Preferred equity. We have a preferred equity investment in a leasing company that invests in small- and middle-ticket full payout lease receivables. Although previously we had maintained a lease receivable portfolio, we transferred that portfolio to the leasing company in return for the preferred interest. We do not expect to invest in a directly-held leasing portfolio for the foreseeable future.

Trust preferred securities and other ABS. We have one investment (less than 0.1% of our total assets) in trust preferred securities. Trust preferred securities are issued by a special purpose trust that holds a subordinated debenture or other debt obligation issued by a company to the trust. The sponsoring company holds the equity interest in the trust, with the preferred securities of the trust being sold to investors. The trust invests the proceeds of the preferred securities in the sponsoring company through the purchase of a debenture issued by it that tracks the terms of the trust preferred securities. Issuers of trust preferred securities have been generally affiliated with financial institutions because, under then-existing regulatory and tax structures, unlike the proceeds from debt securities the proceeds from trust preferred securities could be treated as primary regulatory capital by the financial institution, while it could deduct the interest it paid on the debt obligation held by the trust from its income for federal income tax purposes.

Competition

See Item 1A “Risk ~~Factors” - “Risks~~Factors -Risks Relating to Our ~~Business”~~Business.”

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Management Agreement

We have a management agreement with the Manager and Resource America under which the Manager provides the day-to-day management of our operations. The management agreement requires the Manager to manage our business affairs in conformity with the policies and the investment guidelines established by our board of directors. The Manager’s role as manager is under the supervision and direction of our board of directors. The Manager is responsible for the selection, purchase and sale of our portfolio investments, our financing activities, and providing us with investment advisory services. The Manager also provides us with a Chairman of the Board, a Chief Financial Officer, ~~three~~several accounting professionals and an investor relations officer (on a shared basis). The Manager receives fees and is reimbursed for its expenses as follows:

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A monthly base management fee equal to 1/12th of the amount of our equity multiplied by 1.50%. Under the management agreement, ‘‘equity’’ is equal to the net proceeds from any issuance of shares of common stock less offering-related costs, plus or minus our retained earnings (excluding non-cash equity compensation incurred in current or prior periods) less any amounts we have paid for common stock repurchases. The calculation is adjusted for one-time events due to changes in accounting principles generally accepted in the United States, which we refer to as GAAP, as well as other non-cash charges, upon approval of our independent directors.

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Incentive compensation, calculated as follows: (i) 25% of the dollar amount by which (A) our adjusted operating earnings (before incentive compensation but after the base management fee) for such quarter per common share (based on the weighted average number of common shares outstanding for such quarter) exceeds (B) an amount equal to (1) the weighted average of the price per share of the common shares in the initial offering by us and the prices per share of the common shares in any subsequent offerings by us, in each case at the time of issuance thereof, multiplied by (2) the greater of (a) 2.00% and (b) 0.50% plus one-fourth of the Ten Year Treasury Rate for such quarter, multiplied by (ii) the weighted average number of common shares outstanding during such quarter subject to adjustment to exclude events pursuant to changes in GAAP or the application of GAAP, as well as non-recurring or unusual transactions or events, after discussion between the Manager and the Independent Directors and approval by a majority of the Independent Directors in the case of non-recurring or unusual transactions or events.

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Reimbursement of out-of-pocket expenses and certain other costs incurred by the Manager that relate directly to us and our operations.

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Pursuant to an amendment to the management agreement on October 16, 2009, the Manager will, in addition to a Chief Financial Officer, provide us with ~~three~~several accounting professionals, each of whom will be exclusively dedicated to our operations, and a director of investor relations who will be 50% dedicated to our operations. The amendment also provides that we will reimburse the Manager for the expense of the wages, salaries and benefits of the Chief Financial Officer and ~~three~~several accounting professionals and 50% of the salary and benefits of the director of investor relations. In addition, we began reimbursing ~~our Chairman~~the Manager for the wages, salary and benefits of our Chairman in February 2010.

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Incentive compensation is paid quarterly to the extent any is earned. Up to seventy-five percent (75%) of the incentive compensation will be paid in cash and at least twenty-five percent (25%) will be paid in the form of a stock award. The Manager may elect to receive more than 25% of its incentive compensation in stock. All shares are fully vested upon issuance. However, the Manager may not sell such shares for one year after the incentive compensation becomes due and payable unless the management agreement is terminated. Shares payable as incentive compensation are valued as follows:

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if such shares are traded on a securities exchange, at the average of the closing prices of the shares on such exchange over the thirty day period ending three days prior to the issuance of such shares;

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if such shares are actively traded over-the-counter, at the average of the closing bid or sales price as applicable over the thirty day period ending three days prior to the issuance of such shares; and

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if there is no active market for such shares, at the fair market value as reasonably determined in good faith by our board of directors.

In conjunction with our offering of our common stock in December 2009, we and Resource America agreed that for the quarters ending on December 31, 2009 and March 31, 2010, the total incentive management fee payable to the Manager pursuant would not exceed $1.5 million per quarter.

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The initial term of the management agreement expired on March 31, 2009. The agreement provides for automatic one year renewals on each March 31 thereafter until terminated. Our board of directors reviews the Manager’s performance annually. The management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock, based upon unsatisfactory performance that is materially detrimental to us or a determination by our independent directors that the management fees payable to the Manager are not fair, subject to the Manager’s right to prevent such a compensation termination by accepting a mutually acceptable reduction of management fees. Our board of directors must provide 180 days’ prior notice of any such termination. If we terminate the management agreement, the Manager is entitled to a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive compensation earned by the Manager during the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

We may also terminate the management agreement for cause with 30 days’ prior written notice from our board of directors. No termination fee is payable with respect to a termination for cause. The management agreement defines cause as:

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the Manager’s continued material breach of any provision of the management agreement following a period of 30 days after written notice thereof;

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the Manager’s fraud, misappropriation of funds, or embezzlement against us;

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the Manager’s gross negligence in the performance of its duties under the management agreement;

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the bankruptcy or insolvency of the Manager, or the filing of a voluntary bankruptcy petition by the Manager;

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the dissolution of the Manager; and

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a change of control (as defined in the management agreement) of the Manager if a majority of our independent directors determines, at any point during the 18 months following the change of control, that the change of control was detrimental to the ability of the Manager to perform its duties in substantially the same manner conducted before the change of control.

Cause does not include unsatisfactory performance that is materially detrimental to our business.

The management agreement will terminate at the Manager’s option, without payment of the termination fee, if we become regulated as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event.

Regulatory Aspects of Our Investment Strategy: Exclusion from Regulation Under the Investment Company Act.

We operate our business so as to be excluded from regulation under the Investment Company Act. Because we conduct our business through wholly-owned subsidiaries, we must ensure not only that we qualify for an exclusion from regulation under the Investment Company Act, but also that each of our subsidiaries so qualifies.

We believe that RCC Real Estate, Inc., the subsidiary that as of December 31, ~~2010~~2011 held all of our commercial real estate loan assets, is excluded from Investment Company Act regulation under Sections 3(c)(5)(C) and 3(c)(6), provisions designed for companies that do not issue redeemable securities and are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. To qualify for this exclusion, at least 55% of RCC Real Estate’s assets must consist of mortgage loans and other assets that are considered the functional equivalent of mortgage loans for purposes of the Investment Company Act, and interests in real properties, which we refer to as “qualifying real estate assets.” Moreover, 80% of RCC Real Estate’s assets must consist of qualifying real estate assets and other real estate-related assets. RCC Real Estate has not issued, and does not intend to issue, redeemable securities.

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We treat our investments in whole mortgage loans, specific types of B notes and specific types of mezzanine loans as qualifying real estate assets for purposes of determining our eligibility for the exclusion provided by Section 3(c)(5)(C) to the extent such treatment is consistent with guidance provided by the SEC or its staff. We believe that SEC staff guidance allows us to treat B notes as qualifying real estate assets where we have unilateral rights to instruct the servicer to foreclose upon a defaulted mortgage loan, replace the servicer in the event the servicer, in its discretion, elects not to foreclose on such a loan, and purchase the A note in the event of a default on the mortgage loan. We believe, based upon an analysis of existing SEC staff guidance, that we may treat mezzanine loans as qualifying real estate assets where (i) the borrower is a special purpose bankruptcy-remote entity whose sole purpose is to hold all of the ownership interests in another special purpose entity that owns commercial real property, (ii) both entities are organized as limited liability companies or limited partnerships, (iii) under their organizational documents and the loan documents, neither entity may engage in any other business, (iv) the ownership interests of either entity have no value apart from the underlying real property which is essentially the only asset held by the property-owning entity, (v) the value of the underlying property in excess of the amount of senior obligations is in excess of the amount of the mezzanine loan, (vi) the borrower pledges its entire interest in the property-owning entity to the lender which obtains a perfected security interest in the collateral, and (vii) the relative rights and priorities between the mezzanine lender and the senior lenders with respect to claims on the underlying property is set forth in an intercreditor agreement between the parties which gives the mezzanine lender certain cure and purchase rights in case there is a default on the senior loan. If the SEC staff provides future guidance that these investments are not qualifying real estate assets, we will treat them, for purposes of determining our eligibility for the exclusion provided by Section 3(c)(5)(C), as real estate-related assets or miscellaneous assets, as appropriate. Historically, we have held “whole pool certificates” in mortgage loans, although, at December 31, 2011 and 2010, we had no whole pool certificates in our portfolios. Pursuant to existing SEC staff guidance, we consider whole pool certificates to be qualifying real estate assets. A whole pool certificate is a certificate that represents the entire beneficial interest in an underlying pool of mortgage loans. By contrast, a certificate that represents less than the entire beneficial interest in the underlying mortgage loans is not considered to be a qualifying real estate asset for purposes of the 55% test, but constitutes a real estate-related asset for purposes of the 80% test. We do not expect that investments in CDOs, ~~other~~ ABS, bank loans, lease receivables, trust preferred securities and private equity will constitute qualifying real estate assets. Moreover, to the extent that these investments are not backed by mortgage loans or other interests in real estate, they will not constitute real estate-related assets. Instead, they will constitute miscellaneous assets, which can constitute no more than 20% of RCC Real Estate’s assets.

To the extent RCC Real Estate holds its commercial real estate loan assets through wholly or majority-owned CDO subsidiaries, RCC Real Estate also intends to conduct its operations so that it will not come within the definition of an investment company set forth in Section 3(a)(1)(C) of the Investment Company Act because less than 40% of the value of its total assets on an unconsolidated basis will consist of “investment securities,” which we refer to as the 40% test. “Investment securities” exclude U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. Certain of the wholly-owned CDO subsidiaries of RCC Real Estate rely on Section 3(c)(5)(C) for their Investment Company Act exemption, with the result that RCC Real Estate’s interests in the CDO subsidiaries do not constitute “investment securities” for the purpose of the 40% test.

Our other subsidiaries, RCC Commercial, Inc., or RCC Commercial, ~~and~~RCC Commercial II, Inc., or RCC Commercial II, Resource TRS, Inc., or Resource TRS, Resource TRS II, Inc., or Resource TRS II and Resource TRS III, Inc. or Resource TRS III do not qualify for the Section 3(c)(5)(C) exclusion. However, we believe they qualify for exclusion under either Section 3(c)(1) or 3(c)(7). As required by these exclusions, we will not allow either entity to make, or propose to make, a public offering of its securities. In addition, with respect to those subsidiaries for which we rely upon the Section 3(c)(1) exclusion, and as required thereby, we limit the number of holders of their securities to not more than 100 persons calculated in accordance with the attribution rules of Section 3(c)(1) and, with respect to those subsidiaries for which we rely on the Section 3(c)(7) exclusion, and as required thereby, we limit ownership of their securities to “qualified purchasers.” If we form other subsidiaries, we must ensure that they qualify for an exemption or exclusion from regulation under the Investment Company Act.

Moreover, we must ensure that Resource Capital Corp. itself qualifies for an exclusion from regulation under the Investment Company Act. We will do so by monitoring the value of our interests in our subsidiaries. At all times, we must ensure that Resource Capital Corp. meets the 40% test. Our interest in RCC Real Estate does not constitute an “investment security” for purposes of the 40% test, but our interest in RCC Commercial does, and our interest in Resource TRS may in the future, constitute “investment securities.” Accordingly, we must monitor the value of our interest in these two subsidiaries to ensure that the value of our interests in them never exceeds 40% of the value of our total assets.

We have not received, nor have we sought, a no-action letter from the SEC regarding how our investment strategy fits within the exclusions from regulation under the Investment Company Act. To the extent that the SEC provides more specific or different guidance regarding the treatment of assets as qualifying real estate assets or real estate-related assets, we may have to adjust our investment strategy. Any additional guidance from the SEC could further inhibit our ability to pursue our investment strategy.

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Employees

We have no direct employees. Under our management agreement, the Manager provides us with all management and support personnel, including a Chief Financial Officer, and services necessary for our day-to-day operations. To provide its services, the Manager draws upon the expertise and experience of Resource America. As of December 31, 2011, Resource America had 742 employees involved in asset management, including 108 asset management professionals and 634 asset management support personnel. Pursuant to an amendment on October 16, 2009, the Manager ~~provides~~must provide us with ~~three~~several accounting professionals, each of whom is exclusively dedicated to our operations, and a director of investor relations who is 50% dedicated to our operations. Under the amendment, we bear the expense of the wages, salaries and benefits of the Chief Financial Officer and ~~three~~the accounting professionals dedicated to us, and 50% of the salary and benefits of the director of investor relations. In addition, in February 2010, we began reimbursing ~~our Chairman~~the Manager for the wages, salary, and benefits ~~in February 2010. We depend upon~~of our Chairman of the Manager and Resource America for personnel and administrative infrastructure. To provide its services, the Manager draws upon the expertise and experience of Resource America. As of December 31, 2010, Resource America had 688 employees involved in asset management, including 100 asset management professionals and 588 asset management support personnel, respectively.Board, who is exclusively dedicated to us.

Corporate Governance and Internet Address

We emphasize the importance of professional business conduct and ethics through our corporate governance initiatives. Our board of directors consists of a majority of independent directors, as defined in the Securities Exchange Act of 1934, as amended, and relevant New York Stock Exchange, or NYSE, rules. The audit, compensation and nominating/corporate governance committees of our board of directors are composed exclusively of independent directors. We have adopted corporate governance guidelines and a code of business conduct and ethics, which delineate our standards for our officers and directors, and employees of our manager.

Our internet address is ~~www.resourcecapitalcorp.com.~~www.resourcecapitalcorp.com. We make available, free of charge through a link on our site, all reports filed with the SEC as soon as reasonably practicable after such filing. Our site also contains our code of business conduct and ethics, corporate governance guidelines and the charters of the audit committee, nominating and governance committee and compensation committee of our board of directors. A complete list of our filings is available on the Securities and Exchange Commission’s website at www.sec.gov. Any of our filings are also available at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The Public Reference Room may be contacted at telephone number (800) 732-0330 for further information.

ITEM 1A.

~~ITEM 1A~~.

RISK FACTORS

This section describes material risks affecting our business. In connection with the forward-looking statements that appear in this annual report, you should carefully review the factors discussed below and the ~~economic~~ cautionary statements referred to in “Forward-Looking Statements.”

Impact of Current Economic Conditions

~~Continuance of current economic~~Economic conditions ~~could further harm~~in the United States during the past four year have had an adverse impact on our financial condition, which has reduced our income and our ability to make distributions to our stockholders. Continuance of these conditions could further adversely affect our financial conditions.

Although credit market conditions have improved over those of the previous two years, there are still ~~significant~~ limitations on the availability of credit, ~~significant~~ declines in the value of real estate and real estate related assets, impairment of the ability of ~~many~~some borrowers to repay their obligations and ~~illiquidity~~limited liquidity in the markets for real estate and real estate-related assets. Since mid-2007, economic and credit market ~~confidence~~conditions have had significant adverse effects on us, causing us to record material impairment charges with respect to investments we hold and significant increases in our provision for loan ~~losses, the unavailability of~~losses. Moreover, these conditions have made it difficult, and, until 2011 virtually impossible, for us to access new financing to support ~~new investments.~~investment growth. As a result, our income, our ability to make distributions, and the price of our common stock have declined significantly. ~~Continuation~~Failure of ~~current~~ economic and credit market conditions to improve materially could further harm our financial condition, income, ability to make distributions to our stockholders and the price of our common stock.

We cannot predict the effects on us of actions taken by the U.S. government and governmental agencies in response to economic conditions in the United States

In response to economic and market conditions, the U.S. government and a number of governmental agencies have established or proposed a series of programs designed to ~~stabilize~~improve the financial system and credit markets, and to stimulate economic growth. The U.S. government and many state and local governments are incurring substantial budget deficits and seeking financing in international and national credit markets. We are unable to evaluate whether these programs and actions have had or will have in the future a beneficial impact upon our financial condition, income, or ability to make distributions to our stockholders.

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Risks Related to Our Financing

Our portfolio has been financed in material part through the use of leverage, which may reduce the return on our investments and cash available for distribution.

Our portfolio has been financed in material part through the use of ~~leverage.~~leverage and, as credit market conditions permit, we will seek such financing in the future. Using leverage subjects us to risks associated with debt financing, including the risks that:

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the cash provided by our operating activities will not be sufficient to meet required payments of principal and interest,

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the cost of financing may increase relative to the income from the assets financed, reducing the income we have available to pay distributions, and

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our investments may have maturities that differ from the maturities of the related financing and, consequently, the risk that the terms of any refinancing we obtain will not be as favorable as the terms of existing financing.

If we are unable to secure refinancing of our currently outstanding financing, when due, on acceptable terms, we may be forced to dispose of some of our assets at disadvantageous terms or to obtain financing at unfavorable terms, either of which may result in losses to us or reduce the cash flow available to meet our debt service obligations or to pay distributions.

