes aware that a Seller has defaulted in any respect under this Agreement prior to the applicable Closing Date and nonetheless proceeds to such Closing, then same shall be deemed to be a waiver by Purchaser of any further right to make a claim arising out of such default. For the avoidance of doubt, Purchaser and Sellers acknowledge that a breach of Sellers’ Representations that is alleged by Purchaser under this Agreement shall not be deemed to fall within this Section 20 (it being acknowledged that Purchaser’s remedies in respect thereof are as set forth in Section 11 of this Agreement). If the Closing shall not occur by reason of a willful and intentional failure of Sellers to consummate the Closing in accordance with the terms of this Agreement, and Purchaser elects to terminate this Agreement in accordance with the terms hereof, in addition to all of the other remedies set forth herein, Sellers shall reimburse Purchaser within ten (10) Business Days after demand therefor for the expenses incurred by Purchaser in connection with the negotiation of this Agreement and the due diligence performed in connection with the Premises; provided that such payment obligation of Sellers shall not exceed Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00) to reimburse Purchaser for such expenses. This Section 20 shall survive any termination of this Agreement.

21. Condition of Premises.

21.1 Except as otherwise expressly provided in this Agreement, Purchaser acknowledges that the applicable Subsidiary Companies shall own the Premises at the applicable Closing in an “as is”, “where is” condition with all faults as of such Closing Date. Purchaser agrees that, except as expressly set forth herein, Sellers shall not be liable for any construction, latent or patent defects in the Premises, and shall not be bound in any manner whatsoever by any guarantees, promises, projections, forecasts, operating expenses, set-ups or other information pertaining to the Premises made, furnished or claimed to have been made or furnished by any Seller, the Subsidiary Companies or any other Person, including,

without limitation, GS (as hereinafter defined), or any partner, member, manager, shareholder, employee, agent, attorney or other Person representing or purporting to represent any Seller, the Subsidiary Companies or GS, whether verbally or in writing. Purchaser acknowledges that, except as expressly set forth in this Agreement, neither Sellers, the Subsidiary Companies nor any of the employees, agents or attorneys of Sellers, the Subsidiary Companies have made any verbal or written representations or warranties whatsoever to Purchaser, whether express, implied, statutory, or by operation of law, and, in particular, that no such representations and warranties have been made with respect to the Interests, the physical or environmental condition or operation of the Premises, the layout or footage of the Premises, the actual or projected revenue and expenses of the Premises or any of the Leases, zoning, environmental, and other laws, regulations and rules applicable to the Premises, or the compliance of the Premises therewith, the quantity, quality or condition of the articles of personal property and fixtures included in the transactions contemplated hereby, the use or occupancy of the Premises or any part thereof or any other matter or thing affecting or relating to the Premises or the transactions contemplated hereby, except as specifically set forth in this Agreement. Purchaser has not relied and is not relying upon any representations or warranties, other than Sellers’ Representations set forth in Section 11.1, the representations of each Seller set forth in Section 33.2 of this Agreement, and any other representations and warranties made by Sellers in this Agreement, or upon any statements made in any informational materials with respect to the Interests and/or the Premises provided by any Seller, the Subsidiary Companies or any other Person, including GS or any shareholder, member, manager, employee, agent, attorney or other Person representing or purporting to represent any Seller, the Subsidiary Companies or GS. Without limitation of the foregoing, Purchaser specifically acknowledges and agrees that it has assumed the risk of changes in the condition of the Interests and the Premises between the Effective Date and each applicable Closing Date and no adverse change in such condition shall grant Purchaser any right to terminate this Agreement or to obtain any damages against any Seller, except as expressly set forth in this Agreement. IN ADDITION TO, AND WITHOUT LIMITATION OF THE FOREGOING, EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLERS MAKES NO WARRANTY, EXPRESS, IMPLIED, STATUTORY, OR BY OPERATION OF LAW, AS TO THE QUANTITY, QUALITY, MERCHANTABILITY, TITLE, MARKETABILITY, FITNESS, OR SUITABILITY FOR A PARTICULAR PURPOSE OF THE INTERESTS, THE PREMISES, AND THE INTERESTS ARE SOLD IN AND THE PREMISES ARE CONVEYED, IN, AN “AS IS”, “WHERE IS” CONDITION, WITH ALL FAULTS. BY EXECUTING THIS AGREEMENT, EXCEPT AS SET FORTH IN THIS AGREEMENT, PURCHASER AFFIRMS AND AGREES THAT (A) PURCHASER HAS NOT RELIED ON ANY SELLER’S SKILL OR JUDGMENT TO SELECT OR FURNISH THE INTERESTS, THE PREMISES OR ANY COMPONENT THEREOF FOR ANY PARTICULAR PURPOSE, (B) SELLERS MAKES NO WARRANTY THAT THE INTERESTS, THE PREMISES OR ANY COMPONENT THEREOF ARE FIT FOR ANY PARTICULAR PURPOSE, (C) THERE ARE NO REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED, STATUTORY, OR BY OPERATION OF LAW, WITH RESPECT TO THE INTERESTS, THE PREMISES OR ANY COMPONENT THEREOF, (D) PURCHASER HAS BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PREMISES AND EACH COMPONENT THEREOF AND THE DOCUMENTATION RELATING TO THE INTERESTS AND HAS DETERMINED TO PURCHASE THE INTERESTS BASED ON SUCH INSPECTION, AND (E) UPON EACH CLOSING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, ON SUCH CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED, AND RELEASED SELLERS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING, WITHOUT LIMITATION, CAUSES OF ACTION IN TORT, LOSSES, DAMAGES, LIABILITIES, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS’

FEES AND COURT COSTS)) OF ANY AND EVERY KIND, TYPE, NATURE OR CHARACTER, KNOWN OR UNKNOWN, LIQUIDATED OR CONTINGENT, THAT PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST ANY SELLER AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES, OR MATTERS REGARDING THE PREMISES, THE INTERESTS, THE ASSUMED LOANS, OR THE SUBSIDIARY COMPANIES. Purchaser acknowledges and agrees that in no event shall Purchaser, any Subsidiary Company or any of their respective affiliates (i) institute a lawsuit or other proceeding based upon, arising out of, or relating to any of the claims, demands and/or causes of action waived, relinquished and released pursuant to this Agreement, (ii) join, participate, assist or otherwise cooperate in any such lawsuit or other proceeding or (iii) encourage, assist, facilitate and/or solicit any third party to institute, join, participate, assist or otherwise cooperate in any such lawsuit or other proceeding.

21.2 Without limiting the generality of the provisions of Section 21.1 of this Agreement, Purchaser specifically acknowledges and agrees as follows:

(a) Except as set forth in Section 11.1 , neither Sellers, the Subsidiary Companies, nor any other party acting (or purporting to act) on behalf of any Seller or any of the Subsidiary Companies, has made any (and each Seller and each of the Subsidiary Companies hereby disclaims any) representation or warranty of any kind, type, character or nature whatsoever concerning any environmental condition existing at the Premises;

(b) Sellers have delivered to Purchaser copies of the environmental reports listed on Exhibit BB (the matters stated therein being referred to as the “ Environmental Disclosed Matters ”); and

(c) Except as set forth in Section 11.1 , Purchaser acknowledges that the applicable Subsidiary Companies hold title to the Premises subject to, and Purchaser hereby releases Sellers and each Seller Exculpated Party from any liability of any kind, type, character or nature whatsoever arising with respect to, any and all environmental conditions thereat (or the presence of any matter or substance relating to any such environmental condition at the Premises), whether known or unknown, disclosed or undisclosed, including, without limitation, the Environmental Disclosed Matters, and any and all claims and/or liabilities relating to (in any manner whatsoever) any hazardous, toxic or dangerous materials or substances located in, at, about or under the Premises, or for any and all claims or causes of action (actual or threatened) based upon, in connection with or arising out of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., and the Superfund Amendments and Reauthorization Act, 42 U.S.C. §9601 et seq., or any other law or cause of action (including any federal or state based statutory, regulatory or common law cause of action) related to environmental matters or liability with respect to or affecting the Premises (any of the foregoing described in this clause (c) being referred to as “ Environmental Conditions ”) and, specifically, agrees that if any claim is brought against Purchaser arising out of any Environmental Condition Purchaser shall have no claim of any kind, type, character or nature whatsoever against any Seller or any Seller Exculpated Party.