Financing that we may obtain and financing we have obtained through CDOs, does require us to maintain a specified ratio of the amount of the financing to the value of the assets financed. A decrease in the value of these assets may lead to margin calls or calls for the pledge of additional assets which we will have to satisfy. We may not have sufficient funds or unpledged assets to satisfy any such ~~calls.~~calls, which could result in our loss of distributions from and interests in affected CDOs, which would reduce our assets, income and ability to make distributions.

Under current economic and market conditions, ~~we are significantly constrained in~~ our ability to obtain the capital and financing necessary for ~~growth. As a result,~~growth has been limited, which has limited our profitability, ability to make distributions and the market price of our common ~~stock have been harmed.~~stock. Continuation or ~~further~~ deterioration of current conditions could further ~~harm~~constrain our profitability, ability to make distributions and the market price of our common stock.

We depend upon the availability of adequate debt and equity capital for growth in our operations. Although we ~~successfully completed an offering of common stock in December 2009, and~~recently have raised equity capital through our dividend reinvestment and stock purchase program have entered into two credit facilities and completed one CLO, in general our ability to obtain debt financing and, to a lesser extent, equity capital ~~has been significantly~~is still constrained as a result of current economic and market conditions, which has ~~impaired~~limited our profitability, our ability to make distributions and the market price of our common stock. ~~Moreover,~~In addition, as a REIT, we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to our stockholders and are therefore not able to retain significant amounts of our earnings for new investments. While Rev. Proc. 2010-12, allows us to satisfy this requirement by distributing common shares for up to 90% of the amount of a required distribution, such regulatory relief is only available through December 2011. Moreover, although Resource TRS, our TRS, may retain earnings as new capital, we are subject to REIT qualification requirements which limit the value of TRS stock and securities relative to the other assets owned by a REIT. Continuation or ~~further~~ deterioration of current economic and market conditions could further ~~impair~~constrain our ability to acquire and finance assets, thereby ~~reducing~~affecting or eliminating our profitability and our ability to make distributions, ~~impairing~~and the market price of our common stock. Moreover, even if debt and equity capital were to become more readily available to us, we cannot assure you that it would be on terms that would enable us to strengthen our profitability or ability to make distributions.

We are exposed to loss if lenders under our repurchase agreement, warehouse facilities, or other short-term lenders liquidate our portfolio. Moreover, assets acquired by us pursuant to our repurchase agreements, warehouse facilities or other short-term debt may not be suitable for refinancing through future securitization transactions, which may require us to seeks more costly financing for theses assets or to liquidate assets.

We have entered into repurchase agreements, and may in the future enter into other repurchase agreements, warehouse facilities or other debt with similar terms. Our lenders have the right under our current repurchase agreement, and may have the right under such other debt, to liquidate assets acquired thereunder upon the occurrence of certain events, such as an event of default. We are exposed to loss if the proceeds received by the lender upon any such liquidation are insufficient to satisfy our obligation to the lender. We are also subject to the risk that the assets subject to such repurchase agreements, warehouse facilities or other debt with similar terms might not be suitable for refinancing through future securitization transactions. If we are unable to refinance these assets through future securitization transactions, we might be required to seek more costly financing for these assets or to liquidate assets.

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We will lose money on our repurchase transaction if the counterparty to the transaction defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of the term or if we default in our obligations under the repurchase agreement.

When engaged in repurchase transactions, we generally sell securities to the transaction counterparty and receive cash from the counterparty. The counterparty must resell the securities back to us at the end of the term of the transaction. Because the cash we receive from the counterparty when we initially sell the securities to the counterparty is less than the market value of those securities, if the counterparty defaults on its obligation to resell the securities back to us we will incur a loss on the transaction. We will also incur a loss if the value of the underlying securities has declined as of the end of the transaction term, as we will have to repurchase the securities for their initial value but would receive securities worth less than that amount. Any losses we incur on our repurchase transactions would reduce our earnings, and thus our cash available for distribution to our stockholders.

Our financing of our REIT qualifying assets with repurchase agreements and warehouse facilities could adversely affect our ability to qualify as a REIT.

We have entered into and intend to enter into, sale and repurchase agreements under which we nominally sell certain REIT qualifying assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. We believe that we will be treated for U.S. federal income tax purposes as the owners of the assets that are the subject of any such agreement notwithstanding that we may transfer recorder ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the Internal Revenue Service, or IRS, could assert that we did not own the assets during the terms of the sale and repurchase agreement, in which case our ability to qualify as a REIT would be adversely affected. If any of our REIT qualifying assets are subject to a repurchase agreement and are sold by the counterparty in connection with a margin call, the loss of those assets could impair our ability to qualify as a REIT. Accordingly, unlike other REITs, we may be subject to additional risk regarding our ability to qualify and maintain our qualification as a REIT.

Historically, we have financed most of our investments through CDOs and have retained the equity. CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses.

Historically, we have financed most of our investments through CDOs in which we retained the equity interest. Depending on market conditions, credit availability, and resolution of current credit market conditions, we may seek to use CDOs to finance our investments in the future. The equity interests of a CDO are subordinate in right of payment to all other securities issued by the CDO. The equity is usually entitled to all of the income generated by the CDO after the CDO pays all of the interest due on the debt securities and other expenses. However, there will be little or no income available to the CDO equity if there are excessive defaults by the issuers of the underlying collateral which would significantly reduce the value of that interest. Reductions in the value of the equity interests we have in a CDO, if we determine that they are other than temporary, will reduce our earnings. In addition, the equity securities of CDOs are generally illiquid, and because they represent a leveraged investment in the CDO’s assets, the value of the equity securities will generally have greater fluctuations than the value of the underlying collateral.

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If our CDO financings fail to meet their performance tests, including ~~over-collaterization~~over-collateralization requirements, our net income and cash flow from these CDOs will be eliminated.

Our CDOs generally provide that the principal amount of their assets must exceed the principal balance of the related securities issued by them by a certain amount, commonly referred to as “over-collateralization.” The CDO terms provide that, if delinquencies and/or losses exceed specified levels, based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the securities issued by the CDO issuer, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted if losses or delinquencies did not exceed those levels. In addition, a failure by a CDO to satisfy an over-collateralization test typically results in accelerated distributions to the holders of the senior debt securities issued by the CDO entity, resulting in reduction or elimination of distributions to more junior securities until the ~~over-collateralizatoin~~over-collateralization requirements have been met or the senior debt securities have been paid in full. Our equity holdings are and, when we acquire debt interests in CDOs, our debt interests, if any, generally are subordinate in right of payment to the other classes of debt securities issued by the CDO entity. Accordingly, if overcollateralization tests are not met, distributions on the subordinated debt and equity we hold in these CDOs will cease, resulting in a substantial reduction in our cash flow. Other tests (based on delinquency levels, interest coverage or other criteria) may restrict our ability to receive cash distributions from assets collateralizing the securities issued by the CDO entity. Although at December 31, ~~2010,~~2011, all of our CDOs met their performance tests, we cannot assure you that our CDOs will satisfy the performance tests in the future. For information concerning compliance by our CDOs with their over-collateralization tests, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Summary of CDO and CLO Performance Statistics.”

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If any of our CDOs fails to meet collateralization or other tests relevant to the most senior debt issued and outstanding by the CDO issuer, an event of default may occur under that CDO. If that occurs, our Manager’s ability to manage the CDO likely would be terminated and our ability to attempt to cure any defaults in the CDO would be limited, which would increase the likelihood of a reduction or elimination of cash flow and returns to us in those CDOs for an indefinite time.

If we issue debt securities, the terms may restrict our ability to make cash distributions, require us to obtain approval to sell our assets or otherwise restrict our operations in ways which could make it difficult to execute our investment strategy and achieve our investment objectives.

Any debt securities we may issue in the future will likely be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Holders of senior securities may be granted the right to hold a perfected security interest in certain of our assets, to accelerate payments due under the indenture if we breach financial or other covenants, to restrict distributions, and to require approval to sell assets. These covenants could limit our ability to operate our business or manage our assets effectively. Additionally, any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common stock. We, and indirectly our stockholders, will bear the cost of issuing and servicing such securities.

Depending upon market conditions, we may in the future seek financing through CDOs, which would expose us to risks relating to the accumulation of assets for use in the CDOs.

Historically, we have financed a significant portion of our assets through the use of CDOs and CLOs, and have accumulated assets for these financings through short-term credit facilities, typically repurchase agreement facilities. Depending upon market ~~conditions,~~condition, and, consequently, the extent to which such financing is available to us, we may seek similar financing arrangements in the future. These arrangements could expose us to a number of credit risks, including the following:

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If we accumulate assets for a CDO or CLO on a short-term credit facility and do not complete the CDO or CLO financing, or if a default occurs under the facility, the short-term lender will sell the assets and we would be responsible for the amount by which the original purchase price of the assets exceeds their sale price, up to the amount of our investment or guaranty.

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An event of default under one short-term facility may constitute a default under other credit facilities we may have, potentially resulting in asset sales and losses to us, as well as increasing our financing costs or reducing the amount of investable funds available to us.

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We may be unable to acquire a sufficient amount of eligible assets to maximize the efficiency of a CDO or CLO issuance, which would require us to seek other forms of term financing or liquidate the assets. We may not be able to obtain term financing on acceptable terms, or at all, and liquidation of the assets may be at prices less than those we paid, resulting in losses to us.

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Using short-term financing to accumulate assets for a CDO or CLO issuance may require us to obtain new financing as the short-term financing matures. Residual financing may not be available on acceptable terms, or at all. Moreover, an increase in short-term interest rates at the time that we seek to enter into new borrowings would reduce the spread between the income on our assets and the cost of our borrowings. This would reduce returns on our assets, which would reduce earnings and, in turn, cash available for distribution to our stockholders.

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We will lose money on our repurchase transactions if the counterparty to the transaction defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of the term or if we default on our obligations under the repurchase agreements.

Our hedging transactions may not completely insulate us from interest rate risk and may result in poorer overall investment performance than if we had not engaged in any hedging transactions.

Subject to maintaining our qualification as a REIT, we pursue various hedging strategies to seek to reduce our exposure to losses from adverse changes in interest rates. Our interest rate hedging activity varies in scope depending upon market conditions relating to, among other factors, the level and volatility of interest rates and the type of assets we hold. There are practical limitations on our ability to insulate our portfolio from all of the negative consequences associated with changes in short-term interest rates, including:

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Available interest rate hedges may not correspond directly with the interest rate risk against which we seek protection.

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The duration of the hedge may not match the duration of the related liability.

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Interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates. Hedging costs may include structuring and legal fees and fees payable to hedge counterparties to execute the hedge transaction.

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Losses on a hedge position may reduce the cash available to make distributions to stockholders, and may exceed the amounts invested in the hedge position.

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The amount of income that a REIT may earn from hedging transactions, other than through a TRS, is limited by federal tax provisions governing REITs.

●

The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction.

●

The party owing money in the hedging transaction may default on its obligation to pay.

We have adopted written policies and procedures governing our hedging activities. Under these policies and procedures, our board of directors is responsible for approving the types of hedging instruments we may use, absolute limits on the notional amount and term of a hedging instrument and parameters for the credit-worthiness of hedge counterparties. The senior managers responsible for each of our targeted asset classes are responsible for executing transactions using the services of independent interest rate risk management consultants, documenting the transactions, monitoring the valuation and effectiveness of the hedges, and providing reports concerning our hedging activities and the valuation and effectiveness of our hedges, to the audit committee of our board of directors no less often than quarterly. Our guidelines also require us to engage one or more experienced ~~third party~~third-party advisors to provide us with assistance in the identification of interest rate risks, the analysis, selection and timing of risk protection strategies, the administration and negotiation of hedge documentation, settlement or disposition of hedges, compliance with hedge accounting requirements and measurement of hedge effectiveness and valuation.

Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of the positions or prevent losses if the values of the positions decline. Hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, we may not be able to hedge against an interest rate fluctuation that is generally anticipated by the market.

The success of our hedging transactions will depend on the Manager’s ability to correctly predict movements of interest rates. Therefore, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

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Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks of default by the hedging counterparty and illiquidity.

Subject to maintaining our qualification as a REIT, part of our investment strategy involves entering into puts and calls on securities or indices of securities, interest rate swaps, caps and collars, including options and forward contracts, and interest rate lock agreements, principally Treasury lock agreements, to seek to hedge against mismatches between the cash flows from our assets and the interest payments on our liabilities. Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a counterparty with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we entered into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then current market price. Although generally we seek to reserve the right to terminate our hedging positions, we may not always be able to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. A liquid secondary market may not exist for hedging instruments purchased or sold, and we may have to maintain a position until exercise or expiration, which could result in losses.

We may enter into hedging instruments that could expose us to unexpected losses in the future.

We have entered and may in the future enter into hedging instruments that require us to fund cash payments under certain circumstances, for example, upon the early termination of the instrument caused by an event of default or other early termination event, or the decision by a counterparty to request additional collateral for margin it is contractually owed under the terms of the instrument. The amount due would be equal to the unrealized loss of the open positions with the counterparty and could also include other fees and charges. These liabilities will be reflected in our consolidated balance sheet, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

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Approximately ~~92%~~91% of our hedging arrangements are with a single counterparty and, as a consequence, our hedging strategy may fail if that counterparty defaults in its obligations.

As of December 31, ~~2010,~~2011, approximately ~~92%~~91% of our outstanding hedges, with a notional amount of ~~$166.8~~$152.1 million, were with Credit Suisse International, or CS. Were CS to default in its obligations under these hedging arrangements, we would lose the hedge protection for which we had contracted which, depending upon market conditions, could result in significant losses to us. We cannot assure you that we could replace the defaulted hedges or that the terms of any replacement hedges we could obtain would be on similar terms, or as to the cost to us of obtaining replacement hedges.

Risks Related to Our Operations

We may change our investment strategy without stockholder consent, which may result in riskier investments than those currently targeted.

Subject to maintaining our qualification as a REIT and our exclusion from regulation under the Investment Company Act, we may change our investment strategy, including the percentage of assets that may be invested in each class, or in the case of securities, in a single issuer, at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in this report. A change in our investment strategy may increase our exposure to interest rate and real estate market fluctuations, all of which may reduce the market price of our common stock and impair our ability to make distributions to stockholders. Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this report.

We believe AFFO is an appropriate measure of our operating performance; however, in certain instances AFFO may not be reflective of actual economic results.

We utilize AFFO as a measure of our operating performance and believe that it is useful to investors because it facilitates an understanding of our operating performance after adjustment for certain non-cash expenses , such as non-cash impairment losses resulting from fair value adjustments on financial instruments, non-cash provision for loan losses, straight-line rental effects, share based compensation, amortization of various deferred items and intangible assets, gains on debt extinguishment, REIT tax planning adjustments considered non-recurring by management and capital expenditures that are related to our real estate owned. Additionally, we believe that AFFO serves as a good measure of our operating performance because it facilitates evaluation of our Company without the effects of selected items required in accordance with GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Nonetheless, in certain instances, AFFO may not necessarily be reflective of our actual economic results.

We believe potentially increasing capital expenditures could reduce our AFFO.

Substantial capital expenditures for acquisition, renovation or unforeseen circumstances could reduce our AFFO.

Terrorist attacks and other acts of violence or war may affect the market for our common stock, the industry in which we conduct our operations and our profitability.

Terrorist attacks may harm our results of operations and your investment. We cannot assure you that there will not be ~~further~~future terrorist attacks against the United States or U.S. businesses. These attacks or armed conflicts may directly impact ~~the property~~our assets, properties or other assets underlying our ~~ABS~~loans or debt securities or the securities markets in general. Losses resulting from these types of events are uninsurable.

More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and worldwide financial markets and economy. Adverse economic conditions could harm the value of some or all of the investments in our portfolio or the securities markets in general which could harm our operating results and revenues and may result in the volatility of the value of our securities.

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If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

If we fail to maintain an effective system of internal control, fail to correct any matters in the design or operating effectiveness of internal control over financial reporting, or fail to prevent fraud, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

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Some of our investments may be illiquid, which may result in our realizing less than their recorded value should we need to sell such investments quickly.

We have made investments, and expect to make additional investments, in securities and other assets for which there is no public market. A portion of these securities or other assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a business entity to the extent that we, the Manager or Resource America has or could be attributed with material non-public information regarding such business entity.

We may have to repurchase assets that we have sold in connection with CDOs and other securitizations.

If any of the assets that we originate or acquire and sell or securitize do not comply with representations and warranties that we make about their characteristics, the borrowers and the underlying assets, we may have to purchase these assets from the CDO or securitization vehicle, or replace them with substitute loans or securities. In addition, in the case of loans or securities that we have sold instead of retained, we may have to indemnify purchasers for losses or expenses incurred as a result of a breach of a representation or warranty. Any significant repurchases or indemnification payments could materially reduce our liquidity, earnings and ability to make distributions.

We may be exposed to environmental liabilities with respect to properties to which we take title.

In the course of our business, we ~~may~~have taken title to, and expect will in the future take title to, real estate through foreclosure on collateral underlying real estate investments. IfWhen we do take title to any property, we could be subject to environmental liabilities with respect to it. In such a circumstance, we may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation, and clean-up costs they incur as a result of environmental contamination, or may have to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial and could reduce our income and ability to make distributions.

If our allowance for loan and lease losses is not adequate to cover actual or estimated future loan and lease losses, our earnings may decline.

We maintain an allowance for loan and lease losses to provide for loan defaults and non-performance by borrowers of their obligations. Our allowance for loan and lease losses may not be adequate to cover actual or estimated future loan and lease losses and future provisions for loan and lease losses could materially reduce our income. We base our allowance for loan and lease losses on prior experience, as well as an evaluation of risks in the current portfolio. However, losses may exceed our current estimates. The amount of future losses is susceptible to changes in economic, operating and other conditions that may be beyond our control, including changes in interest rates, changes in borrowers’ creditworthiness and the value of collateral securing loans and leases. Additionally, if we seek to expand our loan and lease portfolios, we may need to make provisions for loan and lease losses to ensure that the allowance remains at levels deemed appropriate by our management for the size and quality of our portfolios. While we believe that our allowance for loan and lease losses is adequate to cover our anticipated losses, we cannot assure you that will continue to be the case or that we will not further increase the allowance for loan and lease losses. Any increase in our allowance for loan losses will reduce our income and, if sufficiently large, could cause us to incur loss.

Our due diligence may not reveal all of an entity’s liabilities and other weaknesses in its business.

Before investing in any entity, we will assess the strength and skills of the entity’s management, the value of any collateral securing debt, the ability of the entity and the collateral to service the debt and other factors that we believe are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, we will rely on the resources available to us and, in some cases, an investigation by third parties. This process is particularly important and subjective with respect to newly-organized entities because there may be little or no information publicly available about the entities or, with respect to debt securities, any underlying collateral. Our due diligence processes, however, may not uncover all facts that may be relevant to an investment decision.

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Risks Related to Our Investments

Declines in the market values of our investments may reduce periodic reported results, credit availability and our ability to make distributions.

We classify a substantial portion of our assets for accounting purposes as “available-for-sale.” As a result, changes in the market values of those assets are directly charged or credited to accumulated other comprehensive loss and could reduce our stockholders’ equity. A decline in these values will reduce the book value of our assets. Moreover, if the decline in value of an available-for-sale asset is other than temporary, we are required by GAAP to record the decline as an asset impairment which will reduce our earnings. As a result of market conditions for our “available-for-sale” investments, we recognized ~~$26.6~~$6.9 million of other-than-temporary impairment through our consolidated statements of operations during the year ended December 31, ~~2010.~~2011.

A decline in the market value of our assets may also adversely affect us in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we would have to repay some portion or all of the loan, which may require us to sell assets, which could potentially be under adverse market conditions. As a result, our earnings would be reduced or we could sustain losses, and cash available to make distributions could be reduced or eliminated.

Increases in interest rates and other factors could reduce the value of our investments, result in reduced earnings or losses and reduce our ability to pay distributions.

A significant risk associated with our investment in commercial real estate-related loans, CMBS and other debt instruments is the risk that either or both of long-term and short-term interest rates increase significantly. If long-term rates increase, the market value of our assets would decline. Even if assets underlying investments we may own in the future are guaranteed by one or more persons, including government or government-sponsored agencies, those guarantees do not protect against declines in market value of the related assets caused by interest rate changes. At the same time, with respect to assets that are not match-funded or that have been acquired with variable rate or short-term financing, an increase in short-term interest rates would increase our interest expense, reducing our net interest ~~spread.~~spread or possibly resulting in negative cash flow from those assets. This could result in reduced profitability and ~~distributions.~~distributions or losses.

Investing in mezzanine debt and mezzanine or other subordinated tranches of CMBS, bank loans and other ABS involves greater risks of loss than senior secured debt investments.

Subject to maintaining our qualification as a REIT and exclusion from regulation under the Investment Company Act, we invest in mezzanine debt and expect to invest in mezzanine or other subordinated tranches of CMBS, bank loans and other ABS. These types of investments carry a higher degree of risk of loss than senior secured debt investments such as our whole loan investments because, in the event of default and foreclosure, holders of senior liens will be paid in full before mezzanine investors and, depending on the value of the underlying collateral at the time of foreclosure, there may not be sufficient assets to pay all or any part of amounts owed to mezzanine investors. Moreover, our mezzanine and other subordinate debt investments may have higher loan-to-value ratios than conventional senior lien financing, resulting in less equity in the collateral and increasing the risk of loss of principal. If a borrower defaults or declares bankruptcy, we may be subject to agreements restricting or eliminating our rights as a creditor, including rights to call a default, foreclose on collateral, accelerate maturity or control decisions made in bankruptcy proceedings. In addition, the prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to economic downturns or individual issuer developments because the ability of obligors of instruments underlying the securities to make principal and interest payments may be impaired. In such event, existing credit support relating to the securities’ structure may not be sufficient to protect us against loss of our principal.

We historically have ~~historically~~ invested in small- and middle-ticket lease receivables to small- and mid-size businesses which may have greater risks of default than leases or loans to larger businesses.

We historically have ~~historically~~ invested in small- and middle-ticket lease receivables. As a result of our investment in LEAF Commercial Capital, Inc., or LCC, (including the contribution of all of our lease receivables to it), we currently do not directly invest in lease receivables. However, we are not prohibited from investing in lease receivables and may do so in the future. Investing in small- and middle- ticket lease receivables involves risk. Many of the obligors are small- to mid-size businesses. As a result, we ~~may~~would be subject to higher risks of lease default than if ~~our~~the obligors were larger businesses. ~~While~~If we ~~will~~ seek to repossess and re-lease or sell ~~the~~ equipment subject to a defaulted lease or note, we may not be able to do so on advantageous terms. If an obligor files for protection under the bankruptcy laws, we ~~may~~could experience difficulties and delays in recovering the equipment. Moreover, the equipment ~~may~~could be returned in poor condition and we ~~may~~could be unable to enforce important lease provisions against an insolvent obligor, including the contract provisions that require the obligor to return the equipment in good condition. In some cases, an obligor’s deteriorating financial condition ~~may~~could make trying to recover what the obligor owes impractical. The costs of recovering equipment upon an obligor’s default, enforcing the obligor’s obligations under the lease, and transporting, storing, repairing and finding a new obligor or purchaser for the equipment ~~may~~could be high. Higher than expected lease defaults ~~will~~could result in a loss of anticipated revenues. ~~These~~Any such losses ~~may~~could impair our ability to make distributions and reduce the market price of our common stock.

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Private equity investments involve a greater risk of loss than traditional debt financing.

On occasion, we have made private equity investments. Typically, these investments are subordinate to debt financing and are not secured. Should the issuer default on our investment, we would only be able to proceed against the entity that issued the private equity in accordance with the terms of the security, and not any property owned by the entity. In the event of bankruptcy or foreclosure, we would only be able to recoup our investment after any lenders to the entity are paid. As a result, we may not recover some or all of our investment, which could result in losses. Moreover, depending upon the existence of a market for the issuer’s securities, the length of time we have held the investment and any rights we may have to require registration under the Securities Act, these investments may be highly illiquid so that we may not be able to sell these investments at times we would like to do so or at prices that reflect our cost or the value of the investment on our financial statements.

We record some of our portfolio investments at fair value as estimated by our management and, as a result, there will be uncertainty as to the value of these investments.

We currently hold, and expect that we will hold in the future, portfolio investments that are not publicly ~~traded, including the securities of Resource TRS.~~traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We value these investments quarterly at fair value as determined under policies approved by our board of directors. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have obtained if a ready market for them existed. The value of our common stock will likely decrease if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.

Our assets include bank loans and ~~other~~ ABS which will carry higher risks of loss than our real estate-related portfolio.

Subject to maintaining our qualification as a REIT and exclusion from regulation under the Investment Company Act, we invest in bank loans and ~~other~~ ABS. Our bank loan investments or our ~~other~~ ABS investments, which are principally backed by small business and bank loans, may not be secured by mortgages or other liens on assets or may involve higher loan-to-value ratios than our real estate-related investments. Our bank loan investments, and our ABS backed by loans, involve loans with a par amount of ~~$207.8 million~~$1.2 billion at December 31, ~~2010~~2011 that have an interest-only payment schedule or a schedule that does not fully amortize principal over the term of the loan, which will make repayment of the loan depend upon the borrower’s liquidity or ability to refinance the loan at maturity. Numerous factors affect a borrower’s ability to repay or refinance loans at maturity, including national and local economic conditions, a downturn in a borrower’s industry, loss of one or more principal customers and conditions in the credit markets. A deterioration in a company’s financial condition or prospects may be accompanied by a deterioration in the collateral for the bank loan or any ABS backed by such company’s loans.

Risks Related to Our Manager

We depend on the Manager and Resource America and may not find suitable replacements if the management agreement terminates.

We have no employees. Our officers, portfolio managers, administrative personnel and support personnel are employees of Resource America. We have no separate facilities and completely rely on the Manager and, because the Manager has no direct employees, Resource America, which has significant discretion as to the implementation of our operating policies and investment strategies. If our management agreement terminates, we may be unable to find a suitable replacement for them. Moreover, we believe that our success depends to a significant extent upon the experience of the Manager’s and Resource America’s executive officers and senior portfolio managers, and in particular Jonathan Z. Cohen, Thomas C. Elliott, Jeffrey F. Brotman, Jeffrey D. Blomstrom, David J. Bryant, Christopher D. Allen, Gretchen Bergstresser, David Bloom, Crit DeMent, Joan Sapinsley and Alan F. Feldman, whose continued service is not guaranteed. The departure of any of the executive officers or senior portfolio managers could harm our investment performance.

We must pay the Manager the base management fee regardless of the performance of our portfolio.

The Manager is entitled to receive a monthly base management fee equal to 1/12 of our equity, as defined in the management agreement, times 1.50%, regardless of the performance of our portfolio. The Manager’s entitlement to substantial non-performance based compensation might reduce its incentive to devote its time and effort to seeking profitable opportunities for our portfolio. This in turn could hurt our ability to make distributions to our stockholders.

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The incentive fee we pay the Manager may induce it to make riskier investments.

In addition to its base management fee, the Manager will receive incentive compensation, payable quarterly, equal to 25% of the amount by which our adjusted operating earnings, as defined in the management agreement, exceed the weighted average prices for our common stock in all of our offerings multiplied by the greater of 2.00% or 0.50% plus one-fourth of the average 10-year treasury rate for such quarter, multiplied by the weighted average number of common shares outstanding during the quarter. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on net income may lead the Manager to place undue emphasis on the maximization of net income at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yields generally have higher risk of loss than investments with lower yields.

The Manager manages our portfolio pursuant to very broad investment guidelines and our board does not approve each investment decision, which may result in our making riskier investments.

The Manager is authorized to follow very broad investment guidelines. While our directors periodically review our investment guidelines and our investment portfolio, they do not review all of our proposed investments. In addition, in conducting periodic reviews, the directors may rely primarily on information provided to them by the Manager. Furthermore, the Manager may use complex strategies, and transactions entered into by the Manager may be difficult or impossible to unwind by the time they are reviewed by the directors. The Manager has great latitude within the broad investment guidelines in determining the types of investments it makes for us. Poor investment decisions could impair our ability to make distributions to our stockholders.

Our management agreement was not negotiated at arm’s-length and, as a result, may not be as favorable to us as if it had been negotiated with a ~~third party.~~third-party.

~~Our~~At the time the management agreement was negotiated, our officers and ~~three~~two of our directors, Edward E. Cohen and Jonathan Z. Cohen, ~~and Steven J. Kessler~~ were also officers or directors of the Manager or Resource ~~America at the time the management agreement was negotiated.~~America. As a consequence, our management agreement was not the result of arm’s-length negotiations and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated ~~third party.~~third-party.

Termination of the management agreement by us without cause is difficult and could be costly.

Termination of our management agreement without cause is difficult and could be costly. We may terminate the management agreement without cause only annually following its initial term upon the affirmative vote of at least two-thirds of our independent directors or by a vote of the holders of at least a majority of our outstanding common stock, based upon unsatisfactory performance by the Manager that is materially detrimental to us or a determination that the management fee payable to the Manager is not fair. Moreover, with respect to a determination that the management fee is not fair, the Manager may prevent termination by accepting a mutually acceptable reduction of management fees. We must give not less than 180 days’ prior notice of any termination. Upon any termination without cause, the Manager will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive compensation earned by it during the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

The Manager and Resource America may engage in activities that compete with us.

Our management agreement does not prohibit the Manager or Resource America from investing in or managing entities that invest in asset classes that are the same as or similar to our targeted asset classes, except that they may not raise funds for, sponsor or advise any new publicly-traded REIT that invests primarily in mortgage-backed securities, or MBS, in the United States. The Manager’s policies regarding resolution of conflicts of interest may be varied by it if economic, market, regulatory or other conditions make their application economically inefficient or otherwise impractical. Moreover, our officers, other than our Chief Financial Officer and ~~three~~several accounting professionals on his staff, and the officers, directors and employees of Resource America who provide services to us are not required to work full time on our affairs, and devote significant time to the affairs of Resource America. As a result, there may be significant conflicts between us, on the one hand, and the Manager and Resource America on the other, regarding allocation of the Manager’s and Resource America’s resources to the management of our investment portfolio.

We have engaged in transactions with entities affiliated with the Manager. Our policies and procedures may be insufficient to address any conflicts of interest that may arise.

We have established procedures and policies regarding review, approval and ratification of transactions which may give rise to a conflict of interest between us and persons affiliated or associated with the Manager. In the ordinary course of our business, we have ongoing relationships and have engaged in transactions with entities affiliated or associated with the Manager. Our procedures may not be sufficient to address any conflicts of interest that arise.

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Our Manager’s liability is limited under the management agreement, and we have agreed to indemnify our Manager against certain liabilities.

Our Manager does not assume any responsibility under the management agreement other than to render the services called for under it, and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Resource America, the Manager, their directors, managers, officers, employees and affiliates will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders for acts performed in accordance with and pursuant to the management agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement. We have agreed to indemnify the parties for all damages and claims arising from acts not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management agreement.

We depend upon information systems of our manager to conduct our operations. Systems failures could significantly disrupt our business.

Our business depends on communications and information systems of our manager. Any failure or interruption of their systems could cause delays or other problems in our activities which could harm our operating results, cause the market price of our common stock to decline and reduce our ability to make distributions.

Risks Related to Real Estate Investments

The B notes in which we invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

A B note is a loan typically secured by a first mortgage on a single large commercial property or group of related properties and subordinated to a senior note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B note owners after payment to the senior note owners. Since each transaction is privately negotiated, B notes can vary in their structural characteristics and risks. For example, the rights of holders of B notes to control the process following a borrower default may be limited in certain investments. We cannot predict the terms of each B note investment we will make. Further, B notes typically are secured by a single property, and so reflect the increased risks associated with a single property compared to a pool of properties. B notes also are less liquid than other forms of commercial real estate debt investments, such as CMBS, and, as a result, we may be unable to dispose of underperforming or non-performing investments. The higher risks associated with the subordinate position of our B note investments could subject us to increased risk of loss.

Our real estate debt investments will be subject to the risks inherent in the real estate securing or underlying those investments which could result in losses to us.

Commercial mortgage loans are secured by, and mezzanine loans depend on, the performance of the underlying, multifamily or commercial property and are subject to risks of delinquency and foreclosure, and risks of loss, that are greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by or dependent upon an income-producing property typically depends primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income producing property can be affected by, among other things:

●

tenant mix, success of tenant businesses and property management ~~decisions,~~decisions;

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property location and ~~condition,~~condition;

●

competition from comparable types of ~~properties,~~properties;

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changes in laws that increase operating expenses or limit rents that may be ~~charged,~~charged;

●

any need to address environmental contamination at the ~~property,~~property;

●

the occurrence of any uninsured casualty at the ~~property,~~property;

●

changes in national, regional or local economic conditions and/or the conditions of specific industry segments in which our lessees may ~~operate,~~operate;

●

declines in regional or local real estate ~~values,~~values;

●

declines in regional or local rental or occupancy ~~rates,~~rates;

●

increases in interest rates, real estate tax rates and other operating ~~expenses,~~expenses;

●

increases in costs of construction material;

●

changes in governmental rules, regulations and fiscal policies, including environmental legislation, and

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acts of God, terrorism, social unrest and civil disturbances.

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Although we currently hold no residential mortgage loans in our portfolio, in the past our portfolio has included substantial residential mortgage investments. Residential mortgage loans are subject to risks of delinquency and foreclosure, and risks of loss. The ability of a borrower to repay these loans depends upon the borrower’s income or assets. A number of factors, including national, regional or local economic downturns, acts of God, terrorism, social unrest and civil disturbances, may impair borrowers’ abilities to repay their loans. Economic problems specific to a borrower, such as loss of a job or medical problems may also impair a borrower’s ability to repay his or her loan.

We risk loss of principal on defaulted mortgage loans we hold to the extent of any deficiency between the value we can realize from the sale of the collateral securing the loan upon foreclosure, and the loan’s principal and accrued interest. Moreover, foreclosure of a mortgage loan can be an expensive and lengthy process which could reduce the net amount we can realize on the foreclosed mortgage loan. In a bankruptcy of a mortgage loan borrower, the mortgage loan will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy as determined by the bankruptcy court, and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

For a discussion of other risks associated with mezzanine loans, see “-Investing in mezzanine debt or mezzanine or other subordinated tranches of CMBS, bank loans and ~~other~~ ABS involves greater risks of loss than senior secured debt instruments.”

Our investment portfolio may have material geographic, sector, property-type and sponsor concentrations.

We may have material geographic concentrations related to our direct or indirect investments in real estate loans and properties. We also have material concentrations in the property types and industry sectors that are in our loan portfolio. Where we have any kind of concentration risk in our investments, an adverse development in that area of concentration could reduce the value of our investment and our return on that investment and, if the concentration affects a material amount of our investments, impair our ability to execute our investment strategies successfully, reduce our earnings and reduce our ability to make distributions.

Risks Related to Our Organization and Structure

Our charter and bylaws contain provisions that may inhibit potential acquisition bids that you and other stockholders may consider favorable, and the market price of our common stock may be lower as a result.

Our charter and bylaws contain provisions that may have an anti-takeover effect and inhibit a change in our board of directors. These provisions include the following:

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There are ownership limits and restrictions on transferability and ownership in our charter. For purposes of assisting us in maintaining our REIT qualification under the Internal Revenue Code, our charter generally prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of any class or series of our outstanding capital stock. This restriction may:

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discourage a tender offer or other transactions or a change in the composition of our board of directors or control that might involve a premium price for our shares or otherwise be in the best interests of our stockholders; or

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result in shares issued or transferred in violation of such restrictions being automatically transferred to a trust for a charitable beneficiary, resulting in the forfeiture of those shares.