21.3 PURCHASER, WITH PURCHASER’S COUNSEL, HAS FULLY REVIEWED THE DISCLAIMERS AND WAIVERS SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN THIS SECTION 21 , AND UNDERSTANDS THEIR SIGNIFICANCE AND EFFECT. PURCHASER ACKNOWLEDGES AND AGREES THAT THE DISCLAIMERS AND OTHER AGREEMENTS SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN THIS SECTION 21 , ARE AN INTEGRAL PART OF THIS AGREEMENT, AND THAT SELLERS WOULD NOT HAVE AGREED TO SELL THE INTERESTS TO PURCHASER FOR THE PURCHASE PRICE WITHOUT THE DISCLAIMERS AND OTHER AGREEMENTS SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH IN THIS SECTION 21 . THE TERMS AND CONDITIONS OF THIS SECTION 21 WILL EXPRESSLY SURVIVE EACH CLOSING AND WILL NOT MERGE WITH THE PROVISIONS OF ANY CLOSING DOCUMENTS.



Initials of Sellers:		Initials of Purchaser:
RL		LB

22. Notices.

All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as properly given or made (i) upon the date of personal delivery (if notice is delivered by personal delivery), (ii) on the date of delivery, as confirmed by electronic confirmation (if notice is delivered by electronic mail), (iii) on the day one (1) Business Day after deposit with a nationally recognized overnight courier service (if notice is delivered by nationally recognized overnight courier service), or (iv) on the third (3rd) Business Day following mailing from within the United States by first class United States mail, postage prepaid, certified mail return receipt requested (if notice is given in such manner), and in any case addressed to the parties at the addresses set forth below (or to such other addresses as the parties may specify by due notice to the other in accordance with this Section 22 ):

If to any Seller, to:

c/o NorthStar Realty Finance Corp.

399 Park Avenue, 18 ^th Floor

New York, New York 10022

Attention: General Counsel

Email: legal@nsamgroup.com

with a copy at the same time to:

c/o NorthStar Realty Finance Corp.

399 Park Avenue, 18th Floor

New York, New York 10022

Attention: Daniel Raffe and Sujan Patel

Email: raffe@nsamgroup.com and patel@nrfc.com

with an additional copy at the same time to:

Duval & Stachenfeld LLP

555 Madison Avenue, 6 ^th Floor

New York, New York 10022

Attention: Terri L. Adler, Esq. and File Manager

File No.: 3281.0090

Email: tadler@dsllp.com

If to Purchaser, to:

250 Vesey Street, 15th Floor
New York, New York 10281
Attention: Lowell Baron and Murray Goldfarb
Email: lowell.baron@brookfield.com & murray.goldfarb@brookfield.com

With a copy at the same time to:

Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza

New York, New York 10004
Attention: Joshua Mermelstein, Esq.
Email: joshua.mermelstein@friedfrank.com

If to Escrow Agent, to:

Commonwealth Land Title Insurance Company

685 Third Avenue, 20 ^th Floor

New York, New York 10017

Attention: Craig Feder, Esq.

Email: cfeder@cltic.com

23. Entire Agreement.

This Agreement contains all of the terms agreed upon by and between Purchaser and Sellers with respect to the subject matter hereof, and all agreements heretofore had or made by and between Purchaser and Sellers are merged in this Agreement which alone fully and completely expresses the agreement of Purchaser and Sellers with respect to the transaction set forth in this Agreement; provided , however , for the avoidance of doubt, the Confidentiality Agreement (as hereinafter defined) shall remain in full force and effect pursuant to, and in accordance with, the terms and provisions of Section 34 of this Agreement.

24. Amendments.

Subject to the provisions of Section 15.4(d) of this Agreement, this Agreement may not be changed, modified or amended, except by an instrument executed by the parties hereto who are or will be affected by the terms of such instrument.

25. No Waiver.

No waiver by either Purchaser or any Seller of any failure or refusal to comply with Purchaser’s or any Seller’s, as applicable, obligations under this Agreement shall be deemed a waiver of any other or subsequent failure or refusal to so comply.

26. Successors and Assigns.

The provisions of this Agreement shall inure to the benefit of, and shall be binding upon, the heirs, executors, administrators, successors and assigns of the respective parties hereto; provided , however , Purchaser may assign this Agreement and Purchaser’s rights hereunder to an Affiliate of Purchaser upon written notice to Sellers.

27. Partial Invalidity.

If any term or provision of this Agreement or the application thereof to any Person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to Persons or circumstances other than such Persons or circumstances as to which such term or provision is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.

28. Paragraph Headings.

The headings of the various paragraphs of this Agreement have been inserted only for the purposes of convenience, and are not part of this Agreement and shall not be deemed in any manner to modify, explain or restrict any of the provisions of this Agreement.

29. Governing Law.

This Agreement shall be governed by, and shall be interpreted, construed and enforced in accordance with, the laws of the State of New York, without regard to the rules regarding conflicts of law in such laws of such state.

30. Binding Effect.

This Agreement does not constitute an offer to sell and shall not bind any Seller unless and until such Seller, in such Seller’s sole discretion, elects to be bound hereby by executing and delivering to Purchaser an original counterpart hereof.

31. No Recording or Lis Pendens.

The parties hereto agree that neither this Agreement nor any memorandum or notice hereof shall be recorded, and Purchaser agrees not to file any lis pendens or other instrument against the Premises, the Interests or any of the Subsidiary Companies in connection herewith. In furtherance of the foregoing, Purchaser (i) acknowledges that the filing of a lis pendens or other evidence of Purchaser’s rights or the existence of this Agreement against the Premises, the Interests or any Subsidiary Company, could cause significant monetary and other damages to Sellers and (ii) hereby indemnifies each Seller (and each Seller Exculpated Party) from and against any and all liabilities, damages, losses, costs or expenses (including, without limitation, reasonable attorneys’ fees and costs incurred in the enforcement of the foregoing indemnification obligation) arising out of the breach by Purchaser of any of Purchaser’s obligations under this Section 31 . The provisions of this Section 31 shall survive the termination of this Agreement.

32. Prevailing Party to Receive Attorneys’ Fees.

In the event of any litigation arising out of this Agreement, the Prevailing Party (as hereinafter defined) shall be entitled to receive from the non-Prevailing Party an amount equal to the Prevailing Party’s costs incurred in such litigation, including, without limitation, the prevailing party’s attorneys’ fees, costs and disbursements. For purposes of this Section 32 , (a) the term “Prevailing Party” shall be deemed to be that party who obtains substantially the result sought, whether by settlement, mediation, judgment or otherwise, and (b) the term “attorneys’ fees” shall include, without limitation, the actual attorneys’ fees incurred in retaining counsel for advice, negotiations, suit, appeal and any other legal proceeding, including mediation and arbitration. The provisions of this Section 32 shall survive each Closing or any earlier termination of this Agreement.

33. Brokers

33.1 Purchaser represents and warrants that Purchaser has not dealt with any investment banker, financial advisor, broker, agent, finder or similar party in connection with the transaction contemplated hereby other than (a) Sellers’ financial advisor, Goldman, Sachs & Co. (collectively, “ GS ”) and (b) Royal Bank of Canada (“ RBC ”), and Purchaser hereby indemnifies and holds harmless Sellers

and each Seller Exculpated Party (as hereinafter defined) from any liability, cost or expense (including, without limitation, reasonable attorneys’ fees and costs of enforcement of the foregoing indemnity) arising out of the falsity of the foregoing representation. Purchaser agrees to pay RBC a commission due to RBC with respect to the transactions contemplated by this Agreement pursuant to a separate agreement.

33.2 Each Seller represents and warrants, for itself and for no other Seller, that such Seller has not dealt with any investment banker, broker, agent, finder or similar party in connection with the transaction contemplated hereby other than GS, and Sellers hereby indemnify and hold harmless Purchaser and each Purchaser Exculpated Party from any liability, cost or expense (including, without limitation, reasonable attorneys’ fees and costs of enforcement of the foregoing indemnity) arising out of the falsity of the foregoing representation. Sellers agree to pay GS a commission due with respect to the transactions contemplated by this Agreement pursuant to a separate agreement.

33.3 The provisions of this Section 33 shall survive each Closing or any earlier termination of this Agreement.

34. Confidentiality.

34.1 Purchaser acknowledges and agrees that the terms and provisions of that certain Confidentiality Agreement, dated as of February 22, 2016 (the “ Confidentiality Agreement ”), executed and delivered by BPG Acquisitions LLC shall be applicable in all respects to Purchaser and shall remain in full force and effect on and after the execution and delivery of this Agreement but shall terminate with respect to each Component of the Interests on the applicable Closing Date. In furtherance of the foregoing, any documents, instruments, records or other information delivered by Sellers (or any party on behalf of a Seller) to Purchaser pursuant to the provisions of this Agreement as well as this Agreement itself and the terms and provisions hereof shall be deemed confidential information for purposes of such Confidentiality Agreement subject to the terms thereof.