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Our charter permits our board of directors to issue stock with terms that may discourage a ~~third party~~third-party from acquiring us. Our board of directors may amend our charter without stockholder approval to increase the total number of authorized shares of stock or the number of shares of any class or series and issue common or preferred stock having preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by our board. Thus, our board could authorize the issuance of stock with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price.

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Our charter and bylaws contain other possible anti-takeover provisions. Our charter and bylaws contain other provisions that may have the effect of delaying or preventing a change in control of us or the removal of existing directors and, as a result, could prevent our stockholders from being paid a premium for their common stock over the then-prevailing market price.

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Maryland takeover statutes may prevent a change in control of us, and the market price of our common stock may be lower as a result.

Maryland Control Share Acquisition Act. Maryland law provides that “control shares” of a corporation acquired in a “control share acquisition” will have no voting rights except to the extent approved by a vote of two-thirds of the votes eligible to be cast on the matter under the Maryland Control Share Acquisition Act. The act defines “control shares” as voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: one-tenth or more but less than one-third, one-third or more but less than a majority, or a majority or more of all voting power. A “control share acquisition” means the acquisition of control shares, subject to specific exceptions.

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If voting rights or control shares acquired in a control share acquisition are not approved at a stockholders’ meeting or if the acquiring person does not deliver an acquiring person statement as required by the Maryland Control Share Acquisition Act then, subject to specific conditions and limitations, the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a stockholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights.

Our bylaws contain a provision exempting acquisitions of our shares from the Maryland Control Share Acquisition Act. However, our board of directors may amend our bylaws in the future to repeal this exemption.

Business combinations. Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transferor issuance or reclassification of equity securities. An interested stockholder is defined as:

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any person who beneficially owns ten percent or more of the voting power of the corporation’s shares; or

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an affiliate or associate of the corporation who, at any time within the two-year period before the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which such person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.

After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

The statute permits exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.

Our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

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actual receipt of an improper benefit or profit in money, property or services; or

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a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

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In addition, our charter authorizes us to indemnify our present and former directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. Our bylaws require us to indemnify each present or former director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.

Our right to take action against the Manager is limited.

The obligation of the Manager under the management agreement is to render its services in good faith. It will not be responsible for any action taken by our board of directors or investment committee in following or declining to follow its advice and recommendations. Furthermore, as discussed above under “− Risks Related to Our Manager,” it will be difficult and costly for us to terminate the management agreement without cause. In addition, we will indemnify the Manager, Resource America and their officers and affiliates for any actions taken by them in good faith.

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We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future. We may in the future use uninvested offering proceeds or borrowed funds to make distributions.

We expect to make quarterly distributions to our stockholders in amounts such that we distribute all or substantially all of our taxable income in each year, subject to certain adjustments. We have not established a minimum distribution payment level, and our ability to make distributions may be impaired by the risk factors described in this report. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated taxable earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes. A return of capital is not taxable, but it has the effect of reducing the holder’s tax basis in its investment. Although we currently do not expect that we will do so, we have in the past and may in the future also use proceeds from any offering of our securities that we have not invested or borrowed funds to make distributions. If we use uninvested offering proceeds to pay distributions in the future, we will have less funds available for investment and, as a result, our earnings and cash available for distribution would be less than we might otherwise have realized had such funds been invested. Similarly, if we borrow to fund distributions, our future interest costs would increase, thereby reducing our future earnings and cash available for distribution from what they otherwise would have been.

Loss of our exclusion from regulation under the Investment Company Act would require significant changes in our operations and could reduce the market price of our common stock and our ability to make distributions.

In order to be excluded from regulation under the Investment Company Act, we must comply with the requirements of one or more of the exclusions from the definition of investment company. Because we conduct our business through wholly-owned subsidiaries, we must ensure not only that we qualify for an exclusion from regulation under the Investment Company Act, but also that each of our subsidiaries so qualifies. If we fail to qualify for an exclusion, we could be required to restructure our activities or register as an investment company. Either alternative would require significant changes in our operations and could reduce the market price of our common stock. For example, if the market value of our investments in assets other than qualifying real estate assets or real estate-related assets were to increase beyond the levels permitted under the Investment Company Act exclusion upon which we rely or if assets in our portfolio were deemed not to be qualifying real estate assets as a result of SEC staff guidance, we might have to sell those assets or acquire additional qualifying real estate assets in order to maintain our exclusion. Any such sale or acquisition could occur under adverse market conditions. If we were required to register as an investment company, our use of leverage to fund our investment strategies would be significantly limited, which would limit our profitability and ability to make distributions, and we would become subject to substantial regulation concerning management, operations, transactions with affiliated persons, portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters.

Rapid changes in the values of our real-estate related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from regulation under the Investment Company Act.

If the market value or income potential of our real estate-related investments declines as a result of current economic conditions, increased interest rates, prepayment rates or other factors, we may need to increase our real estate-related investments and income and/or liquidate our non-qualifying assets in order to maintain our REIT qualification or exclusion from registration under the Investment Company Act. If the decline in real estate asset values and/or income occurs quickly, this may be especially difficult to accomplish. This difficulty may be exacerbated by the illiquid nature of many of our non-real estate assets. We may have to make investment decisions that we otherwise would not make absent REIT qualification and Investment Company Act considerations.

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Tax Risks

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.

To qualify as a REIT for federal income tax purposes, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our common stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our investment performance.

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In particular, at least 75% of our assets at the end of each calendar quarter must consist of real estate assets, government securities, cash and cash items. For this purpose, “real estate assets” generally include interests in real property, such as land, buildings, leasehold interests in real property, stock of other entities that qualify as REITs, interests in mortgage loans secured by real property, investments in stock or debt instruments during the one-year period following the receipt of new capital and regular or residual interests in a real estate mortgage investment conduit, or REMIC. In addition, the amount of securities of a single issuer, other than a TRS, that we hold must generally not exceed either 5% of the value of our gross assets or 10% of the vote or value of such issuer’s outstanding securities.

Certain of the assets that we hold or intend to hold, including interests in CDOs or corporate leveraged loans, are not qualified and will not be qualified real estate assets for purposes of the REIT asset tests. ABS-RMBS and CMBS securities should generally qualify as real estate assets. However, to the extent that we own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities that are not secured by mortgages on real property, those securities are likely not qualifying real estate assets for purposes of the REIT asset test, and will not produce qualifying real estate income. Further, whether securities held by warehouse lenders or financed using repurchase agreements are treated as qualifying assets or as generating qualifying real estate income for purposes of the REIT asset and income tests depends on the terms of the warehouse or repurchase financing arrangement.

We generally will be treated as the owner of any assets that collateralize CDO transactions to the extent that we retain all of the equity of the securitization vehicle and do not make an election to treat such securitization vehicle as a TRS, as described in further detail below. It may be possible to reduce the impact of the REIT asset and gross income requirements by holding certain assets through our TRSs, subject to certain limitations as described below.

Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may depend on the accuracy of legal opinions or advice rendered or given or statements by the issuers of securities in which we invest, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate level tax.

When purchasing securities, we have relied and may rely on opinions or advice of counsel for the issuer of such securities, or statements, made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, and also to what extent those securities constitute REIT real estate assets for purposes of the REIT asset tests and produce income which qualifies under the 75% REIT gross income test. In addition, when purchasing CDO equity, we have relied and may rely on opinions or advice of counsel regarding the qualification of interests in the debt of such CDOs for U.S. federal income tax purposes. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

We may realize excess inclusion income that would increase our tax liability and that of our stockholders.

If we realize excess inclusion income and allocate it to stockholders, this income cannot be offset by net operating losses of the stockholders. If the stockholder is a tax-exempt entity, then this income would be fully taxable as unrelated business taxable income under Section 512 of the Internal Revenue Code. If the stockholder is a foreign person, it would be subject to federal income tax withholding on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty.

Excess inclusion income could result if we hold a residual interest in a REMIC. Excess inclusion income also could be generated if we issue debt obligations, such as certain CDOs, with two or more maturities and the terms of the payments on these obligations bore a relationship to the payments that we received on our mortgage related securities securing those debt obligations, i.e., if we were to own an interest in a taxable mortgage pool. While we do not expect to acquire significant amounts of residual interests in REMICs, we do own residual interests in taxable mortgage pools, which means that we will likely generate significant amounts of excess inclusion income.

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If we realize excess inclusion income, we will be taxed at the highest corporate income tax rate on a portion of such income that is allocable to the percentage of our stock held in record name by “disqualified organizations,” which are generally cooperatives, governmental entities and tax-exempt organizations that are exempt from unrelated business taxable income. To the extent that our stock owned by “disqualified organizations” is held in record name by a broker/dealer or other nominee, the broker/dealer or other nominee would be liable for the corporate level tax on the portion of our excess inclusion income allocable to the stock held by the broker/dealer or other nominee on behalf of “disqualified organizations.” We expect that disqualified organizations will own our stock. Because this tax would be imposed on us, all of our investors, including investors that are not disqualified organizations, would bear a portion of the tax cost associated with the classification of us or a portion of our assets as a taxable mortgage pool. A regulated investment company or other pass through entity owning stock in record name will be subject to tax at the highest corporate rate on any excess inclusion income allocated to its owners that are disqualified organizations. Finally, if we fail to qualify as a REIT, our taxable mortgage pool securitizations will be treated as separate corporations, for federal income tax purposes that cannot be included in any consolidated corporate tax return.

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Failure to qualify as a REIT would subject us to federal income tax, which would reduce the cash available for distribution to our stockholders.

We believe that we have been organized and operated in a manner that has enabled us to qualify as a REIT for federal income tax purposes commencing with our taxable year ended on December 31, 2005. However, the federal income tax laws governing REITs are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis.

If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we will be subject to federal income tax, including any applicable alternative minimum tax on our taxable income, at regular corporate rates. Distributions to stockholders would not be deductible in computing our taxable income. Corporate tax liability would reduce the amount of cash available for distribution to our stockholders. Under some circumstances, we might need to borrow money or sell assets in order to pay that tax. Furthermore, if we fail to maintain our qualification as a REIT and we do not qualify for the statutory relief provisions, we no longer would be required to distribute substantially all of our REIT taxable income, determined without regard to the dividends paid deduction and not including net capital gains, to our stockholders. Unless our failure to qualify as a REIT ~~were~~was excused under federal tax laws, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. In addition, if we fail to qualify as a REIT, our taxable mortgage pool securitizations will be treated as separate corporations for U.S. federal income tax purposes.

Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders.

In order to qualify as a REIT, in each calendar year we must distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. To the extent that we satisfy the 90% distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any calendar year are less than the sum of:

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85% of our ordinary income for that year;

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95% of our capital gain net income for that year; and

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100% our undistributed taxable income from prior years.

We intend to make distributions to our stockholders in a manner intended to satisfy the 90% distribution requirement and to distribute all or substantially all of our net taxable income to avoid both corporate income tax and the 4% nondeductible excise tax. There is no requirement that a domestic TRS distribute its after-tax net income to its parent REIT or their stockholders and Resource TRS may determine not to make any distributions to us. However, non-U.S. TRSs, such as Apidos CDO I, Apidos CDO III, ~~and~~ Apidos Cinco CDO, and Apidos CLO VIII, which we discuss in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” will generally be deemed to distribute their earnings to us on an annual basis for federal income tax purposes, regardless of whether such TRSs actually distribute their ~~earnings.~~earnings.-

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Generally, dividends payable in stock are not treated as dividends for purposes of the deduction for dividends, or as taxable dividends to the recipient. A complex set of rules applies when a distribution is made partially in stock and partially in cash and different shareholders receive different proportions of each. The Internal Revenue Service, in Revenue Procedure 2010-12, has given guidance with respect to certain stock distributions by publicly traded REITS (and RICs). That Revenue Procedure applies to distributions made on or after January 1, 2008 and declared with respect to a taxable year ending on or before December 31, 2011. It provides that publicly-traded REITS can distribute stock (common shares in our case) to satisfy their REIT distribution requirements if stated conditions are met. These conditions include that at least 10% of the aggregate declared distributions be paid in cash and the shareholders be permitted to elect whether to receive cash or stock, subject to the limit set by the REIT on the cash to be distributed in the aggregate to all shareholders. We did not use this Revenue Procedure with respect to any distributions for our ~~2008,~~ 2009, 2010 and ~~2010~~2011 taxable years, but may do so for distributions with respect to ~~2011.~~2012.

Our taxable income may substantially exceed our net income as determined by GAAP because, for example, realized capital losses will be deducted in determining our GAAP net income but may not be deductible in computing our taxable income. In addition, we may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets, referred to as phantom income. Although some types of phantom income are excluded to the extent they exceed 5% of our REIT taxable income in determining the 90% distribution requirement, we will incur corporate income tax and the 4% nondeductible excise tax with respect to any phantom income items if we do not distribute those items on an annual basis. As a result, we may generate less cash flow than taxable income in a particular year. In that event, we may be required to use cash reserves, incur debt, or liquidate non-cash assets at rates or times that we regard as unfavorable in order to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in that year.

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If we make distributions in excess of our current and accumulated earnings and profits, they will be treated as a return of capital, which will reduce the adjusted basis of your stock. To the extent such distributions exceed your adjusted basis, you may recognize a capital gain.

Unless you are a tax-exempt entity, distributions that we make to you generally will be subject to tax as ordinary income to the extent of our current and accumulated earnings and profits as determined for federal income tax purposes. If the amount we distribute to you exceeds your allocable share of our current and accumulated earnings and profits, the excess will be treated as a return of capital to the extent of your adjusted basis in your stock, which will reduce your basis in your stock but will not be subject to tax. To the extent the amount we distribute to you exceeds both your allocable share of our current and accumulated earnings and profits and your adjusted basis, this excess amount will be treated as a gain from the sale or exchange of a capital asset. For risks related to the use of uninvested offering proceeds or borrowings to fund distributions to stockholders, see “− Risks Related to Our Organization and Structure − We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future.”

Our ownership of and relationship with our TRSs will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the securities of one or more TRSs. A TRS may earn specified types of income or hold specified assets that would not be qualifying income or assets if earned or held directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% (20% for our 2009 and prior taxable years) of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. A TRS will pay federal, state and local income tax at regular corporate rates on any income that it earns, whether or not it distributes that income to us. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

Resource TRS will pay federal, state and local income tax on its taxable income, and its after-tax net income is available for distribution to us but is not required to be distributed to us. Income that is not distributed to us by Resource TRS will not be subject to the REIT 90% distribution requirement and therefore will not be available for distributions to our stockholders. We anticipate that the aggregate value of the securities of Resource TRS, together with the securities we hold in our other TRSs, including Apidos CDO I, Apidos CDO III, ~~and~~ Apidos Cinco CDO, and Apidos CLO VIII will be less than 25% of the value of our total assets, including our TRS securities. We will monitor the compliance of our investments in TRSs with the rules relating to value of assets and transactions not on an arm’s-length basis. We cannot assure you, however, that we will be able to comply with such rules.

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Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge ~~mortgage-backed securities~~MBS and related borrowings. Under these provisions, our annual gross income from qualifying and non-qualifying hedges of our borrowings, together with any other income not generated from qualifying real estate assets, cannot exceed 25% of our gross income. In addition, our aggregate gross income from non-qualifying hedges, fees and certain other non-qualifying sources cannot exceed 5% of our annual gross income determined without regard to income from qualifying hedges. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through Resource TRS. This could increase the cost of our hedging activities or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were able to sell or securitize loans in a manner that was treated as a sale of the loans for federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans and may limit the structures we utilize for our securitization transactions even though such sales or structures might otherwise be beneficial to us.

Tax law changes could depress the market price of our common stock.

The federal income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. We cannot predict when or if any new federal income tax law or administrative interpretation, or any amendment to any existing federal income tax law or administrative interpretation, will become effective and any such law or interpretation may take effect retroactively. Tax law changes could depress our stock price or restrict our operations.

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Dividends paid by REITs do not qualify for the reduced tax rates provided for under current law.

Dividends paid by REITs are generally not eligible for the reduced 15% maximum tax rate for dividends paid to individuals under current law. The more favorable rates applicable to regular corporate dividends could cause stockholders who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends to which more favorable rates apply, which could reduce the value of the stocks of REITs.

We may lose our REIT qualification or be subject to a penalty tax if the Internal Revenue Service successfully challenges our characterization of income inclusions from our foreign TRSs.

We likely will be required to include in our income, even without the receipt of actual distributions, earnings from our foreign TRSs, including from our current and contemplated equity investments in CDOs, such as our investment in Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, and Apidos ~~Cinco CDO.~~CLO VIII. We intend to treat certain of these income inclusions as qualifying income for purposes of the 95% gross income test applicable to REITs but not for purposes of the REIT 75% gross income test. The provisions that set forth what income is qualifying income for purposes of the 95% gross income test provide that gross income derived from dividends, interest and other enumerated classes of passive income qualify for purposes of the 95% gross income test. Income inclusions from equity investments in our foreign TRSs are technically neither dividends nor any of the other enumerated categories of income specified in the 95% gross income test for U.S. federal income tax purposes, and there is no clear precedent with respect to the qualification of such income for purposes of the REIT gross income tests. However, based on advice of counsel, we intend to treat such income inclusions, to the extent distributed by a foreign TRS in the year accrued, as qualifying income for purposes of the 95% gross income test. In addition, in 2011, the IRS issued a private letter ruling to a REIT reaching a result consistent with our treatment. Nevertheless, because this income does not meet the literal requirements of the REIT provisions, it is possible that the IRS could successfully take the position that it is not qualifying income. In the event that it was determined not to qualify for the 95% gross income test, we would be subject to a penalty tax with respect to the income to the extent it and other nonqualifying income exceeds 5% of our gross income and/or we could fail to qualify as a REIT. See “Federal Income Tax Consequences of Our Qualification as a REIT.” In addition, if such income was determined not to qualify for the 95% gross income test, we would need to invest in sufficient qualifying assets, or sell some of our interests in our foreign TRSs to ensure that the income recognized by us from our foreign TRSs or such other corporations does not exceed 5% of our gross income, or cease to qualify as a REIT.