34.2

(a) Without the prior consent of the other party, neither any Seller nor Purchaser will disclose the terms of this Agreement (including, without limitation, the Purchase Price), any closing or other documents delivered pursuant to or related to this Agreement (including, without limitation, any agreements, certificates, instruments or other documents to be delivered at a Closing) or the transactions contemplated hereunder, or the identity of the parties hereto or their respective affiliates, to any person except (i) such disclosure as is required in any document to be filed with any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or in connection with any litigation; (ii) such disclosure as is required by court order or otherwise mandated by law, (iii) such disclosure as is required by any listing agreement with or the rules of any applicable securities exchange, trading market or listing authority, (iv) disclosure made to a party’s Representatives (as defined in the Confidentiality Agreement), officers, directors, partners, members, lenders, prospective investors, managers, affiliates (including, without limitation, any publicly traded company that owns a direct or indirect interest in a Seller or Purchaser), advisors and employees who require such information for the purpose of consummating the transactions contemplated by this Agreement; provided that such disclosures are made in accordance with, and are subject to, the provisions of the Confidentiality Agreement, and (vi) such disclosure as is required by law.

(b) Notwithstanding any other provision of this Agreement to the contrary, the parties agree that the filing by a Seller or Purchaser or any direct or indirect owner, member, partner, principal, affiliate, or related entity of a Seller or Purchaser (such party, for the purposes of this Section 34.2 , the “ Filing Party ”) of Form 8-K with the U.S. Securities and Exchange Commission shall be freely

permitted and shall not be deemed a breach of the provisions of this Section 34.2 ; provided , however , as early as is reasonably practicable, but at least Twenty-Four (24) hours prior to the filing of such Form 8-K, the Filing Party shall provide the non-filing party with a copy of such proposed Form 8-K for the non-filing party’s review in a timely manner and Sellers and Purchaser shall reasonably cooperate with respect to any proposed comments or revisions that are reasonably requested by a Seller or Purchaser (but in no event shall any modification, amendment, or deletion to such Form 8-K be required to made to the extent that the Filing Party determines that same would cause the Form 8-K to fail to comply with applicable laws, rules, regulations, or procedures applicable to a Seller or Purchaser or its respective direct or indirect owners, members, partners, principals, affiliates, or related entities).

(c) Any written press release to be issued by a Seller or Purchaser (or their respective direct or indirect owners, members, partners, principals, affiliates, or related entities), concerning this Agreement or the transactions contemplated by this Agreement, which names the other party (or an affiliate of the other party) shall require the prior written consent of Purchaser and Sellers, such consent not to be unreasonably withheld, conditioned or delayed.

34.3 The provisions of this Section 34 shall survive each Closing or any earlier termination of this Agreement.

35. Repurchase Obligations Acknowledgment.

35.1 As of the Effective Date, the recourse notes listed on Exhibit CC attached hereto and made a part hereof, repayment of which is secured by liens on certain manufactured homes located at certain Manufactured Home Communities (the “ Recourse Notes ”), are owned by 21 ^st Mortgage Corporation, a Delaware corporation (“ 21 ^st Mortgage ”), or Vanderbilt Mortgage & Finance, Inc., a Tennessee corporation (“ Vanderbilt Mortgage ”), subject to and in accordance with the terms of the applicable Repurchase Agreements. Sellers previously joined in the execution of the applicable Existing Repurchase Assignments, pursuant to which each Seller agreed to guaranty the obligations and covenants of certain subsidiaries of the applicable Seller under the applicable Existing Repurchase Assignments with respect to, among other things, the Repurchase Agreements and Recourse Notes (collectively, the “ Repurchase Guaranty Obligations ”).

35.2 In connection with the sale of the Interests to Purchaser, (a) Purchaser together with any of its assignees permitted under this Agreement (individually or collectively, the “ Repurchase Purchaser Entity ”) shall assume the Repurchase Guaranty Obligations from each Seller (it being agreed that if there is more than one Repurchase Purchaser Entity, then each Repurchase Purchaser Entity shall be jointly and severally liable for the Repurchase Guaranty Obligations), and (b) the Repurchase Purchaser Entity, Sellers and any other applicable parties to the Existing Repurchase Assignments shall enter into such documentation (each, an “ Assumption and Release Agreement ”) as may be necessary to (i) effectuate the assumption by the Repurchase Purchaser Entity of the Sellers’ Repurchase Guaranty Obligations under the Existing Repurchase Assignments, and (ii) release each Seller from the applicable Existing Repurchase Assignment and the corresponding Repurchase Guaranty Obligations, in each case, from and after the applicable Closing Date. The Assumption and Release Agreements shall (x) provide, among other things, that upon execution and delivery thereof by the parties thereto, the Sellers shall be fully and irrevocably released and discharged from, and indemnified for and against, any and all liability under the Existing Repurchase Assignments first accruing from and after the applicable Closing Date, and (y) be in form and substance reasonably acceptable to Sellers and Purchaser.

35.3 In connection with the assumption of the Repurchase Guaranty Obligations by the Repurchase Purchaser Entity and release of the Sellers pursuant to this Section 35 , (a) Sellers shall promptly after the execution of this Agreement deliver written notice to 21 ^st Mortgage, Vanderbilt Mortgage and any other applicable parties, of the prospective sale of the Interests to Purchaser and request the release of each Seller from the applicable Existing Repurchase Assignment (b) Purchaser shall (i) promptly provide such information and documentation as is reasonably required or requested by 21 ^st Mortgage, Vanderbilt Mortgage and the other applicable parties regarding the Repurchase Purchaser Entity which will assume Sellers’ Repurchase Guaranty Obligations, and (ii) remit to 21 ^st Mortgage and/or Vanderbilt Mortgage any fees and expenses required to be paid pursuant to the applicable Repurchase Agreements in connection with the assumptions and releases contemplated herein, (c) Sellers and the Repurchase Purchaser Entity shall take such other steps to negotiate and enter into the Assumption and Release Agreements in accordance with Section 35.2 above, and shall deliver such other documents, certificates, instruments and agreements as are reasonably required to be delivered in connection therewith and (d) Purchaser shall satisfy any conditions and requirements customarily required by 21 ^st Mortgage and/or Vanderbilt Mortgage relating to such matters (including, without limitation, depositing or escrowing funds in reserves, regardless of whether such funds are in lieu of or in addition to any Repurchase Agreement Reserve (as hereinafter defined)).

35.4 If, at or before a Closing, 21 ^st Mortgage, Vanderbilt Mortgage and any other applicable parties to Existing Repurchase Assignments do not provide such party’s written consent to, and execute and deliver the applicable Assumption and Release Agreements, then the Repurchase Purchaser Entity shall fully assume, at each applicable Closing, any and all liability for the Repurchase Guaranty Obligations first arising after the applicable Closing Date and the Repurchase Purchaser Entity shall indemnify, defend and hold harmless Sellers and the Seller Exculpated Parties from and against any and all losses, costs, expenses, damages, claims or liabilities (including, without limitation, reasonable attorneys’ fees, costs and disbursements and costs incurred in the enforcement of the foregoing indemnification obligation) incurred by or asserted against any Seller in connection therewith and/or arising from the applicable Repurchase Guaranty Obligations during the period following the applicable Closing.

35.5 In connection with the foregoing, Sellers and Purchaser acknowledge that 21 ^st Mortgage, Vanderbilt Mortgage and/or certain other parties currently hold funds in certain reserves pursuant to certain of the Repurchase Agreements (each, a “ Repurchase Agreement Reserve ”) in order to secure the performance by the applicable Seller of certain obligations thereunder. Accordingly, at each Closing, subject to Section 6 hereof, the applicable Seller shall be entitled to receive a credit against the Unadjusted Purchase Price equal to the full amount of the Repurchase Agreement Reserve being held, as of such Closing Date, by or for the benefit of 21 ^st Mortgage, Vanderbilt Mortgage and/or any other party under each applicable Repurchase Agreement applicable to such Seller.