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We may lose our REIT qualification or be subject to a penalty tax if we modify mortgage loans or acquired distressed debt in a way that causes us to fail our REIT gross income or asset taxes.

Many of the terms of our mortgage loans, mezzanine loans and B-notes and the loans supporting our MBS have been modified and may in the future be modified to avoid foreclosure actions and for other reasons. If the terms of the loan are modified in a manner constituting a “significant modification,” such modification triggers a deemed exchange for tax purposes of the original loan for the modified loan. The IRS recently issued Revenue Procedure 2011-16, which addresses the treatment of modified mortgage loans and distressed debt for purposes of the REIT gross income and asset tests. Under existing Treasury Regulations, if a loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of (1) the date we agreed to acquire or originate the loan or (2) in the event of certain significant modifications, the date we modified the loan, then a portion of the interest income from such a loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. Although the law is not entirely clear, a portion of the loan may not be treated as a qualifying “real estate asset” for purposes of the 75% asset test. The non-qualifying portion of such a loan would be subject to, among other requirements, the 10% value test.

Revenue Procedure 2011-16 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of the real property securing a loan for purposes of the REIT gross income and asset tests in connection with a loan modification that is: (1) occasioned by a borrower default; or (2) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan. No assurance can be provided all of our loan modifications have or will qualify for the safe harbor in Revenue Procedure 2011-16. To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we will be required to redetermine the value of the real property securing the loan at the time it was significantly modified. In determining the value of the real property securing such a loan, we generally will not obtain third party appraisals, but rather will rely on internal valuations. No assurance can be provided that the IRS will not successfully challenge our internal valuations. If the terms of our mortgage loans, mezzanine loans and B-Notes and loans supporting our mortgage backed securities are significantly modified in a manner that does not qualify for the safe harbor in Revenue Procedure 2011-16 and the fair market value of the real property securing such loans has decreased significantly, we could fail the 75% gross income test, the 75% asset test and/or the 10% value test. Unless we qualified for relief under certain cure provisions in the Code, such failures could cause us to fail to qualify as a REIT.

We and our subsidiaries have and may invest in future acquire distressed debt, including distressed mortgage loans, mezzanine loans, B-Notes and MBS. Revenue Procedure 2011-16 provides that the IRS will treat a distressed mortgage loan acquired by a REIT that is secured by real property and other property as producing in part non-qualifying income for the 75% gross income test. Specifically, Revenue Procedure 2011-16 indicates that interest income on a loan will be treated as qualifying income based on the ratio of (1) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan and (2) the face amount of the loan (and not the purchase price or current value of the loan). The face amount of a distressed mortgage loan and other distressed debt will typically exceed the fair market value of the real property securing the debt on the date the REIT commits to acquire the debt. We believe that we will continue to invest in distressed debt in a manner consistent with complying with the 75% gross income test and maintaining our qualification as a REIT.

Revenue Procedure 2011-16 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of the real property securing a loan for purposes of the REIT gross income and asset tests in connection with a loan modification that is: (1) occasioned by a borrower default; or (2) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan. No assurance can be provided that all of the loan modifications have or will be qualify for the safe harbor in Revenue Procedure 2011-16. To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we will be required to redetermine the value of the real property securing the loan at the time it was significantly modified. In determining the value of the real property securing such a loan, we generally will not obtain third party appraisals, but rather will rely on internal valuations. No assurance can be provided that the IRS will not successfully challenge our internal valuations. If the terms of our mortgage loans, mezzanine loans and B-Notes and loans supporting our MBS are significantly modified in a manner that does not qualify for the safe harbor in Revenue Procedure 2011-16 and the fair market value of the real property securing such loans has decreased significantly, we could fail the 75% gross income test, the 75% asset test and/or the 10% value test. Unless we qualified for relief under certain cure provisions in the Code, such failures could cause us to fail to qualify as a REIT.

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The failure of a loan subject to a repurchase agreement or a mezzanine loan to qualify as a real estate asset would adversely affect our ability to qualify as a REIT.

We have entered into and we intend to continue to enter into sale and repurchase agreements under which we nominally sell certain of our loan assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. We believe that we have been and will be treated for U.S. federal income tax purposes as the owner of the loan assets that are the subject of any such agreement notwithstanding that the agreement may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the loan assets during the term of the sale and repurchase agreement, in which case we could fail to qualify as a REIT.

In addition, we have acquired and will continue to acquire mezzanine loans, which are loans secured by equity interest in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We have acquired and will continue to acquire mezzanine loans that may not meet all of the requirements for reliance on this safe harbor. In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge the loan’s treatment as a real estate asset for purposes of the REIT asset and income tests, and if the challenge were sustained, we could fail to qualify as a REIT.

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ITEM 1B.

~~ITEM 1B~~.

UNRESOLVED STAFF ~~COMMENTS~~COMMENTS

None.

ITEM 2.

PROPERTIES

~~None.~~

~~ITEM 2~~.

~~PROPERTIES~~

Philadelphia, Pennsylvania:

We maintain offices through our Manager. Our Manager maintains executive and corporate offices at One Crescent Drive in the Philadelphia Navy Yard in Philadelphia, Pennsylvania under a lease for 13,484 square feet that expires in May 2019. Certain of its financial fund management and certain real estate operations are also located in these offices. ~~Our~~Certain of its real estate and commercial finance operations are located in another building at One Commerce Square, 2005 Market Street, Philadelphia, Pennsylvania under a lease for 59,448 square feet that expires in August 2013. In addition, our Manager ~~also~~ leases 21,554 square feet ~~for additional executive~~of office space ~~and for certain of our real estate operations~~ at 1845 Walnut Street, Philadelphia, ~~Pennsylvania.~~Pennsylvania, which is primarily sublet to Atlas Energy, L.P., an affiliated entity of the Manager. This lease, which expires in May ~~2013. We believe~~2013, is in an office building in which the Manager owns a 5% equity interest.

New York, New York:

Our Manager also maintains additional executive offices in a 12,930 square foot location at 712 5th Avenue, New York, New York under a lease agreement that ~~our facilities are adequate for our current needs.~~expires in July 2020. A portion of this office space is sublet to The Bancorp, Inc.

ITEM 3.

~~ITEM 3~~.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 4.

~~ITEM 4~~MINE SAFETY DISCLOSURES.

~~[OMITTED AND RESERVED]~~

Not applicable.

~~Omitted and Reserved pursuant~~(Back to ~~SEC Release 33-9089A.~~Index)

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PART II

ITEM 5.

~~ITEM 5~~.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been listed on the New York Stock Exchange under the symbol “RSO” since our initial public offering in February 2006. The following table sets forth for the indicated periods the high and low prices for our common stock, as reported on the New York Stock Exchange, and the dividends declared and paid during our past two fiscal years:

								High		Low		Dividends Declared
Fiscal 2011
Fourth Quarter								$	6.08	$	4.55	$	0.25	(1)
Third Quarter								$	6.46	$	4.54	$	0.25
Second Quarter								$	6.78	$	6.17	$	0.25
First Quarter								$	7.60	$	6.59	$	0.25
	High		Low		Dividends Declared
Fiscal 2010
Fourth Quarter	$	7.65	$	6.27	$	0.25	(1)	$	7.65	$	6.27	$	0.25
Third Quarter	$	6.68	$	5.17	$	0.25		$	6.68	$	5.17	$	0.25
Second Quarter	$	7.47	$	5.15	$	0.25		$	7.47	$	5.15	$	0.25
First Quarter	$	7.18	$	5.05	$	0.25		$	7.18	$	5.05	$	0.25

Fiscal 2009
Fourth Quarter	$	5.40	$	4.33	$	0.25
Third Quarter	$	6.21	$	2.76	$	0.30
Second Quarter	$	3.89	$	2.96	$	0.30
First Quarter	$	3.83	$	1.50	$	0.30

(1)	We distributed a regular dividend of $0.25 on January ~~26, 2011,~~27, 2012, to stockholders of record as of December ~~31, 2010.~~30, 2011.

We are organized and conduct our operations to qualify as ~~a real estate investment trust, or~~ a REIT, which requires that we distribute at least 90% of our REIT taxable income. Therefore, we intend to continue to declare quarterly distributions on our common stock. No assurance, however, can be given as to the amounts or timing of future distributions as such distributions are subject to our earnings, financial condition, capital requirements and such other factors as our board of directors ~~seems~~deems relevant.

As of March 8, ~~2011,~~2012, there were ~~61,943,670~~ 83,173,755 common shares outstanding held by ~~281persons~~466 persons of record.

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See Item 12 – “Security Ownerships of Certain Beneficial Owners and Management and Related Stockholder Matters” for information relating to securities authorized for issuance under our equity compensation plans.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

In accordance with the provisions of the management agreement, on January 31, ~~2010,~~2011, July 31, ~~2010~~2011 and October 31, ~~2010~~2011 we issued ~~73,815, 124,688~~1,414, 29,808 and ~~53,490~~45,938 shares of common stock, respectively, to our Manager. These shares represented 25% of the Manager’s quarterly incentive compensation fee that accrued for the three months ended December 31, ~~2009,~~2010, for the three months ended June 30, ~~2010~~2011 and for the three months ended September 30, ~~2010,~~2011, respectively. The issuance of these shares was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

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Performance Graph

The following line graph presentation compares cumulative total shareholder returns of our common stock with the Russell 2000 Index and the NAREIT All REIT Index for the period from February 10, 2006 to December 31, ~~2010.~~2011. The graph and table assume that $100 was invested in each of our common stock, the Russell 2000 Index and the NAREIT All REIT Index on February 10, 2006, and that all dividends were reinvested. This data was furnished by the Research Data Group.

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3336

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ITEM 6.

~~ITEM 6~~.

SELECTED FINANCIAL ~~DATA~~DATA

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF

RESOURCE CAPITAL CORP AND SUBSIDIARIES

The following selected financial and operating information should be read in conjunction with Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, including the notes, included elsewhere herein (in thousands, except share data).

As of and for the years ended

December 31,

2010

2009

2008

2007

2006

Consolidated Statement of Operations Data:
REVENUES:
Interest income
$ 103,911 $ 97,593 $ 134,341 $ 176,995 $ 137,075
Interest expense
36,466 45,427 79,619 121,564 101,851
Net interest income
67,445 52,166 54,722 55,431 35,224

OPERATING EXPENSES
32,608 16,059 12,438 13,415 11,144

34,837 36,107 42,284 42,016 24,080

OTHER (EXPENSES) REVENUES:
Impairment losses on investment securities
(29,042 ) (27,490 ) (26,611 ) (48,853 ) (2,612 )
Recognized in other comprehensive loss
(2,238 ) (14,019 ) (26,611 ) (22,576 ) (2,612 )
Net impairment losses recognized in earnings
(26,804 ) (13,471 ) − (26,277 ) −
Net realized gain (loss) on investment securities
available-for-sale and loans
4,821 1,890 (1,637 ) (15,098 ) (8,627 )
Net realized gain on investments securities-trading
5,052 − − − −
Net unrealized gain on investments securities-trading
9,739 − − − −
Gain on deconsolidation
− − − 14,259 −
Provision for loan and lease losses
(43,321 ) (61,383 ) (46,160 ) (6,211 ) −
Gain on the extinguishment of debt
34,610 44,546 1,750 − −
Gain on the settlement of loan
− − 574 − −
Other income (expense)
513 (1,350 ) 115 201 153
Total other (expense) revenue
(15,390 ) (29,768 ) (45,358 ) (33,126 ) (8,474 )
NET INCOME (LOSS)
$ 19,447 $ 6,339 $ (3,074 ) $ 8,890 $ 15,606

Consolidated Balance Sheet Data:
Cash and cash equivalents
$ 29,488 $ 51,991 $ 14,583 $ 6,029 $ 5,354
Restricted cash
168,192 85,125 60,394 119,482 30,721
Investment securities-trading
17,723 − − − −
Investment securities available-for-sale, pledged as
collateral, at fair value
57,998 39,304 22,466 65,464 420,997
Investment securities available-for-sale, at fair value
5,962 5,238 6,794 − −
Investment securities held-to-maturity, pledged as
collateral
29,036 31,401 28,157 18,517 3,978
Property available-for-sale
4,444 − − − −
Loans, pledged as collateral and net of
allowances of $34.2 million, $47.1 million,
$43.9 million, $0 and $0
1,443,271 1,557,757 1,684,622 1,748,122 1,236,310
Loans held for sale
28,593 8,050 − − −
Lease receivables, net of allowances of $70,000, $1.1
million, $450,000, $293,000 and $0, net of
unearned income
109,612 927 104,015 95,030 88,970
Total assets
1,934,200 1,791,404 1,936,031 2,072,148 1,802,829
Borrowings
1,543,251 1,534,874 1,699,763 1,760,969 1,463,853
Total liabilities
1,585,874 1,562,574 1,749,726 1,800,542 1,485,278
Total stockholders’ equity
348,326 228,830 186,305 271,606 317,551

Per Share Data:
Dividends declared per common share
$ 1.00 $ 1.15 $ 1.60 $ 1.62 $ 1.49
Net income (loss) per share – basic
$ 0.41 $ 0.25 $ (0.12 ) $ 0.36 $ 0.89
Net income (loss) per share − diluted
$ 0.41 $ 0.25 $ (0.12 ) $ 0.36 $ 0.87
Weighted average number of shares outstanding - basic 47,715,082 25,205,403 24,757,386 24,610,468 17,538,273
Weighted average number of shares outstanding - diluted 47,907,281 25,355,821 24,757,386 24,860,184 17,881,355

	As of and for the Years Ended December 31,
	2011			2010			2009			2008			2007
Consolidated Statement of Operations Data:
REVENUES:
Interest income	$	110,194		$	103,911		$	97,593		$	134,341		$	176,995
Interest expense		30,431			36,466			45,427			79,619			121,564
Net interest income		79,763			67,445			52,166			54,722			55,431
Other revenues		14,400			−			−			−			−
Total revenues		94,163			67,445			52,166			54,722			55,431

OPERATING EXPENSES		41,345			32,608			16,059			12,438			13,415

		52,818			34,837			36,107			42,284			42,016
OTHER REVENUES (EXPENSES):
Net impairment losses recognized in earnings		(6,898	)		(26,804	)		(13,471	)		−			(26,277	)
Net realized gain (loss) on investment securities available-for-sale and loans		2,622			4,821			1,890			(1,637	)		(15,098	)
Net realized and unrealized gain on investments securities-trading		858			14,791			−			−			−
Gain on deconsolidation		−			−			−			−			14,259
Provision for loan and lease losses		(13,896	)		(43,321	)		(61,383	)		(46,160	)		(6,211	)
Gain on the extinguishment of debt		3,875			34,610			44,546			1,750			−
Gain on the settlement of loan		−			−			−			574			−
Other (expense) income		(1,663	)		513			(1,350	)		115			201
Total other (expense)		(15,102	)		(15,390	)		(29,768	)		(45,358	)		(33,126	)
NET INCOME (LOSS)	$	37,716		$	19,447		$	6,339		$	(3,074	)	$	8,890

Consolidated Balance Sheet Data:
Cash and cash equivalents	$	43,116		$	29,488		$	51,991		$	14,583		$	6,029
Restricted cash		142,806			168,192			85,125			60,394			119,482
Investment securities trading		38,673			17,723			−			−			−
Investment securities available-for-sale, pledged as collateral, at fair value		153,366			57,998			39,304			22,466			65,464
Investment securities available-for-sale, at fair value		4,678			5,962			5,238			6,794			−
Investment securities held-to-maturity, pledged as collateral		−			29,036			31,401			28,157			18,517
Property available-for-sale		2,980			4,444			−			−			−
Investment in real estate		48,027			−			−			−			−
Loans, pledged as collateral and net of allowances of $27.5 million, $34.2 million, $47.1 million, $43.9 million and $0		1,772,063			1,443,271			1,557,757			1,684,622			1,748,122
Loans held for sale		3,154			28,593			8,050			−			−
Lease receivables, net of allowances of $0 $70,000, $1.1 million, $450,000, and $293,000, net of unearned income		−			109,612			927			104,015			95,030
Investments in unconsolidated entities		47,899			6,791			3,605			1,548			1,805
Intangible assets		19,813			−			−			−			−
Total assets		2,299,627			1,934,200			1,791,404			1,936,031			2,072,148
Borrowings		1,808,986			1,543,251			1,534,874			1,699,763			1,760,969
Total liabilities		1,869,937			1,585,874			1,562,574			1,749,726			1,800,542
Total stockholders’ equity		429,690			348,326			228,830			186,305			271,606

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3437

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	As of and for the Years Ended December 31,
	2011		2010		2009		2008			2007
Per Share Data:
Dividends declared per common share	$	1.00	$	1.00	$	1.15	$	1.60		$	1.62
Net income (loss) per share – basic	$	0.54	$	0.41	$	0.25	$	(0.12	)	$	0.36
Net income (loss) per share − diluted	$	0.53	$	0.41	$	0.25	$	(0.12	)	$	0.36
Weighted average number of shares outstanding - basic		70,410,131		47,715,082		25,205,403		24,757,386			24,610,468
Weighted average number of shares outstanding - diluted		70,809,088		47,907,281		25,355,821		24,757,386			24,860,184

ITEM 7.

~~ITEM 7~~.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF ~~FINANCIAL~~FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion provides information to assist you in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements. Actual results could differ materially from those expressed in or implied by those forward looking statements. Please see “Forward-Looking Statements” and “Risk Factors” for a discussion of certain risks, uncertainties and assumptions associated with those statements.

Overview

We are a specialty finance company that focuses primarily on ~~commercial real estate~~CRE assets, CMBS and commercial ~~finance.~~finance assets. We are organized and conduct our operations to qualify as a REIT under Subchapter M of the Internal Revenue Code of 1986, as amended. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategy. We invest in a combination of real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets. We have financed a substantial portion of our portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of our financings with the maturities and repricing dates of those investments, and have sought to mitigate interest rate risk through derivative instruments.