35.6 As used herein, the following terms shall have the following meanings:

“ Community Financing Agreements ” means, collectively, (i) that certain Community Financing Agreement, dated as of August 13, 2010, between 21 ^st Mortgage, Vanderbilt Mortgage, Hometown America Holdings, L.L.C., a Delaware limited liability company, as agent for certain fee owners, and MH Financial Services, L.L.C., a Delaware limited liability company (“ MH Financial ”), as heretofore and/or hereafter amended and/or assigned, and (ii) that certain Community Financing Agreement, dated as of November 24, 2015, by and between 21 ^st Mortgage, Bayshore Portfolio IV and Portfolio IV Seller, as heretofore and/or hereafter amended and/or assigned.

“ Dealer Agreements ” means, collectively, (i) that certain Manufactured Home Dealer Agreement, dated as of January 12, 2010, between 21 ^st Mortgage, ARC Dealership LLC, a Delaware

limited liability company (“ ARC Dealership ”), and ARC Real Estate, LLC, a Delaware limited liability company (“ ARC Real Estate ”), as amended by that certain First Amendment to Manufactured Home Dealer Agreement, dated as of March 8, 2012, among 21 ^st Mortgage, ARC Dealership and ARC Real Estate, and as further amended by that certain Second Amendment to Manufactured Home Dealer Agreement, dated as of January 3, 2013, among 21 ^st Mortgage, ARC Dealership and ARC Real Estate; and (ii) that certain Manufactured Home Dealer Agreement, dated as of July 14, 2008, between 21 ^st Mortgage, Sun Home Services, Inc., a Michigan corporation (“ Sun Home Services ”), and Sun Communities, Inc., a Maryland corporation (“ Sun Inc. ”), each as heretofore and/or hereafter amended and/or assigned.

“ Existing Repurchase Assignments ” means, collectively, (i) that certain Repurchase Obligation Agreement, dated as of December 6, 2012, among ARC Dealership, Enspire Finance LLC, a Delaware limited liability company (“ Enspire Finance ”), ARC Real Estate, ARC Debt 5B LLC, a Delaware limited liability company (“ ARC Debt 5B ”), RHP Venture Holdings, LLC, a Delaware limited liability company, certain other parties and joined by 21 ^st Mortgage and Portfolio I Seller; (ii) that certain Repurchase Obligation Agreement, dated as of April 5, 2013, among ARC Dealership, Enspire Finance, ARC Real Estate, ARC Debt 5B, Bayshore AHP, certain other parties and joined by 21 ^st Mortgage and Portfolio II Seller; (iii) that certain Assignment and Assumption Agreement, dated as of May 30, 2014 and effective December 23, 2013, among AMC Homes LLC, a Delaware limited liability company, AMC Home Sales Inc., a Delaware corporation (“ AMC Home Sales ”), AMC REIT Inc., a Maryland corporation (“ AMC REIT ”), American Manufactured Communities Operating Partnership LP, a Delaware limited partnership (“ AMCOP ”), and Bayshore AMC, and joined by Portfolio III Seller; and (iv) that certain Assignment and Assumption Agreement, dated as of November 24, 2015, among Sun Homes Services and Bayshore Portfolio IV, and joined by Portfolio IV Seller, each as heretofore and/or hereafter amended and/or assigned.

“ Loan Purchase Agreements ” means, collectively, (i) that certain Loan Purchase Agreement, dated as of September 24, 2010, between 21 ^st Mortgage and Enspire Finance, and joined by ARC Dealership and ARC Real Estate, as amended by that certain First Amendment to Loan Purchase Agreement, dated as of February 7, 2012, among 21 ^st Mortgage, Enspire Finance, ARC Dealership, ARC Real Estate and ARC Debt 5B, as further amended by that certain Second Amendment to Loan Purchase Agreement, dated as of January 3, 2013, among 21 ^st Mortgage, Enspire Finance, ARC Dealership, ARC Real Estate and ARC Debt 5B, as further amended by that certain Third Amendment to Loan Purchase Agreement, dated as of January 4, 2013, among 21 ^st Mortgage, Enspire Finance, ARC Dealership, ARC Real Estate and ARC Debt 5B; and (ii) that certain Agreement for Purchase and Sale, dated as of July 1, 2008, between 21 ^st Mortgage and Sun Communities Operating Limited Partnership, a Michigan limited partnership, and joined by Sun Inc., as amended through the Sixth Amendment thereof dated as of June 13, 2011, each as heretofore and/or hereafter amended and/or assigned.

“ Repurchase Agreements ” means the Dealer Agreements, the Loan Purchase Agreements, the Retailer Agreements and the Community Financing Agreements.

“ Retailer Agreements ” means, collectively, (i) that certain Community Manufactured Home Retailer Agreement, dated as of January 6, 2012, among AMC Homes Sales, 21 ^st Mortgage, AMC REIT and AMCOP; and (ii) that certain Manufactured Home Retailer Community Agreement, dated as of August 13, 2010, between Hometown America Holdings, L.L.C., a Delaware limited liability company, MH Financial and 21 ^st Mortgage, each as heretofore and/or hereafter amended and/or assigned.

35.7 The provisions of this Section 35 shall survive each Closing indefinitely.

36. Multiple Interests and Sellers.

36.1 Notwithstanding anything to the contrary contained herein, Purchaser acknowledges and agrees that (i) Sellers is comprised of multiple entities (each, a “ Constituent Seller ”), (ii) Portfolio I Seller owns the Component of the Interests constituting the Portfolio I Equity Interests, (iii) Portfolio II Seller owns the Component of the Interests constituting the Portfolio II Equity Interests, (iv) Portfolio III Seller owns the Component of the Interests constituting the Portfolio III Equity Interests, (v) Portfolio IV Seller owns the Component of the Interests constituting the Portfolio IV Equity Interests and (vi) with respect to each Constituent Seller, all obligations, representations, warranties and covenants of Sellers contained herein shall only apply in respect of the constituent Component of the Interests owned by such Constituent Seller. For the avoidance of doubt and not in limitation of the foregoing, each Constituent Seller shall be severally responsible for matters relating to itself and the Component of the Interests it owns and there shall be no joint liability among the Constituent Sellers under this Agreement or otherwise for any matter, condition or circumstance whatsoever.

37. Survival/Representations and Warranties Insurance Policy.

37.1 Survival .

(a) Except as otherwise specifically herein provided, no representation, warranty, covenant or obligation of any Seller set forth in (a) this Agreement or (b) any Seller Document (as hereinafter defined), shall survive any Closing and the delivery of the applicable Assignment and Assumption of Interests.

(b) (i) Each of Sellers’ Representations in Sections 11.1(a), (b), (c), (h), (i) and (r) (collectively, “ Sellers’ Fundamental Representations ”) shall survive the Closings to which such Sellers’ Representations apply until the 60th day following the expiration of the statute of limitation corresponding to such Sellers’ Representations following each Closing to which such Sellers’ Representations shall directly apply, and (ii) each of Sellers’ Representations that are not Sellers’ Fundamental Representations (collectively, “ Sellers’ Other Representations ”) shall survive the Closing for a period of three (3) years following each Closing to which such Sellers’ Representations shall directly apply (each such period of time as described in clauses (i) and (ii) above, as applicable, the “ Post-Closing Claims Survival Period ”).

(c) Each of the representations and warranties set forth in Section 11.2 of this Agreement (collectively, “ Purchaser’s Representations ”) and each of Sellers’ Representations shall be deemed to have been remade at and as of each Closing Date with the same force and effect as if first made on and as of such Closing Date.

(d) Purchaser’s Representations shall survive the Closing for a period of three (3) years following each Closing to which such Purchaser’s Representations shall directly apply.

(e) The representations and warranties set forth in this Agreement and other obligations (other than Post-Closing Obligations, which shall survive for the applicable period set forth for each such Post-Closing Obligation) shall automatically terminate after the dates set forth in this Section 37.1 and be null and void and of no further force and effect (it being acknowledged and agreed that the applicable Post-Closing Claims Survival Period pertaining to the sale of the Portfolio I Equity Interests, Portfolio II Equity Interests (or portion thereof in the event of more than one Closing with respect to the conveyance of the Portfolio II Equity Interests to Purchaser as provided for in Section 4.2

of this Agreement), Portfolio III Equity Interests and/or Portfolio IV Equity Interests, as the case may be, shall each separately commence upon the actual Closing Date applicable thereto); provided , that any claim or cause of action made by party that is delivered to the other party by written notice (specifying in reasonable detail and particularity the nature of the alleged claim or cause of action) prior to the expiration of the applicable periods described above shall survive until such claim or cause of action is finally and duly resolved. Notwithstanding anything in this Agreement to the contrary, the covenants and indemnification obligations of Sellers and Purchaser set forth in Section 13 shall survive the applicable Closing Date until the 60 ^th day following the expiration of the statute of limitation for the assessment of Taxes to which Sellers have an indemnification obligation and such period shall constitute the Post-Closing Claims Survival Period with respect to such obligations.

37.2 Indemnity .

(a) Subject to the other provisions of this Agreement (including this Section 37 ), from and after each Closing, Purchaser agrees to indemnify, defend and hold harmless the applicable Seller, its Affiliates, and their respective officers, directors, employees, shareholders, members, partners, agents, representatives, successors and assigns (“ Seller Indemnitees ”) from and against all Losses incurred by any of the Seller Indemnitees arising out of or relating to (i) any breach of any representation or warranty made by Purchaser in this Agreement (without regard to any qualifications as to “ material ”, “ materiality ”, “ material adverse effect ” or phrases of similar import), and (ii) any breach of any Post-Closing Obligation of Purchaser contained in this Agreement.

(b) Subject to the other provisions of this Agreement (including this Section 37 ), from and after each Closing, each Seller agrees to indemnify, defend and hold harmless the Purchaser, its Affiliates, and their respective officers, directors, employees, shareholders, members, partners, agents, representatives, successors and assigns (“ Purchaser Indemnitees ”) from and against all Losses incurred by any of the Purchaser Indemnitees arising out of or relating to (i) any breach of any representation or warranty made by such Seller in this Agreement (without regard to any qualifications as to “ material ”, “ materiality ”, “ material adverse effect ” or phrases of similar import), and (ii) any breach of any Post-Closing Obligation of Seller contained in this Agreement.

37.3 Representations and Warranties Insurance Policy.

(a) Notwithstanding the foregoing or anything to the contrary set forth in this Agreement, in the event that Purchaser asserts a claim against any Seller for indemnification under Section 37.2(b)(i) or Section 13.1 , then, Purchaser shall have no right, remedy or recourse whatsoever to or against the property or assets of any Seller or any of the Seller Exculpated Parties, and Purchaser’s sole and exclusive remedy for any such claim shall be to pursue recovery from the Representations and Warranties Insurance Policy (as hereinafter defined) (it being acknowledged and agreed that any claim brought by Purchaser against any Seller in breach of this Section 37.3 shall be null and void and without force and effect). In addition to the foregoing, Purchaser and Sellers acknowledge and agree that, on or prior to the first Closing Date, Purchaser shall be obligated to obtain, at the cost and expense of Purchaser, the Representations and Warranties Insurance Policy. As used herein, “ Representations and Warranties Insurance Policy ” shall mean that certain representations and warranties insurance policy, to be dated on or before the first Closing Date, to and for the benefit of Purchaser, insuring Purchaser against Sellers’ post-closing obligations with respect to breaches of Sellers’ Representations and Sellers’ indemnification obligations pursuant to Section 13.1 .

37.4 Limitations .

(a) Notwithstanding anything to the contrary set forth in this Agreement, but without limiting Section 37.3 , Purchaser covenants and agrees that (i) Purchaser shall not pursue any claim against any Seller under Section 37.2(b)(i) for a breach of any representation or warranty by such Seller or pursue any claim for indemnification pursuant to Section 13.1 unless the aggregate Losses to Purchaser are in excess of the Floor (as hereinafter defined) (and such Seller shall have no liability in connection therewith), (ii) if Purchaser pursues any claim against any Seller under Section 37.2(b)(i) or Section 13.1 for damages to Purchaser greater than the Floor, then such Seller shall only be liable to Purchaser for damages in excess of the Floor (it being acknowledged and agreed that the Floor shall act as a deductible amount against any claims brought by Purchaser hereunder); (iii) the maximum potential amount of liability that Sellers shall have under any circumstance for any breach of a representation or warranty or indemnity relating thereto under this Agreement shall not exceed a total aggregate amount of Fifty Million and 00/100 Dollars ($50,000,000.00), which amount may be increased pursuant to the Representations and Warranties Insurance Policy for Seller’s liability under Section 37.2(b)(i) or Section 13.1 (the “ Maximum Amount ”) (which Maximum Amount constitutes the total maximum potential aggregate liability of all Sellers under this Agreement for a breach of any representation or warranty hereunder or indemnity relating thereto and shall be subject to reduction and other limitations set forth in Section 37.3 and this Section 37.4 (i.e., Sellers’ maximum liability shall not exceed $50,000,000), and (iv) notwithstanding the foregoing provisions of this Section 37.4(a) , the right of Purchaser to recover against the Representations and Warranty Insurance Policy shall be the exclusive remedy of Purchaser with respect to any claim arising from a breach of representations and warranties of Seller set forth in Section 37.2(b)(i) or Sellers’ indemnification obligations under Section 13.1 following the Closing.

(b) As used herein, the term “ Floor ” shall mean as follows: (i) with respect to Portfolio I Seller, Nine Hundred Eighty Seven Thousand Eight Hundred Seventy Nine and 61/100 Dollars ($987,879.61), (ii) with respect to Portfolio II Seller, Two Million Four Hundred Fifty Eight Thousand Nine Hundred Sixty and 69/100 Dollars ($2,458,960.69), (iii) with respect to Portfolio III Seller, One Million Two Hundred Four Thousand Three Hundred Seven and 13/100 Dollars ($1,204,307.13), and (iv) with respect to Portfolio IV Seller, Three Hundred Forty Eight Thousand Eight Hundred Fifty Two and 58/100 Dollars ($348,852.58), which amounts may be lowered with respect to Seller’s liability under Section 37.2(b)(i) or Section 13.1 pursuant to the Representations and Warranties Insurance Policy.

(c) With respect to each Seller’s liability for the Maximum Amount as provided in Section 37.3(a) , each Seller shall be liable severally (not jointly and severally) to the extent of such Seller’s share of the Maximum Amount as follows: (i) with respect to Portfolio I Seller, Nine Million Eight Hundred Seventy Eight Thousand Seven Hundred Ninety Six and 07/100 Dollars ($9,878,796.07), (ii) with respect to Portfolio II Seller, Twenty Four Million Five Hundred Eighty Nine Thousand Six Hundred Six and 88/100 Dollars ($24,589,606.88), (iii) with respect to Portfolio III Seller, Twelve Million Forty Three Thousand Seventy One and 25/100 Dollars ($12,043,071.25), and (iv) with respect to Portfolio IV Seller, Three Million Four Hundred Eighty Eight Thousand Five Hundred Twenty Five and 80/100 Dollars ($3,488,525.80).

(d) For the avoidance of doubt, in the event that there are multiple Closings pursuant to this Agreement, if a Closing with respect to any Component of the Interests shall fail to occur for any reason, then in no event shall the applicable Seller of such Component of the Interests be liable under this Section 37 (e.g., if the sale of the Portfolio III Equity Interests to Purchaser by Portfolio III Seller shall not occur, then Portfolio III Seller shall not bear any potential liability or obligation to Purchaser under this Section 37 ).

(e) In addition to the foregoing and notwithstanding anything to the contrary set forth in this Agreement, (i) in each and every case, Purchaser’s recovery for any claims or causes of action referenced herein shall be net of any insurance benefits or proceeds (including, without limitation, any insurance benefits or proceeds paid pursuant to the Representations and Warranties Insurance Policy) and any indemnity, contribution or other similar payment actually recovered or recoverable by Purchaser, the Subsidiary Companies or any of their respective affiliates from any insurance company, tenant or other third party (which recoveries Purchaser agrees to use its commercially reasonable efforts to obtain or cause to be obtained) and (ii) Purchaser shall (and shall, if applicable, cause Purchaser’s affiliates to) take any and all reasonable steps and actions to mitigate its damages, liabilities, losses, claims, costs and expenses upon and after becoming aware of any event or condition which could reasonably be expected to, or does, give rise to any claim or cause of action for which any Seller may have liability hereunder. If Purchaser receives any payment from any Seller for any claim or cause of action pursuant to this Section 37 and Purchaser, the Subsidiary Companies and/or any of their respective affiliates subsequently receives payment or recovery therefor from another source or party (including, without limitation, insurance benefits or proceeds from an insurance policy), then, in such event, Purchaser shall immediately pay to such applicable Seller a sum equal to the lesser of (i) the actual amount of the payment or recovery received by Purchaser, the Subsidiary Companies and/or any of their respective affiliates, as applicable, or (ii) the actual amount of the applicable payment previously paid by such Seller to Purchaser.