We are externally managed by Resource Capital Manager, Inc., a wholly-owned indirect subsidiary of Resource America, Inc. (NASDAQ: REXI), or Resource America, a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its ~~commecial~~commercial real estate, commercial finance and financial fund management operating segments. As of December 31, ~~2010,~~2011, Resource America managed approximately ~~$12.0~~$13.3 billion of assets in these sectors. To provide its services, the Manager draws upon Resource America, its management team and their collective investment experience.

We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance the purchase of those assets and ~~hedge~~from hedging interest rate risks. We generate revenues from the interest and fees we earn on our whole loans, A notes, B notes, mezzanine debt, commercial mortgage-backed securities, or CMBS, real estate rental income, bank loans, ~~payments on lease receivables and~~management of externally originated bank loans, other asset-backed securities, or ~~ABS.~~ABS, structured note investments and an investment in an equipment leasing business. Historically, we have used a substantial amount of leverage to enhance our returns and we have financed each of our different asset classes with different degrees of leverage. The cost of borrowings to finance our investments ~~comprises~~is a significant part of our expenses. Our net income depends on our ability to control these expenses relative to our revenue. In our bank loans, CMBS ~~lease receivables~~ and ~~other~~ ABS portfolios, we historically have used warehouse facilities as a short-term financing source and collateralized debt obligations, or CDOs, and, to a lesser extent, other term financing as a long-term financing ~~source.~~sources. In our commercial real estate loan portfolio, we historically have used repurchase agreements as a short-term financing source, and CDOs and, to a lesser extent, other term financing as a long-term financing ~~source.~~sources. Our other term financing has consisted of long-term match-funded financing provided through long-term bank financing and asset-backed financing programs, depending upon market conditions and credit availability.

~~Ongoing problems~~Although economic conditions in the United States have had some modest improvements, ongoing conditions in real estate and credit markets continue to impact ~~our operations, particularly our ability to generate capital~~both us and ~~financing to execute our investment strategies. These problems have also affected~~ a number of our commercial real estate ~~borrowers and,~~borrowers. We have entered into loan modifications with ~~respect to 27~~26 of our commercial real estate loans, ~~caused us to enter into loan modifications.~~including 16 in 2011. We have increased our allowance for loan and lease losses to reflect the effect of these conditions on our borrowers and have recorded both temporary and other than temporary impairments in the market valuation of the CMBS and ~~other~~ ABS in our investment ~~portfolio.~~portfolio, although as a result of the modest improvement in the United States economy and the strengthened financial condition of our borrowers, the aggregate amount of these changes were substantially less than in 2010. While we believe we have appropriately valued the assets in our investment portfolio at December 31, ~~2010,~~2011, we cannot assure you that further impairments will not occur or that our assets will otherwise not be adversely ~~effected~~affected by market conditions.

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~~The~~Prior to mid-2010 events occurring in the credit markets ~~have~~ impacted our financing and investing strategies and, as a result, our ability to originate new investments and to grow. The market for securities issued by new securitizations collateralized by assets similar to those in our investment portfolio had largely disappeared until ~~mid 2010.~~mid-2010. During 2011 and 2010, however, we began to see ~~the~~a loosening of previously frozen credit markets ~~begin to thaw~~ and in May 2010 we closed a new $120.0 million securitization on our equipment leasing portfolio. In ~~addition, in~~ February 2011, we entered into a $100.0 million, two year term facility with Wells Fargo to purchase CMBS. ~~Because~~In June 2011 we obtained a warehouse facility to finance the purchase of ~~rising U.S. treasury rates~~bank loans with Citibank N.A. through Apidos CLO VIII, Ltd, or Apidos CLO VIII. More recently, we entered into a $10.0 million revolving credit facility with The Bancorp Bank, a related party and ~~hedge contracts that matured,~~in February 2012, we ~~received proceeds from margin calls related~~entered into a $150.0 million master repurchase and securities agreement with Wells Fargo Bank, National Association to ~~our interest rate derivatives~~finance the origination of ~~$2.1 million during the year ended December 31, 2010.~~

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~~Credit market conditions and the recessionary economy have also resulted in an increasing number of loan modifications, particularly in our~~ commercial real estate ~~or CRE~~ loans. ~~Borrowers have experienced deterioration~~We continue to engage in the performance of the properties we have financed or delays in implementing their business plans. In order to assist our borrowers in effectuating their business plans, including the leasing and repositioning of the underlying assets, we have been willing to enter into loan modifications that would adapt ourdiscussions with potential financing to their particular situations. The most common loan modifications have included term extensions and modest interest rate reductions through the lowering of London Interbank Offered Rate, or LIBOR, floors, offset by increased interest rate spreads over LIBOR. In exchange for the loan modifications, we have received partial principal pay-downs, new equity investment commitments in the properties from the borrowers or their principals, additional fees and other structural improvements and credit enhancements to the loans. Since the beginning of 2008 through December 31, 2010, we have modified 27sources about providing commercial real estate ~~or CRE, loans. Management determined~~term financing to augment and cautiously grow our loan origination platform. We caution investors that ~~one of~~even if credit through these ~~modifications was due to financial distress of the borrower and accordingly, qualified as a troubled debt restructuring. We expect that~~markets becomes more available, we may ~~have more CRE loan modifications in the future. Subsequent~~not be able to ~~year end, management modified an additional loan due to financial stress of the borrower.~~obtain economically favorable terms.

As economic conditions improve and we ~~begin~~proceed to access the credit markets on acceptable terms, our principal strategies are to manage our liquidity and originate new assets primarily through capital recycling as loan payoffs and paydowns occur and through existing capacities within our completed ~~securitizations.~~securitizations and available credit facilities. The following is a summary of repayments we received during the year ended December 31, ~~2010:~~2011:

●

$~~17.7~~10.0 million of commercial real estate loans paid off;

●

$~~31.7~~33.1 million of commercial real estate loan principal repayments;

●

$~~36.8~~69.7 million at commercial real estate loan sale proceeds;

●

$~~267.0~~380.7 million of bank loan principal repayments; and

●

$~~57.6~~142.3 million of bank loan sale proceeds.

We have used recycled capital in our ~~CRE CDO and~~ bank loan CLO structures to make new investments at discounts to par. We expect that the reinvested capital and related ~~discount~~discounts will produce additional income as the ~~discount is~~discounts are accreted ~~through~~into interest income. In addition, the purchase of these investments at discounts allows us to build collateral in the ~~CDO and~~ CLO structures since we receive credit in these structures for these investments at par. During ~~2010 and 2009,~~2011, we purchased ~~CMBS~~bank loans which had ~~$88.7~~$827.2 million par value at a discount to par of ~~22.5%, and bank loans which had $608.8 million par value at a discount to par of 9.0%~~3.0%. From the net discounts of approximately ~~$32.8~~$25.0 million, and ~~$55.0~~accounting for $2.4 million of net discount recognized due to payoffs and paydowns during the year 2011, we expect to recognize income of approximately ~~$5.5 million and $9.4~~$6.3 million in our ~~CRE CDO and~~ bank loan CLO portfolio ~~respectively,~~ in ~~2011.~~2012.

As a result of the success of our bank loan portfolio in 2011 and slower than anticipated commercial real estate loan origination, compliance with the 75% gross income test for REIT qualification (where we are required to generate a minimum of 75% of our gross income from qualifying real estate income, as defined in the Internal Revenue Code) became more difficult. As a result, we took steps during the fourth quarter of 2011 to enable us to continue to satisfy the 75% gross income test. First, we reduced our non-real estate and thus, non-qualifying income from the Apidos I and Apidos III CLOs through the election of RCC Commercial to be treated as a taxable REIT subsidiary beginning on October 27, 2011 and ending on December 31, 2011. Second, we further reduced our non real estate income by selling multiple positions in Apidos Cinco CLO in November 2011, at substantial losses.

In 2012 and thereafter, we expect to be able to satisfy the 75% gross income test through growth in our investments in commercial real estate or CRE, loans and CRE equity positions, a process we began in 2011. These loans will generate a full year of gross real estate and, thus, qualifying income in 2012. We expect to originate additional CRE loans and expect to be fully-invested in our second CRE CDO by the second quarter of 2012, which will generate substantial gross real estate interest income and thus augment, qualifying income. Additionally, we acquired in 2011, and expect to continue to acquire in 2012, equity positions in commercial real estate that we expect will generate substantial gross rental income that also qualifies for the 75% gross income test.

During 2010, we invested $5.0 million through Resource TRS, our taxable REIT subsidiary, in structured finance vehicles, principally CLO equity, which we have classified as trading securities. Because of the success of that new investment, we committed an additional $8.0 million through February 2011. Beginning in October 2010 through ~~February~~December 2011, we have underwritten ~~three~~13 new CRE loans for a total of ~~$24.2~~$159.6 million. We also purchased ~~three~~18 newly underwritten CMBS for ~~$7.2~~$72.8 million beginning in February 2011 ~~in conjunction~~through December 2011 financed with the Wells Fargo facility. ~~Furthermore, in January~~In 2011, we ~~have continued~~added to ~~invest in the lease receivable portfolio and made a~~our preferred stock investment in ~~Leaf~~LEAF Commercial Capital, ~~Inc,~~Inc., or LCC, a recently ~~formed~~recapitalized equipment leasing enterprise associated with our Manager, and held a ~~subsidiary of our Manager.~~$36.3 million investment in LCC at December 31, 2011. In February 2011, we purchased a company that manages $1.9 billion of bank loan assets and are entitled to collect senior, subordinated and incentive management fees. ~~These~~In October 2011, we closed Apidos CLO VIII, a $350.0 million CLO transaction and issued $317.6 million of senior notes and $34.7 million of subordinated notes in conjunction with the closing. Apidos CLO VIII provides financing for bank loans and we own a 43% interest in the equity of the CLO. Due to these recent ~~asset purchases~~investments, our increased ability to access credit markets and ~~credit market events indicate that we expect to be able~~our ability to invest a significant portion of our available unrestricted and restricted cash balances ~~and, as a result,~~during 2012, we expect to modestly ~~grow~~increase our net interest income in ~~2011.~~2012. However, because we believe that economic conditions in the United States are fragile, and could be significantly harmed by occurrences over which we have no control, we cannot assure you that we will be able to meet our expectations, or that we will not experience net interest income reductions.

~~We expect~~(Back to ~~continue~~Index)

(Back to ~~generate net investment income from~~Index)

As of December 31, 2011, we had invested 63.0% of our ~~current investment~~ portfolio in CRE assets, 30.6% in commercial bank loans and ~~generate dividends for our shareholders.~~

6.4% in other investments. As of December 31, 2010, we had invested 76.7% of our portfolio in CRE assets, 18.4% in commercial bank loans, 3.1% in lease receivables and 1.8% in structured notes. ~~As of December 31, 2009, we had invested 76.4% of our portfolio in CRE assets, 23.2% in commercial bank loans and 0.4% in lease receivables.~~

Results of Operations

Our net income for the year ended December 31, 2011 was $37.7 million, or $0.54 per share-basic ($0.53 per share-diluted), as compared to net income for the year ended December 31, 2010 ~~was~~of $19.4 million, or $0.41 per share (basic and diluted), and as compared to net income of $6.3 million, or $0.25 per share (basic and diluted), for the year ended December 31, ~~2009, and compared to a net loss of $3.1 million, or ($0.12) per share (basic and diluted), for the year ended December 31, 2008.~~

2009.

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Interest Income

The following tables set forth information relating to our interest income recognized for the periods presented (in thousands, except percentages):

Years Ended

December 31,

2010

2009

2008

Interest income:
Interest income from loans:

Bank loans
$ 43,970 $ 35,770 $ 53,172
Commercial real estate loans
32,866 48,793 63,936
Total interest income from loans
76,836 84,563 117,108

Interest income from securities:

CMBS-private placement
9,768 5,404 4,425
Securities held-to-maturity
1,466 1,807 1,934
Other ABS
200 14 19
Total interest income from securities available-for-sale
11,434 7,225 6,378

Leasing
11,306 4,336 8,180

Interest income – other:

Interest income – other (1)
− − 997
Preference payments on structured notes
3,112 − −
Temporary investment in over-night repurchase
agreements
1,223 1,469 1,678
Total interest income – other
4,335 1,469 2,675
Total interest income
$ 103,911 $ 97,593 $ 134,341

	Years Ended
	December 31,
	2011		2010		2009
Interest income:
Interest income from loans:
Bank loans	$	54,833	$	44,828	$	37,064
Commercial real estate loans		31,906		32,866		48,793
Total interest income from loans		86,739		77,694		85,857

Interest income from securities:
CMBS-private placement		9,610		9,768		5,404
RMBS		1,521		−		−
ABS		1,613		1,466		1,807
Other ABS		−		200		14
Total interest income from securities		12,744		11,434		7,225

Leasing		−		11,306		4,336

Interest income – other:
Preference payments on structured notes (1)		10,432		3,112		−
Temporary investment in over-night repurchase agreements		279		365		175
Total interest income – other		10,711		3,477		175
Total interest income	$	110,194	$	103,911	$	97,593

(1)

~~Represents cash received~~Yields on ~~our 90% equity investment~~these quarterly payers reflect payments for full distribution periods and in ~~Ischus CDO II in excess~~some cases we owned the position for a portion of ~~our investment. Income on this investment was recognized using~~ the ~~cost recovery method.~~year.

	Year Ended				Year Ended				Year Ended				Year Ended				Year Ended				Year Ended
	December 31, 2010				December 31, 2009				December 31, 2008				December 31, 2011				December 31, 2010				December 31, 2009
	Weighted Average				Weighted Average				Weighted Average				Weighted Average				Weighted Average				Weighted Average
	Yield		Balance		Yield		Balance		Yield		Balance		Yield		Balance		Yield		Balance		Yield		Balance
Interest income:
Interest income from loans:
Bank loans		4.82%	$	907,582		3.87%	$	943,854		5.62%	$	947,753		5.63%	$	963,427		4.91%	$	907,582		4.01%	$	943,854
Commercial real estate loans		4.68%	$	694,153		6.12%	$	785,380		7.48%	$	840,874		4.95%	$	646,121		4.68%	$	694,153		6.12%	$	785,380

Interest income from securities:
CMBS-private placement		6.97%	$	140,377		5.90%	$	90,784		5.76%	$	76,216		5.53%	$	170,605		6.9%	$	140,377		5.90%	$	90,784
Securities held-to-maturity		4.12%	$	35,295		5.28%	$	33,249		7.72%	$	25,782
RMBS														2.93%	$	51,844		N/A		N/A		N/A		N/A
ABS														4.85%	$	32,897		4.12%	$	35,295		5.28%	$	33,249
Other ABS		8.71%	$	2,300		4.98%	$	281		0.32%	$	6,000		N/A		N/A		8.71%	$	2,300		4.98%	$	281

Leasing		15.61%	$	75,008		6.88%	$	65,300		8.68%	$	94,864		N/A		N/A		15.61%	$	75,008		6.88%	$	65,300

Preference payments on structured notes														32.95%	$	31,663		37.69%	$	8,257		N/A		N/A

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3740

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The following tables summarize interest income for the years indicated (in thousands, except percentages):

Type of Security	Coupon Interest		Unamortized (Discount) Premium			Net Amortization /Accretion			Interest Income		Fee Income		Total		Coupon Interest		Unamortized (Discount) Premium			Net Amortization /Accretion			Interest Income		Fee Income		Total

Year Ended December 31, 2011:
Bank loans																3.76%	$	(31,787	)	$	15,539		$	36,932	$	2,362	$	54,833
Commercial real estate loans																4.64%	$	(160	)		12			30,249		1,645		31,906
Total interest income from loans																					15,551			67,181		4,007		86,739

CMBS-private placement																3.60%	$	(13,238	)		3,174			6,436		−		9,610
RMBS																					−			1,521		−		1,521
ABS																2.60%	$	(3,812	)		524			1,089		−		1,613
Other ABS																					−			−		−		−
Total interest income from securities																					3,698			9,046		−		12,744

Leasing																					−			−		−		−

Preference payments on structured notes																					−			10,432		−		10,432
Other																					−			279		−		279
Total interest income – other																					−			10,711		−		10,711

Total interest income																				$	19,249		$	86,938	$	4,007	$	110,194

Year Ended December 31, 2010:
Bank loans		3.24%	$	(26,568	)	$	13,919		$	30,051	$	−	$	43,970		3.245	$	(26,568	)	$	13,919		$	30,051	$	858	$	44,828
Commercial real estate loans		4.50%	$	(171	)		(15	)		32,163		718		32,866		4.50%	$	(171	)		(15	)		32,163		718		32,866
Total interest income from loans							13,904			62,214		718		76,836							13,904			62,214		1,576		77,694

CMBS-private placement		3.79%	$	(23,294	)		4,359			5,410		−		9,768		3.795	$	(20,932	)		4,359			5,409		−		9,768
Securities held-to-maturity		2.45%	$	(2,844	)		409			1,056		−		1,466		2.45%	$	(2,844	)		409			1,057		−		1,466
Other ABS							−			200		−		200							−			200		−		200
Total interest income from securities							4,768			6,666		−		11,434							4,768			6,666		−		11,434

Leasing							−			11,306		−		11,306							−			11,306		−		11,306

Preference payments on structured notes							−			3,112		−		3,112							−			3,112		−		3,112
Other							−			1,223		−		1,223							−			365		−		365
Total interest income – other							−			4,335		−		4,335							−			3,477		−		3,477

Total interest income						$	18,672		$	84,521	$	718	$	103,911						$	18,672		$	83,663	$	1,576	$	103,911

Year Ended December 31, 2009:
Year Ended December 31, 2009:
Bank loans		3.13%	$	(27,682	)	$	6,955		$	28,815	$	−	$	35,770		3.13%	$	(27,682	)	$	6,955		$	28,815	$	1,294	$	37,064
Commercial real estate loans		5.96%	$	(30	)		66			48,094		633		48,793		5.96%	$	(30	)		66			48,094		633		48,793
Total interest income from loans							7,021			76,909		633		84,563							7,021			76,909		1,927		85,857

CMBS-private placement		4.28%	$	(29,030	)		1,460			3,944		−		5,404		4.28%	$	(29,030	)		1,460			3,944		−		5,404
Securities held-to-maturity		4.54%	$	(3,103	)		238			1,569		−		1,807		4.54%	$	(3,103	)		238			1,569		−		1,807
Other ABS							−			14		−		14							−			14		−		14
Total interest income from securities							1,698			5,527		−		7,225							1,698			5,527		−		7,225

Leasing							−			4,336		−		4,336							−			4,336		−		4,336

Preference payments on structured notes							−			−		−		−							−			−		−		−
Other							−			1,469		−		1,469							−			175		−		175
Total interest income – other							−			1,469		−		1,469							−			175		−		175

Total interest income						$	8,719		$	88,241	$	633	$	97,593						$	8,719		$	86,947	$	1,927	$	97,593

Year Ended December 31, 2008:
Bank loans		5.53%	$	(8,459	)	$	946		$	52,226	$	−	$	53,172
Commercial real estate loans		7.18%	$	(8	)		88			63,059		789		63,936
Total interest income from loans							1,034			115,285		789		117,108

CMBS-private placement		5.18%	$	(3,680	)		444			3,981		−		4,425
Securities held-to-maturity		7.54%	$	(87	)		−			1,934		−		1,934
Other ABS							−			19		−		19
Total interest income from securities							444			5,934		−		6,378

Leasing							−			8,180		−		8,180

Preference payments on structured notes							−			−		−		−
Other							−			2,675		−		2,675
Total interest income – other							−			2,675		−		2,675

Total interest income						$	1,478		$	132,074	$	789	$	134,341

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3841

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Year Ended December 31, 2011 as compared to Year Ended December 31, 2010

Aggregate interest income increased $6.3 million (6%) to $110.2 million for the year ended December 31, 2011, from $103.9 million for the year ended December 31, 2010. We attribute this increase to the following:

Interest Income from Loans. Aggregate interest income from loans increased $9.0 million (12%) to $86.7 million for the year ended December 31, 2011 from $77.7 million for the year ended December 31, 2010.

Interest income on bank loans increased $10.0 million (22%) to $54.8 million for the year ended December 31, 2011 from $44.8 million for the year ended December 31, 2010. The increase for the year ended December 31, 2011 resulted primarily from the following:

●

an increase in the weighted average balance of $55.8 million to $963.4 million for the year ended December 31, 2011 from $907.6 million for the year ended December 31, 2010, principally as a result of our new CLO, for which we began acquiring assets in July 2011;

●

an increase in the weighted average rate to 3.76% on bank loans for the year ended December 31, 2011 from 3.24% for the year ended December 31, 2010 primarily because of the increase in spread on these assets; and

●

timing of paydowns and payoffs which cause us to accelerate discounts into income. The bank loan market experienced increased prepayment speeds beginning in the third quarter of 2010 which have slowed considerably since the second quarter of 2011.

The interest income on bank loans was partially offset by CRE loans which produced $31.9 million of interest income for the year ended December 31, 2011 as compared to $32.9 million for the year ended December 31, 2010, a decrease of $960,000 (3%). This decrease is primarily related to the decrease of $48.0 million in weighted average balance of loans to $646.1 million for the year ended December 31, 2011 from $694.2 million for the year ended December 31, 2010 as a result of the sale of $131.6 million (par value), conversions of loans to equity investments in real estate of $39.6 million (par value), and the payoff and paydown of $14.4 million (par value), from April 2010 through December 2011. We began to reinvest these proceeds, classified as restricted cash on our balance sheet, during the fourth quarter of 2010, with the majority of it being reinvested during the second and third quarters of 2011.

Interest Income from Securities. Aggregate interest income from securities increased $1.3 million (11%) to $12.7 million for the year ended December 31, 2011 from $11.4 million for the year ended December 31, 2010. The increase in interest income from securities resulted principally from the following:

Interest income from RMBS was $1.5 million for the year ended December 31, 2011 and was principally the result of RMBS positions purchased as part of our trading portfolio beginning in the fourth quarter of 2010. We had no such interest income for the year ended December 31, 2010.

The increase in interest income from RMBS was partially offset by a decrease in interest income from CMBS-private placement of $158,000 (2%) to $9.6 million for the year ended December 31, 2011 from $9.8 million for the year ended December 31, 2010. We attribute the decrease to a decrease in the weighted average yield to 5.53% for the year ended December 31, 2011 from 6.97% for the year ended December 31, 2010, primarily as a result of a decrease of $1.2 million in accretion income to $3.2 million during the year ended December 31, 2011 from $4.4 million during the year ended December 31, 2010. The decrease in accretion income resulted from the impairment of $42.1 million of CMBS, at par, and with associated discounts of $3.1 million during the second quarter of 2011 and the elimination of accretion of those discounts into income. We no longer recognize discount accretion after we recognize impairment on securities.

The decrease in weighted average yield was partially offset by an increase in the weighted average balance of assets of $30.2 million to $170.6 million for the year ended December 31, 2011 from $140.4 million for the year ended December 31, 2010 principally as a result of the purchase of $102.4 million par value of assets during the year ended December 31, 2011, and during the last half of the year ended December 31, 2010, primarily through a new financing facility.

Interest Income – Leasing. Our equipment leasing portfolio generated $11.3 million of interest income for the year ended December 31, 2010. There was no such income for the year ended December 31, 2011 as a result of the transfer of our leasing portfolio to LCC as part of our preferred equity investment in LCC. Our restructured investment in LCC, however, generated dividend income, as discussed in “- Other Revenue.”

Interest Income – Other. Aggregate interest income-other increased $7.2 million (208%) to $10.7 million for the year ended December 31, 2011, as compared to $3.5 million for the year ended December 31, 2010 principally from preference payments on structured notes which generated $10.4 million for the year ended December 31, 2011 as compared to $3.1 million for the year ended December 31, 2010. We began purchasing assets for this portfolio in June 2010. Payments on these positions vary from period to period and are based on cash flows from the underlying assets rather than on a contractual interest rate.

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Year Ended December 31, 2010 as compared to Year Ended December 31, 2009

Aggregate interest income increased $6.3 million (6%) to $103.9 million for the year ended December 31, 2010, from $97.6 million for the year ended December 31, 2009. We attribute this increase to the following:

~~Interest Income from Loans~~

Interest income from Loans.�� Aggregate interest income from loans decreased ~~$7.8~~$8.2 million ~~(9%~~(10%) to ~~$76.8~~$77.7 million for the year ended December 31, 2010 from ~~$84.6~~$85.9 million for the year ended December 31, 2009.

Commercial real estate loans produced $32.9 million of interest income for the year ended December 31, 2010 as compared to $48.8 million for the year ended December 31, 2009, a decrease of $15.9 million (33%). This decrease resulted from the following:

●

a decrease in the weighted average balance of assets of $91.2 million to $694.2 million for the year ended December 31, 2010 from $785.4 million for the year ended December 31, 2009 primarily as a result of payoffs and paydowns and to a lesser extent write-offs of impaired loans; and

●

a decrease in the weighted average yield on our assets to 4.68% for the year ended December 31, 2010 from 6.12% for the year ended December 31, 2009 primarily due to decreases in LIBOR floors, which is a reference index for the rates payable on these loans, from loan modifications during 2009 and 2010. There were $310.9 million of loans with a weighted average LIBOR floor of 2.37% as of December 31, 2009 that decreased to $157.4 million of loans with a weighted average LIBOR floor of 2.24% as of December 31, 2010.

The decrease in interest income from commercial real estate loans was partially offset by an increase in interest income on bank loans which generated ~~$44.0~~$44.8 million of interest income for the year ended December 31, 2010 as compared to ~~$35.8~~$37.1 million for the year ended December 31, 2009, an increase of ~~$8.2~~$7.8 million ~~(23%~~(21%). This increase resulted primarily from an increase in the weighted average yield earned by our bank loans to ~~4.82%~~4.91% for the year ended December 31, 2010 from ~~3.87%~~4.01% for the year ended December 31, 2009. This was principally a result of an increase in accretion income to $13.9 million for the year ended December 31, 2010 as compared to $7.0 million for the year ended December 31, 2009. The increase in accretion income is the result of the purchase of $608.8 million of bank loans at discounts during 2009 and 2010 and the accretion of those discounts into income. These discounted loan purchases are made as we reinvest the proceeds from loan payoffs from our borrowers and from the loans we have sold, typically for credit reasons.

The increase in bank loan accretion income was partially offset by a decrease in the weighted average balance on these loans of $36.3 million to $907.6 million for the year ended December 31, 2010, from $943.9 million for the year ended December 31, 2009, as a result of write-offs of several loans in the last quarter of 2009 and the first quarter of 2010 as well as the timing of when loans were sold or paid down and ~~the~~those proceeds reinvested.

Interest Income from ~~Securities~~

Securities.Aggregate interest income from securities ~~available-for-sale~~ increased $4.2 million (58%) to $11.4 million for the year ended December 31, 2010 from $7.2 million for the year ended December 31, 2009. The increase in interest income from securities ~~available-for-sale~~ resulted principally from the following:

Interest income from CMBS-private placement increased $4.4 million (81%) to $9.8 million for the year ended December 31, 2010 from $5.4 million for the year ended December 31, 2009. We attribute the increase primarily to the following:

●

an increase in the weighted average balance of assets of $49.6 million to ~~$140.0~~$140.4 million for the year ended December 31, 2010 from $90.8 million for the year ended December 31, 2009, principally as a result of the purchase of $37.1 million par value of assets during the year ended December 31, 2010, and during the last half of the year ended December 31, 2009. This was partially offset by the impairment and subsequent non-payment of $24.8 million par value of assets during the fourth quarter of 2009 and in 2010; and

●

an increase in the weighted average yield to 6.97% for the year ended December 31, 2010 from 5.90% for the year ended December 31, 2009 primarily as a result of an increase of $2.9 million in accretion income to $4.4 million during the year ended December 31, 2010 from $1.5 million during the year ended December 31, 2009. The increase in accretion income resulted from the purchase of $91.9 million of CMBS at discounts during the last quarter of 2009 and during 2010 and accretion of those discounts into income. We make these discounted security purchases as we reinvest the proceeds from the loan and security payoffs from our borrowers and from the loans and securities we have sold, typically for credit reasons.

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Interest Income ~~- Leasing~~

– Leasing.Our equipment leasing portfolio generated $11.3 million of interest income for the year ended December 31, 2010 as compared to $4.3 million for the year ended December 31, 2009, an increase of $7.0 million (161%). This increase for the year ended December 31, 2010 was due to the acquisition of $120.0 million in new leases during the year ended December 31, 2010 financed by a new securitization. The increase for the year ended December 31, 2010 was partially offset by the sale of the majority of our legacy leasing portfolio, at par, as of June 30, 2009. The legacy portfolio was sold to reduce our leverage and exposure to certain lease receivables that were underwritten under older, more aggressive credit standards. In May 2010, we acquired a new leasing portfolio which was underwritten with stricter credit standards, using longer term debt that gave us a prepayment option upon meeting specific terms.

~~Interest Income - Other~~

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Interest Income – Other.Aggregate interest income-other increased ~~$2.8~~$3.3 million ~~(195%~~(1,887%) to ~~$4.3~~$3.5 million for the year ended December 31, 2010, as compared to ~~$1.5 million~~$175,000 for the year ended December 31, 2009 principally from preference payments on structured notes which generated $3.1 million for the year ended December 31, 2010. We had no investment in these securities during the year ended December 31, 2009. These payments vary from period to period and are based on cash flows from the underlying assets rather than on a contractual interest rate.

~~Year Ended December 31, 2009 as compared to Year Ended December 31, 2008~~

Aggregate interest income decreased $36.7 million (27%) to $97.6 million for the year ended December 31, 2009, from $134.3 million for the year ended December 31, 2008. We attribute this decrease to the following:

~~Interest Income from Loans~~

~~Aggregate interest income from loans decreased $32.5 million (28%) to $84.6 million for the year ended December 31, 2009 from $117.1 million for the year ended December 31, 2008.~~

Bank loans generated $35.8 million of interest income for the year ended December 31, 2009 as compared to $53.2 million for the year ended December 31, 2008, a decrease of $17.4 million (33%). This decrease resulted primarily from a decrease in the weighted average yield earned by our bank loans to 3.87% for the year ended December 31, 2009 from 5.62% for the year ended December 31, 2008. This was principally a result of the decrease in LIBOR which is a reference index for the rates payable on these loans. The effect of the decrease in the weighted average rate was partially offset by an increase of $6.0 million in accretion income as a result of the purchase of assets at discounts during the year ended December 31, 2009.

Commercial real estate loans produced $48.8 million of interest income for the year ended December 31, 2009 as compared to $63.9 million for the year ended December 31, 2008, a decrease of $15.1 million (24%). This decrease resulted from the following:

●

a decrease in the weighted average balance of assets of $55.5 million to $785.4 million for the year ended December 31, 2009 from $840.9 million for the year ended December 31, 2008 primarily as a result of payoffs and paydowns and to a lesser extent as a result of valuation allowances resulting from interest adjustments taken on several loans; and

●

a decrease in the weighted average yield on our assets to 6.12% for the year ended December 31, 2009 from 7.48% for the year ended December 31, 2008 primarily due to decreases in LIBOR floors, which is a reference index for the rates payable on these loans from loan modifications during 2009. Management determined that five of these modifications were due to financial distress of the borrowers and, accordingly, qualified as a troubled debt restructuring. There were $401.3 million of loans with a weighted average LIBOR floor of 4.71% as of December 31, 2008 which decreased to $310.9 million of loans with a weighted average LIBOR floor of 2.37% as of December 31, 2009.

~~Interest Income from Securities~~

Aggregate interest income from securities available-for-sale increased $847,000 (13%) to $7.2 million for the year ended December 31, 2009 from $6.4 million for the year ended December 31, 2008. The increase in interest income from securities available-for-sale resulted principally from the following:

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CMBS-private placement increased $993,000 (22%) to $5.4 million for the year ended December 31, 2009 from $4.4 million for the year ended December 31, 2008. The increase is primarily attributed to the following:

●

an increase in the weighted average balance of assets of $14.6 million to $90.8 million for the year ended December 31, 2009 from $76.2 million for the year ended December 31, 2008 principally as a result of the purchase of $54.8 million par value of assets during the year ended December 31, 2009, largely during the last half of the year; and

●

an increase in the weighted average yield to 5.90% for the year ended December 31, 2009 from 5.76% for the year ended December 31, 2008 primarily as a result of an increase of $1.0 million in accretion income from assets purchased at discounts during the year ended December 31, 2009.

~~Interest Income - Leasing~~

Our equipment leasing portfolio generated $4.3 million of interest income for the year ended December 31, 2009 as compared to $8.2 million for the year ended December 31, 2008, a decrease of $3.8 million (47%). This decrease is primarily the result of our sale of the majority of the leasing portfolio, at par, as of June 30, 2009.

~~Interest Income - Other~~

Aggregate interest income-other decreased $1.2 million (45%) to $1.5 million for the year ended December 31, 2009, as compared to $2.7 million for the year ended December 31, 2008. The decrease in interest income-other resulted principally from the following:

●

A decrease in interest income-other to $0 for the year ended December 31, 2009, as compared to $997,000 for the year ended December 31, 2008. The decrease is the result of our having written down our equity investment in Ischus CDO II to $0 in December 2008. Prior to that disposition, we used the cost recovery method to recognize the income on this investment. We sold our interest in Ischus CDO II in November 2007 and, as a result, deconsolidated it at that time. For the three months ended March 31, 2008, $997,000 of interest income was recognized on this investment. No such income has been recognized since March 2008.

●

A decrease in interest from temporary investments in over-night repurchase agreements of $209,000 (12%) to $1.5 million for the year ended December 31, 2009, as compared to $1.7 million for the year ended December 31, 2008 primarily as a result of lower rates earned on our over-night repurchase agreements.

Interest Expense

~~Year Ended December 31, 2010 as compared to Year Ended December 31, 2009~~

The following tables set forth information relating to our interest expense incurred for the periods presented by asset class (in thousands, except percentages):

	Years Ended						Years Ended
	December 31,						December 31,
	2010		2009		2008		2011		2010		2009
Interest expense:
Bank loans	$	9,573	$	15,394	$	35,165	$	11,348	$	9,573	$	15,394
Commercial real estate loans		8,068		11,072		27,924		6,397		8,068		11,072
CMBS-private placement		−		−		163		651		−		−
Leasing		5,737		2,143		4,357		−		5,737		2,143
Hedging instruments								8,415		9,438		13,516
General		13,088		16,818		12,010		3,620		3,650		3,302
Total interest income	$	36,466	$	45,427	$	79,619
Total interest expense							$	30,431	$	36,466	$	45,427

	Year Ended				Year Ended				Year Ended
	December 31, 2011				December 31, 2010				December 31, 2009
	Weighted Average				Weighted Average				Weighted Average
	Yield		Balance		Yield		Balance		Yield		Balance
Interest expense:
Bank loans		1.16%	$	981,000		1.04%	$	906,000		1.68%	$	906,000
Commercial real estate loans		1.28%	$	499,416		1.46%	$	543,345		1.70%	$	649,258
CMBS-private placement		2.44%	$	25,721		N/A	$	−		N/A		N/A
Leasing		N/A		N/A		8.81%	$	65,176		4.42%	$	44,388
Hedging instruments		5.27%	$	160,132		4.90%	$	181,821		4.76%	$	272,720
General		7.02%	$	51,548		7.47%	$	50,000		6.36%	$	50,000

Year Ended Year Ended Year Ended

December 31, 2010

December 31, 2009

December 31, 2008

Weighted Average

Weighted Average

Weighted Average

Yield

Balance

Yield

Balance

Yield

Balance

Interest expense:
Bank loans
1.04% $ 906,000 1.68% $ 906,000 3.82% $ 906,000
Commercial real estate loans
1.46% $ 543,345 1.70% $ 649,258 3.91% $ 696,492
CMBS-private placement
N/A $ − N/A $ − 4.34% $ 3,597
Leasing
8.81% $ 65,176 4.42% $ 44,388 4.67% $ 89,778
General
5.45% $ 231,821 5.01% $ 322,720 3.00% $ 383,860
Year Ended December 31, 2011 as compared to Year Ended December 31, 2010

Aggregate interest expense decreased $6.1 million (17%) to $30.4 million for the year ended December 31, 2011, from $36.5 million for the year ended December 31, 2010. We attribute this decrease to the following:

Interest expense on bank loans was $11.3 million for the year ended December 31, 2011, as compared to $9.6 million for the year ended December 31, 2010, an increase of $1.7 million (19%). This increase resulted primarily from the following:

●

an increase in the weighted average balance of the related financings of $75.0 million to $981.0 million for the year ended December 31, 2011 as compared to $906.0 million for the year ended December 31, 2010 due to the financing of new asset purchases primarily financed by our warehouse line for a new CLO which closed in October 2011.