38. Arbitration of Matters in Dispute.

38.1 In the event that there is a disagreement between Purchaser and Sellers as to any matter arising out of this Agreement for which arbitration is expressly stated to be the sole procedure or mechanism for the resolution of such disagreement (the “ Matter in Dispute ”), then the Matter in Dispute shall be submitted to arbitration pursuant to the rules of the American Arbitration Association within the City of New York or the County of New York, State of New York. The arbitrators will be entitled to award monetary damages, declaratory relief and injunctive relief interpreting the provisions of this Agreement, however the arbitrators will not be entitled to award punitive or consequential damages or to act inconsistently with the terms of this Agreement. The arbitrators will be entitled, but not required, to provide that the losing party in any arbitration will pay all or a portion of the prevailing party’s costs incurred in connection therewith, including, without limitation, the costs and fees of the arbitrators, provided , however , if the arbitrators decline to make such a provision, then the costs of the arbitration will be split equally between the parties (except that each party will bear such party’s own attorneys’ fees). The determination of the arbitrators in the foregoing proceeding shall be binding upon the parties, subject only to the provision of Section 38.3 below.

38.2 In the event that the arbitrators make a determination in favor of a party (the “ Succeeding Party ”) and the Matter in Dispute is monetary in nature, then the other party (the “ Non- Succeeding Party ”) shall pay to the Succeeding Party the amount determined by the arbitrators to be necessary to make the Succeeding Party whole (the “ Arbitrated Amount ”) within ten (10) days after the determination is made in such arbitration proceeding, provided , however , in the event this Agreement expressly provides that an escrow of funds (each, a “ Funds Escrow ”) be established (and such Funds Escrow is established) by the Non-Succeeding Party with respect to a monetary Matter in Dispute and the amount in the Funds Escrow is greater than the Arbitrated Amount, then the Non-Succeeding Party shall, within such ten (10) day period, instruct the escrow agent for the Funds Escrow to disburse an amount equal to the Arbitrated Amount from the Funds Escrow to the Succeeding Party and, unless otherwise provided in this Agreement, the Non-Succeeding Party shall be entitled to a return of the remaining funds in the Funds Escrow. In the event that the arbitrators make a determination in favor of the Succeeding Party and the Matter in Dispute is non-monetary in nature, then the Non-Succeeding Party

shall take such action as is required by the arbitrators in connection therewith within ten (10) days after the determination is made in such arbitration proceeding.

38.3 The parties agree that the arbitration proceeding described in this Section 38 is the sole and exclusive manner in which the parties may resolve Matters in Dispute and the parties fully waive any right to commence any action or proceeding in any court arising out of any Matter in Dispute, subject only to the right of a party hereto to bring an action in court to enforce the determination made in an arbitration proceeding. For the avoidance of doubt, the parties hereto acknowledge and agree that any dispute arising out of this Agreement that is not a Matter in Dispute shall not be required to be submitted to arbitration as hereinabove provided (it being acknowledged and agreed, however, that any Matter in Dispute regarding a Material Adverse Effect Dispute shall be resolved by arbitration pursuant to the terms and provisions of Exhibit DD of this Agreement).

39. Submission to Jurisdiction.

PURCHASER AND SELLERS EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY, STATE OF NEW YORK, OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. SELLERS MAY, IN SELLERS’ RESPECTIVE SOLE DISCRETION, ELECT THE STATE OF NEW YORK, NEW YORK COUNTY, OR THE UNITED STATES OF AMERICA, FEDERAL DISTRICT COURT HAVING JURISDICTION OVER NEW YORK COUNTY, STATE OF NEW YORK, AS THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING. PURCHASER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SUCH VENUE AS BEING AN INCONVENIENT FORUM. THE FOREGOING SHALL NOT, HOWEVER, HAVE THE EFFECT OF PROHIBITING ANY SELLER FROM BRINGING AN ACTION AGAINST PURCHASER ARISING OUT OF THIS AGREEMENT IN ANY OTHER COURT OR VENUE. THE PROVISIONS OF THIS SECTION 39 SHALL SURVIVE EACH CLOSING OR ANY EARLIER TERMINATION OF THIS AGREEMENT.

40. Waiver of Jury Trial.

PURCHASER AND SELLERS EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY PURCHASER AND SELLERS, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH SELLER OR PURCHASER, AS APPLICABLE, IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY PURCHASER OR SUCH SELLER, AS APPLICABLE. THE PROVISIONS OF THIS SECTION 40 SHALL SURVIVE EACH CLOSING OR ANY EARLIER TERMINATION OF THIS AGREEMENT.

41. Certain Definitions.

As used herein, the following capitalized terms shall have the following definitions:

“ Affiliate ” means, with respect to any Person, any Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with such Person.

“ Aggregate Material Adverse Effect ” means (i) any new title and/or survey matters or conditions that are not Permitted Existing Title/Survey Matters pursuant to Section 8.2 ; (ii) any Sellers’ Representations are untrue (without regard to any qualification as to materiality or material adverse effect (or any correlative terms)) as of the Effective Date or as of the applicable Closing Date, as if made as of such date (except for representations and warranties which refer to facts, events or circumstances existing as of a specific date, which representations and warranties shall be true and correct only as of such specified date); (iii) any Taking pursuant to Section 14.1 ; and (iv) any Casualty pursuant to Section 14.2 , which, individually or in the aggregate of all such matters under clauses (i) through (iv) has or could reasonably be expected to result in a decrease in the aggregate equity value of the Interests in an amount equal to or greater than One Hundred Million and 00/100 Dollars ($100,000,000.00). The Aggregate Material Adverse Effect shall be allocated among the Component of the Interests hereunder as follows, subject to the succeeding sentence: (i) with respect to Portfolio I Equity Interests, Nineteen Million Seven Hundred Fifty Seven Thousand Five Hundred Ninety Two and 14/100 Dollars ($19,757,592.14), (ii) with respect to Portfolio II Equity Interests, Forty Nine Million One Hundred Seventy Nine Thousand Two Hundred Thirteen and 76/100 Dollars ($49,179,213.76), (iii) with respect to Portfolio III Equity Interests, Twenty Four Million Eighty Six Thousand One Hundred Forty Two and 51/100 Dollars ($24,086,142.51), and (iv) with respect to Portfolio IV Equity Interests, Six Million Nine Hundred Seventy Seven Thousand Fifty One and 60/100 Dollars ($6,977,051.60) (each a “ Allocated Portfolio MAE ”). If the First Equity Interest Closing or any subsequent Closing has occurred and there has been no events that constitute a Material Adverse Effect for such Component of the Interests, then for any subsequent Closings, the Allocated Portfolio MAE shall be increased by an amount equal to (A) the Allocated Portfolio MAE for the Component of Interests that have closed minus (B) the decrease in the aggregate equity value of the Interests due to (i) any new title and/or survey matters or conditions that are not Permitted Existing Title/Survey Matters pursuant to Section 8.2 ; (ii) any Sellers’ Representations are untrue (without regard to any qualification as to materiality or material adverse effect (or any correlative terms)) as of the Effective Date or as of the applicable Closing Date, as if made as of such date (except for representations and warranties which refer to facts, events or circumstances existing as of a specific date, which representations and warranties shall be true and correct only as of such specified date); (iii) any Taking pursuant to Section 14.1 ; and (iv) any Casualty pursuant to Section 14.2 that occurred after the Effective Date but that did not constitute a Material Adverse Effect (e.g., if after the First Equity Interest Closing the diminution of value with respect to the Portfolio II Equity Interests is $48,179,213.76 then the Allocated Portfolio MAE for the Component of the Interests for any subsequent closings will be increased by $1,000,000.00). For purposes of this Agreement, Sellers and Purchaser agree that in the event that there is a dispute as to whether the occurrence of any of the matters under clauses (i) through (iv) above has, individually or in the aggregate, a “Material Adverse Effect”, then the parties hereto shall submit such dispute to arbitration pursuant to the terms and provisions of Exhibit DD attached hereto and made a part hereof, in which case no Closings shall occur, and no party hereto shall be entitled to terminate this Agreement, pending the final determination of the arbitration of such dispute.

“ Assumed Loan Documents ” means each of the documents evidencing and securing the Assumed Loans, as set forth in more detail on Exhibit Z attached hereto and made a part hereof.

“ Assumed Loans ” means (i) the Portfolio I Loans, (ii) the Portfolio II Loans, (iii) the Portfolio III Loans and (iv) the Portfolio IV Loans; each of the foregoing is referred to herein as an “ Assumed Loan ”.

“ Business Day ” means any day other than (a) a Saturday or a Sunday, (b) a national holiday, or (c) a day on which banks are not required to be open for business within each State where the Premises are located or the State of New York.

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended.

“ Component of the Interests ” means (i) the Portfolio I Equity Interests, (ii) the Portfolio II Equity Interests, (iii) the Portfolio III Equity Interests and (iv) the Portfolio IV Equity Interests; and each reference herein to an “Assumed Loan and the corresponding Component of the Interests applicable thereto” (or words of similar import) shall mean: (a) with respect to the Portfolio I Loans, the Portfolio I Equity Interests; (b) with respect to the Portfolio II Loans, the Portfolio II Equity Interests; (c) with respect to the Portfolio III Loans, the Portfolio III Equity Interests; and (d) with respect to the Portfolio IV Loans, the Portfolio IV Equity Interests. For the avoidance of doubt, each Constituent Seller’s respective ownership of the Component of the Interests is set forth in Section 36.1 above. In the event that the Portfolio II Equity Interests are to be sold to Purchaser in more than a single Closing pursuant to Section 4.2 of this Agreement, then, in such case, “Component of the Interests” shall mean each portion of the Portfolio II Equity Interests that is the subject of a separate Closing hereunder and each reference herein to an “Assumed Loan and the corresponding Component of the Interests applicable thereto” (or words of similar import) shall mean, with respect to the Portfolio II Loans, the portion(s) of the Portfolio II Equity Interests (i.e., the Portfolio II Pools) that are the subject of the applicable Closing.

“ Control ” means, with respect to any Person, possession, directly or indirectly, through one or more intermediaries, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or by contract.

“ Encumbrance ” means any charge, claim, mortgage, lien, option, pledge, security interest or other restriction of any kind (other than those created under applicable securities laws).

“ Governmental Authority ” means any (a) government, governmental agency, department, bureau, office, commission, board, authority, or instrumentality, or court of competent jurisdiction, in each case whether foreign, U.S. federal, state, or local or (b) quasi-Governmental Authority exercising any authority under or for the account of any of the above and having jurisdiction over Sellers, the Subsidiary Companies, the tenants under the Leases and/or the Properties.

“ IRS ” means the Internal Revenue Service.

“ Lenders ” means the person or persons designated as the “lender” under the Assumed Loans; each of the foregoing is referred to herein as a “ Lender ”.

“ Losses ” means, with respect to any matter, without duplication, any and all claims, suits, liabilities (including strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, Taxes, expenses, fines, penalties, charges, fees, judgments, awards, and amounts paid in settlement of, including reasonable legal fees and disbursements of legal counsel and other costs of defense actually incurred or suffered by the Person in question with respect to such matter; provided, however, that the damages recoverable shall be only those that are currently reasonably foreseeable to have arisen from the breach or claim in question, whether denominated actual or consequential.

“ Material Adverse Effect ” means an Aggregate Material Adverse Effect or Allocated Portfolio MAE.

“ Person ” means any natural person, partnership, corporation, limited liability company and any other form of business or legal entity.

“ Portfolio I Loans ” means all of the mortgage loans set forth on Exhibit EE-1 attached hereto and made a part hereof.

“ Portfolio II Loans ” means all of the mortgage loans set forth on Exhibit EE-2 attached hereto and made a part hereof.

“ Portfolio II Pools ” means each of the pools of the Portfolio II Subsidiary Companies and the portion of the Portfolio II Allocated Purchase Price allocated thereto as set forth on Exhibit FF attached hereto and made a part hereof.

“ Portfolio III Loans ” means all of the mortgage loans set forth on Exhibit EE-3 attached hereto and made a part hereof.

“ Portfolio IV Loans ” means all of the mortgage loans set forth on Exhibit EE-4 attached hereto and made a part hereof.

“ Post-Closing Obligations ” means the obligations of Purchaser and/or Sellers pursuant to Sections 1.2 , 6.17 , 12.1 , 16 , 17.4 , 21 , 32 , 33 , 34 , 35 , 39 and 40 of this Agreement that are expressly stated to survive a Closing.

“ Post-Termination Obligations ” means the obligations of Purchaser and/or Sellers pursuant to Sections 10 , 12.1 , 16 , 17.4 , 20 , 31 , 32 , 33 , 34 , 39 and 40 of this Agreement that are expressly stated to survive the termination of this Agreement.

“ Pre-Closing Tax Period ” means any Tax period ending before the applicable Closing Date and that portion of any Straddle Period ending on the day before the applicable Closing Date.

“ Return ” means any return, declaration, report, statement, information statement and

other document required to be filed or delivered to any Person with respect to any Tax.

“ Seller Document ” means any document or instrument executed and delivered by a Seller to Purchaser in connection herewith, including, without limitation, each Assignment and Assumption of Interests.

“ Straddle Period ” means any Tax period beginning before and ending after the applicable

Closing Date.

“ Subsidiary Companies ” means (i) the Portfolio I Subsidiary Companies, (ii) the Portfolio II Subsidiary Companies, (iii) the Portfolio III Subsidiary Companies and (iv) the Portfolio IV Subsidiary Companies.

“ Taxes ” means any and all taxes of any kind (together with any and all interest, penalties,additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority, including real estate taxes and assessments and any obligation to turnover (escheat) any abandoned property to a Governmental Authority.

“ Transfer Taxes ” means all sales, use, commercial activity, registration, value added, transfer, stamp, mortgage, stock transfer, property transfer, real property transfer, intangible and similar Taxes (for the avoidance of doubt, excluding any Tax imposed under Sections 897 or 1445 of the Code),

together with any conveyance fees, notarial and registry fees and recording costs (including any penalties and interest thereon) imposed on Purchaser or Sellers by any taxing authority or other Governmental Authority in connection with the purchase and sale of the Interests contemplated by this Agreement.

42. Intentionally Omitted.

43. No Third Party Beneficiaries.

PURCHASER AND SELLERS HEREBY ACKNOWLEDGE AND AGREE THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN TO THE CONTRARY, THERE ARE NO THIRD PARTY BENEFICIARIES TO THIS AGREEMENT, AND, ACCORDINGLY, EXCEPT AS EXPRESSLY SET FORTH HEREIN TO THE CONTRARY, NO THIRD PARTY (INCLUDING, WITHOUT LIMITATION, ANY BROKER) SHALL HAVE THE RIGHT TO ENFORCE THIS AGREEMENT FOR THE BENEFIT OF SUCH THIRD PARTY OR AGAINST THE INTERESTS OF PURCHASER OR SELLERS. EITHER OF SELLERS OR PURCHASER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING BROUGHT BY ANY SUCH THIRD PARTY AGAINST ANY SELLER OR PURCHASER IN CONNECTION WITH THIS AGREEMENT AS CONCLUSIVE EVIDENCE OF THE PARTIES INTENTIONS.

44. Time of Performance.

In the event the provisions of this Agreement provide for the performance of an obligation by Purchaser or any Seller on a day other than a Business Day, then the time for the performance of such obligation shall be automatically adjourned to the first (1st) Business Day immediately succeeding the day on which such obligation would otherwise be required to be performed. In the event the provisions of this Agreement provide that Purchaser or any Seller shall have the right to adjourn the performance of an obligation by Purchaser or any Seller, as applicable, to a day that is other than a Business Day, then Purchaser or any Seller, as applicable, shall have the right to adjourn the time for the performance of such obligation to the first (1st) Business Day immediately succeeding the day on which such adjourned obligation would otherwise be required to be performed.

45. Counterpart Execution; Execution by Facsimile Transmission/.PDF Format.

This Agreement may be executed in more than one counterpart, each of which, when taken together, shall be deemed to be one (1) instrument. This Agreement may be executed by facsimile transmission or by e-mail via .pdf (or its equivalent) format, in each case, with the same force and effect as originals.

46. No Financing Contingency.

Except as set forth in Section 12 above, Purchaser expressly acknowledges and agrees that Purchaser’s obligations under this Agreement are not in any way conditioned upon or qualified by Purchaser’s ability to obtain financing of any type or nature whatsoever ( i.e. , whether by way of debt financing, preferred or other equity investment, or otherwise) to consummate the transaction contemplated by this Agreement.

47. Ambiguities Not Construed Against Drafter.

Ambiguities in this Agreement shall not be construed against the party drafting this Agreement, notwithstanding any contrary rule of construction or interpretation at law or in equity.

48. No Special Relationship Between Sellers and Purchaser.

Purchaser and Sellers acknowledge and agree that the relationship between Purchaser and Sellers is solely a commercial relationship, and the execution of this Agreement by Purchaser and Sellers shall not create (and neither Purchaser nor Sellers intends to create) any relationship of principal and agent between Purchaser and Sellers, or any partnership or joint venture relationship between Purchaser and Sellers. Neither Purchaser nor Sellers shall be deemed to be a fiduciary of the other party.

49. Provisions Pertaining to Snowbird Concessions Liquor License.

With respect to the Snowbird Concessions Liquor License (as hereinafter defined), (i) as of the Effective Date, Snowbird Concessions, Inc., a Texas corporation (“ Snowbird Concessions ”), holds a liquor license (the “ Snowbird Concessions Liquor License ”) which relates to the manufactured homes community located at 1701 North International Boulevard, Weslaco, Texas, and commonly known as “Snow to Sun” (the “ Snow to Sun Property ”), which manufactured homes community is owned by MHC Snow to Sun (TX), LLC, a Delaware limited liability company; (ii) Snowbird Concessions sole source of revenue is derived from liquor sales made at the Snow to Sun Property; (iii) as of the Effective Date, one hundred percent (100%) of the shares of stock (the “ Snowbird Concessions Stock ”) in Snowbird Concessions are currently owned by one or more affiliates of Sun Communities, Inc., a Maryland corporation (collectively, “ Snowbird Concessions Current Owner ”); (iv) Portfolio IV Seller currently intends for (and, as of the Effective Date, one or more of the Portfolio IV Subsidiary Companies are attempting to effectuate) the transfer (without further consideration) of one hundred percent (100%) of the Snowbird Concessions Stock (the “ Snowbird Concessions Stock Transfer ”) by Snowbird Concessions Current Owner to Snowbird Parent, LLC, a Delaware limited liability company (“ Snowbird Parent ”), pending approval from the Texas Alcoholic Beverage Commission to such transfer of the Snowbird Concessions Stock; (v) Portfolio IV Seller currently intends that Bayshore Portfolio IV Homes, LLC, a Delaware limited liability company, will own forty nine percent (49%) of the limited liability company membership interests in Snowbird Parent, and Joel Brown, an individual, will own fifty one percent (51%) of the limited liability company membership interests in Snowbird Parent and will also serve as the sole officer of Snowbird Concessions subsequent to the aforementioned transfer of the Snowbird Concessions Stock; (vi) Portfolio IV Seller currently intends that Snowbird Parent will submit an application to the Texas Alcoholic Beverage Commission (or other applicable Governmental Authority) to obtain approval of the Snowbird Concessions Stock Transfer prior to the Closing of the conveyance of the Portfolio IV Equity Interests to Purchaser; and (vii) upon the consummation of the Snowbird Concessions Stock Transfer (which shall occur prior to the Closing of the conveyance of the Portfolio IV Equity Interests to Purchaser), Snowbird Parent and Snowbird Concessions shall each constitute Portfolio IV Subsidiary Companies for all purposes of this Agreement. In connection with the foregoing and notwithstanding anything to the contrary set forth in this Agreement, Purchaser acknowledges and agrees that (x) Portfolio IV Seller and the Portfolio IV Subsidiary Companies shall have the right prior to the Closing of the conveyance of the Portfolio IV Equity Interests to Purchaser to undertake (without Purchaser’s consent) any and all actions reasonably necessary or appropriate to pursue, facilitate and effectuate the foregoing ownership restructuring of Snowbird Concessions in the manner set forth in the preceding sentence (or in such other manner as is reasonably determined by Portfolio IV Seller) and (y) such ownership restructuring of Snowbird Concessions and the actions taken by Portfolio IV Seller and the Portfolio IV Subsidiary Companies’ in connection with the pursuit, facilitation and effectuation thereof shall not constitute a default hereunder or a breach of any representation (including, without limitation, any Sellers’ Representation), warranty or covenant made by Sellers in this Agreement.

50. Release.

Effective as of the Closing, each Seller, on behalf of itself and its Affiliates and each of its and their respective officers, directors, employees, agents, successors and assigns (the “ Releasing Parties ”), hereby releases, acquits and forever discharges the Subsidiary Companies, and any and all of each of their successors and assigns, together with all their present and former directors and officers (the “ Released Parties ”), from any and all manner of claims, actions, suits, damages, demands and liabilities whatsoever in law or equity, whether known or unknown, liquidated or unliquidated, fixed, contingent, direct or indirect (collectively, “ Claims ”), which the Releasing Party ever had, has or may have against any of the Released Parties for, upon, or by reason of any matter, transaction, act, omission or thing whatsoever arising under or in connection with any of the Released Parties, from the beginning of time to and including the Closing Date, other than obligations arising under this Agreement. This release (i) shall become effective only upon completion of the Closing and prior to such date shall have no force or effect and shall not be legally binding on the parties and (ii) shall not apply with respect to any Claims a Releasing Party may have against a Released Party for Claims made against such Released Party by a third party.

[Signatures Appear on the Following Pages]

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the Effective Date.



PORTFOLIO I SELLER :

RHP WESTERN PORTFOLIO GROUP, LLC, a Delaware limited liability company

By:		NRFC MH Holdings, LLC, a Delaware limited liability company, its managing member

	By:	/s/ Ronald J. Lieberman
		Name: Ronald J. Lieberman
		Title: Executive Vice President, General Counsel & Secretary

Federal I.D. No.: 46-1193978



PORTFOLIO II SELLER :

AMERICAN HOME PORTFOLIO GROUP, LLC, a Delaware limited liability company

By:		NRFC MH II Holdings, LLC, a Delaware limited liability company, its managing member

	By:	/s/ Ronald J. Lieberman
		Name: Ronald J. Lieberman
		Title: Executive Vice President, General Counsel & Secretary

Federal I.D. No.: 46-2299484



PORTFOLIO III SELLER :

AMC PORTFOLIO GROUP, LLC, a Delaware limited liability company

By:		MH III Holdings-T, LLC, a Delaware limited liability company, its managing member

	By:	/s/ Ronald J. Lieberman
		Name: Ronald J. Lieberman
		Title: Executive Vice President, General Counsel & Secretary

Federal I.D. No.: 46-4285845

[Signatures Continue on the Following Pages]



PORTFOLIO IV SELLER :

MHC PORTFOLIO IV, LLC, a Delaware limited liability company

By:		MH IV Holdings-T, LLC, a Delaware limited liability company, its managing member

	By:	/s/ Ronald J. Lieberman
		Name: Ronald J. Lieberman
		Title: Executive Vice President, General Counsel & Secretary

Federal I.D. No.: 47-5515398

[Signatures Continue on the Following Pages]



PURCHASER :

BSREP II MH HOLDINGS LLC, a Delaware limited liability company

By:	/s/ Lowell Baron
	Name: Lowell Baron
	Title: Managing Partner

Federal I.D. No.: 81-2512907

[Signatures Continue on the Following Page]

Escrow Agent has executed this Agreement solely to confirm Escrow Agent’s receipt of the Deposit and acceptance of the duties of Escrow Agent as set forth in Section 15 of this Agreement.



COMMONWEALTH LAND TITLE INSURANCE COMPANY

By:	/s/ Craig S. Feder
	Name: Craig S. Feder
	Title: Senior Vice President

EXHIBIT 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15(d)-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathan A. Langer, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of NorthStar Realty Finance Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(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:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	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;


(c)	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


(d)	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):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 10, 2016	By:	/s/ JONATHAN A. LANGER
			Jonathan A. Langer
			Chief Executive Officer and President

EXHIBIT 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

17 CFR 240.13a-14(a)/15(d)-14(a),

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Debra A. Hess, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of NorthStar Realty Finance Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(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:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	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;


(c)	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


(d)	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):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 10, 2016	By:	/s/ DEBRA A. HESS
			Debra A. Hess
			Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Finance Corp. (the “Company”) for the quarterly period ended March 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jonathan A. Langer, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 10, 2016	By:	/s/ JONATHAN A. LANGER
			Jonathan A. Langer
			Chief Executive Officer and President

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NorthStar Realty Finance Corp. (the “Company”) for the quarterly period ended March 31, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Debra A. Hess, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 10, 2016	By:	/s/ DEBRA A. HESS
			Debra A. Hess
			Chief Financial Officer