●

an increase in the weighted average rate to 1.16% for the year ended December 31, 2011 from 1.04% for the year ended December 31, 2010 primarily as a result of the increase in LIBOR, a reference index for the rates payable on most of these financings.

Interest expense on commercial real estate loans was $6.4 million for the year ended December 31, 2011, as compared to $8.1 million for the year ended December 31, 2010, a decrease of $1.7 million (21%). This decrease resulted primarily from the following:

●

a decrease in the weighted average yield due to decreased amortization of financing costs as a result of fewer CDO note repurchases during the year ended December 31, 2011 as compared to the year ended December 31, 2010.

●

a decrease in the weighted average balance of the related financings of $43.9 million to $499.4 million for the year ended December 31, 2011 as compared to $543.3 million for the year ended December 31, 2010, primarily due to the repurchase of $10.0 million and $91.4 million of CDO notes in 2011 and 2010, respectively. In addition, the reinvestment period of one of our CDOs ended in September 2011 and, consequently, the subsequent paydowns received on loans held by that CDO were used to paydown $23.0 million of notes issued by the CDO.

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Interest expense on CMBS-private placement was $651,000 for the year ended December 31, 2011. There was no such expense for the year ended December 31, 2010. The increase is due entirely to a Master Repurchase Agreement with Wells Fargo Bank, National Association that we entered into in February 2011 to use in acquiring highly-rated CMBS.

Interest expense with respect to our leasing portfolio was $5.7 million for the year ended December 31, 2010. There was no such expense for the year ended December 31, 2011 as a result of the transfer of our leasing portfolio to LCC in exchange for a preferred equity interest in LCC and the simultaneous transfer of the related debt.

Interest expense on hedging instruments decreased $1.0 million (11%) to $8.4 million for the year ended December 31, 2011 as compared to $9.4 million for the year ended December 31, 2010. The decrease in the hedging expense was primarily due to a change in the composition of interest rate swaps we held on our books during the year ended December 31, 2011 as compared to 2010 as a result of the maturities of the hedges related to our CRE portfolio in 2011 and 2010 and the purchase of new hedges relating to securities we purchased using the Wells Fargo repurchase facility in 2011.

Year Ended December 31, 2010 as compared to Year Ended December 31, 2009

Aggregate interest expense decreased $8.9 million (20%) to $36.5 million for the year ended December 31, 2010, from $45.4 million for the year ended December 31, 2009. We attribute this decrease to the following:

Interest expense on bank loans was $9.6 million for the year ended December 31, 2010, as compared to $15.4 million for the year ended December 31, 2009, a decrease of $5.8 million (38%). This decrease resulted primarily from a decrease in the weighted average yield on this debt to 1.04% for the year ended December 31, 2010 from 1.68% for the year ended December 31, 2009 as a result of the decrease in LIBOR which is a reference index for the rates payable on most of these notes.

Interest expense on commercial real estate loans was $8.1 million for the year ended December 31, 2010, as compared to $11.1 million for the year ended December 31, 2009, a decrease of $3.0 million (27%). This decrease resulted primarily from the following:

●

a decrease in the weighted average balance of the related financings of $106.0 million to $543.3 million for the year ended December 31, 2010 as compared to $649.3 million for the year ended December 31, 2009, primarily due to the repurchase of $146.9 million of the CDO notes in 2009 and 2010; and

●

a decrease in the weighted average yield on our financings to 1.46% for the year ended December 31, 2010 from 1.70% for the year ended December 31, 2009 primarily due to the decrease in LIBOR which is a reference index for the rates payable on most of ~~these~~the CDO notes.

Interest expense on our equipment leasing portfolio was $5.7 million for the year ended December 31, 2010, as compared to $2.1 million for the year ended December 31, 2009, an increase of $3.6 million (168%). The increase is the result ~~of the addition~~ of a new securitization entered into in April 2010 in conjunction with our acquisition of $120.0 million of new leases. The increase was partially offset by a decrease in interest expense related to our legacy leasing portfolio when the debt was transferred to Resource America at the time the portfolio was sold on June 30, 2009.

~~General~~Hedging instruments interest expense was ~~$13.1~~$9.4 million for the year ended December 31, 2010, as compared to ~~$16.8~~$13.5 million for the year ended December 31, 2009, a decrease of ~~$3.7~~$4.1 million ~~(22%~~(30%). This decrease was primarily from the sale of our legacy leasing portfolio, at par, in June 2009 which also resulted in the transfer of the related interest rate hedges and a decrease in that associated cost.

Other Revenue

~~Year Ended December 31, 2009 as compared~~The following table sets forth information relating to ~~Year Ended December 31, 2008~~our other revenue incurred for the periods presented (in thousands):

	Years Ended
	December 31,
	2011		2010		2009
Other revenue:
Rental income	$	3,656	$	−	$	−
Dividend income		2,955		−		−
Fee income		7,789		−		−
Total other revenue	$	14,400	$	−	$	−

~~Aggregate interest expense decreased $34.2 million (43%) to $45.4~~Rental income was $3.7 million for the year ended December 31, ~~2009, from $79.6 million for the year ended December 31, 2008. We attribute this decrease~~2011 and is related to ~~the following:~~

Interest expense on bank loans was $15.4 million for the year ended December 31, 2009, as compared to $35.2 million for the year ended December 31, 2008, a decrease of $19.8 million (56%). This decrease resulted primarily from a decreaseour property available-for-sale and our investments in the weighted average yield on this debt to 1.68% for the year ended December 31, 2009 from 3.82% for the year ended December 31, 2008 as a result of the decrease in LIBOR which is a reference index for the rates payable on most of these notes.

~~Interest expense on commercial~~ real estate loans was $11.1 million for the year ended December 31, 2009, as compared to $27.9 million for the year ended December 31, 2008, a decrease of $16.9 million (60%). This decrease resulted from the following:

●

a decrease in the weighted average yield on our financings to 1.70% for the year ended December 31, 2009 from 3.91% for the year ended December 31, 2008 primarily due to the decrease in LIBOR which is a reference index for the rates payable on most of these notes; and

●

a decrease in the weighted average balance of the related financings of $47.2 million to $649.3 million for the year ended December 31, 2009 from $696.5 million for the year ended December 31, 2008 as a result of our buyback of $55.5 million in notes and the payoff of $17.1 million in repurchase agreement debt during the year.

Interest expense on CMBS-private placement was $0 for the year ended December 31, 2009, as compared to $163,000 for the year ended December 31, 2008 due to the elimination of advance rates on our pledged CMBS-private placement collateral in November 2008 as a result of policy changes surrounding advance rates by our lender.

Interest expense on our equipment leasing portfolio was $2.1 million for the year ended December 31, 2009, as compared to $4.4 million for the year ended December 31, 2008, a decrease of $2.2 million (51%). The decrease for the year ended December 31, 2009 is primarily the result of the sale of most of the leasing portfolio and the simultaneous transfer of all of the related debt to Resource America who purchased the leases, at par, as of June 30, 2009.during 2011.

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~~The decrease in interest expense was partially offset by an increase in general interest expense. General interest expense was $16.8~~

We received dividend income of $3.0 million for the year ended December 31, ~~2009, as compared~~2011 from our preferred equity investment in LCC. There was no such investment at December 31, 2010. On November 16, 2011, we entered into an agreement whereby we exchanged our old preferred interest in LCC for a new preferred interest in LCC. Our resulting interest will be accounted for under the equity method subsequent to ~~$12.0~~November 16, 2011 and therefore, we will no longer record dividend income.

We generated management fee income of $7.8 million for the year ended December 31, ~~2008, an increase~~2011, which is related to our February 2011 acquisition of ~~$4.8 million (40%). This increase resulted primarily from an increase of $5.6 million on our interest rate derivatives~~a company that ~~fix the rate we pay under these agreements. During~~manages bank loan assets that entitles us to collect senior, subordinated, and incentive fees related to five collateralized loan obligation issuers, or CLOs. We had no such investment or income for the year ended December 31, 2009 and 2008, the fixed rate we paid exceeded the floating rate we received due to the decrease in LIBOR. The increase in derivative expense was partially offset by a decrease in interest expense related to our unsecured junior subordinated debentures held by unconsolidated trusts that issued trust preferred securities as a result of a decrease in the LIBOR rate which is a reference index for the rates payable by these debentures. This decrease in LIBOR was partially offset by an increase in the spread on this debt as a result of an amendment to the indentures for this debt in September 2009.2010.

~~Non-Investment~~Operating Expenses

The following table sets forth information relating to our ~~non-investment~~operating expenses incurred for the periods presented (in thousands):

	Years Ended								Years Ended
	December 31,								December 31,
	2010		2009			2008			2011		2010		2009
Non-investment expenses:
Operating expenses:
Management fees-related party	$	13,216	$	8,363		$	6,301		$	11,022	$	13,216	$	8,363
Equity compensation-related party		2,221		1,240			540			2,526		2,221		1,240
Professional services		3,627		3,866			3,349			3,791		3,627		3,866
Insurance		759		828			641			658		759		828
Rental operating expense										2,743		46		−
General and administrative										3,950		3,015		1,764
Depreciation on operating leases		4,003		−			−			−		4,003		−
General and administrative		3,061		1,764			1,848
Depreciation and amortization										4,619		−		−
Income tax expense (benefit)		5,721		(2	)		(241	)		12,036		5,721		(2	)
Total non-investment expenses	$	32,608	$	16,059		$	12,438
Total operating expenses									$	41,345	$	32,608	$	16,059

Year Ended December 31, 2011 as compared to the Year Ended December 31, 2010

Management fees – related party decreased $2.2 million (17%) to $11.0 million for the year ended December 31, 2011 as compared to $13.2 million for the year ended December 31, 2010. These amounts represent compensation in the form of base management fees and incentive management fees pursuant to our management agreement as well as fees to the manager of our structured note portfolio. The changes are described below:

●

Base management fees increased by $1.6 million (29%) to $7.0 million for the year ended December 31, 2011 as compared to $5.4 million for the year ended December 31, 2010. This increase was due to increased stockholders’ equity, a component in the formula by which base management fees are calculated, primarily as a result of the receipt of $83.6 million of net proceeds from the sales of common stock through our Dividend Reinvestment and Stock Purchase Plan or DRIP, during the years ended December 31, 2011 as well as the receipt of $46.6 million from the proceeds of our March 2011 common stock offering.

●

Incentive management fees to our Manager, which are based upon the excess of adjusted operating earnings over a variable base rate, decreased $2.7 million (61%) to $1.7 million for the year ended December 31, 2011 from $4.4 million for the year ended December 31, 2010. The fees for the year ended December 31, 2010 were driven by $34.6 million of gains on the extinguishment of debt as compared to $3.9 million of gains on the extinguishment of debt for the year ended December 31, 2011. The incentive fee is calculated for each quarter and the calculation in any quarter is not affected by the results of any other quarter.

●

Incentive management fees related to our structured finance manager decreased by $1.1 million to $2.3 million for the year ended December 31, 2011 from $3.4 million for the year ended December 31, 2010. The decrease in fees is primarily related to the decline in the performance of this portfolio at December 31, 2011.

Equity compensation – related party increased $305,000 (14%) to $2.5 million for the year ended December 31, 2011 as compared to $2.2 million for the year ended December 31, 2010. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to several employees of Resource America who provide investment management services to us through our Manager. The increase in expense was primarily the result of the issuance of new grants during 2011. The increase was partially offset by our quarterly remeasurement of the value of unvested stock.

Rental operating expense increased $2.7 million to $2.7 million for the year ended December 31, 2011 as compared to $46,000 for the year ended December 31, 2010 and is related to property available-for-sale and investments in real estate, which increase through several acquisitions in 2011. There was one such asset at December 31, 2010 compared to four at December 31, 2011 due to the acquisition of three properties during the year ended December 31, 2011.

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General and administrative expense increased $935,000 (31%) to $4.0 million for the year ended December 31, 2011 from $3.1 million for the year ended December 31, 2010. The increase is primarily the result of the following:

●

an increase of $257,000 related to transaction costs in connection with our acquisition of an investment in real estate in September 2011;

●

increase of $194,000 related to franchise taxes because of increased profitability and equity in our taxable REIT subsidiaries;

●

an increase of $168,000 related to our agreement to reimburse Resource America for the wages, salary and benefits of our Chairman, our Chief Financial Officer, several accounting professionals, and 50% of the salary and benefits of a director of investor relations.

Depreciation on operating leases was $4.0 million for the year ended December 31, 2010. There was no such expense for the year ended December 31, 2011. The expense is related to the depreciation of the assets in the leasing securitization we acquired in May 2010 which were converted to a preferred equity investment in LCC in January 2011.

Depreciation and amortization was $4.6 million for the year ended December 31, 2011 and is related to our acquisition of Resource Capital Asset Management, or RCAM, in February 2011 and our acquisition of real estate in the second and third quarters of 2011. There were no such investments during the year ended December 31, 2010.

Income tax expense increased $6.3 million (110%) to $12.0 million for the year ended December 31, 2011 as compared to $5.7 million for the year ended December 31, 2010, of which $4.6 million is due to two of our legacy CLO structures (Apidos I and Apidos III) being taxable during the fourth quarter of 2011, which we do not expect to continue into 2012. The balance of the increased tax expense is primarily due to increased profitability in our trading portfolio. We expect our effective tax rate on these taxable REIT subsidiaries to be between 45% and 48% for the year ended December 31, 2012.

Year Ended December 31, 2010 as compared to the Year Ended December 31, 2009

Management fees – related party increased $4.9 million (58%) to $13.2 million for the year ended December 31, 2010 as compared to $8.4 million for the year ended December 31, 2009. These amounts represent compensation in the form of base management fees and incentive management fees pursuant to our management agreement as well as fees to the manager of our structured note portfolio. The base management fees increased by $1.6 million (43%) to $5.4 million for the year ended December 31, 2010 as compared to $3.8 million for the year ended December 31, 2009. This increase was due to increased stockholders’ equity, a component in the formula by which base management feeschanges are calculated, primarily as a result of the receipt of $76.8 million of net proceeds from the sales of common stock through our Dividend Reinvestment Plan or DRIP during the year ended December 31, 2010 as well as the receipt of $42.4 million from the proceeds of our May 2010 common stock offering. Incentive management fees increased $2.8 million to $7.4 million for the year ended December 31, 2010 from $4.6 million for the year ended December 31, 2009 primarily as a result of income from our structured finance portfolio. There was no such portfolio and therefore no such income during the year ended December 31, 2009. Management fees also include fees of $438,000 for the year ended December 31, 2010 to our structured finance manager.described below:

●

Base management fees increased by $1.6 million (43%) to $5.4 million for the year ended December 31, 2010 as compared to $3.8 million for the year ended December 31, 2009. This increase was due to increased stockholders’ equity, a component in the formula by which base management fees are calculated, primarily as a result of the receipt of $76.8 million of net proceeds from the sales of common stock through our DRIP during the year ended December 31, 2010 as well as the receipt of $42.4 million from the proceeds of our May 2010 common stock offering.

●

Incentive management fees which are based upon the excess of adjusted operating earnings over a variable base rate, increased $2.8 million to $7.4 million for the year ended December 31, 2010 from $4.6 million for the year ended December 31, 2009 primarily as a result of income from our structured finance portfolio. There was no such portfolio and therefore no such income during the year ended December 31, 2009.

●

Management fees also include fees of $438,000 for the year ended December 31, 2010 to our structured finance manager. There was no such fee or portfolio in the prior year.

Equity compensation – related party increased $981,000 (79%) to $2.2 million for the year ended December 31, 2010 as compared to $1.2 million for the year ended December 31, 2009. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to several employees of Resource America who provide investment management services to us through our Manager. The increase in expense was primarily the result of an increase in our stock price and its impact on our quarterly remeasurement of the value of unvested stock and options as well as issuances of new grants during the year.

Professional services decreased $239,000 (6%) to $3.6 million for the year ended December 31, 2010 as compared to $3.9 million for the year ended December 31, 2009 primarily due to a decrease of $399,000 of servicing fees related to our legacy leasing portfolio which was sold in June 2009.

Depreciation on operating leases was $4.0 million for the year ended December 31, 2010 as compared to $0 for the year ended December 31, 2009 and is related to the $120.0 million of new leases we acquired in April 2010. There was no such portfolio or expense during the year ended December 31, 2009.

General and administrative expense increased $1.3 million (74%) to $3.1 million for the year ended December 31, 2010 from $1.8 million for the year ended December 31, 2009. $1.1 million of the increase is related to our agreement to reimburse Resource America for the wages, salary and benefits of our Chief Financial Officer, ~~three~~several accounting professionals and 50% of the salary and benefits of a director of investor relations. The reimbursements began in October 2009. In addition, we began reimbursing ~~our Chairman~~Resource America for wages, salary and benefits of our Chairman in February 2010 and an additional accounting professional in November 2010.

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Income tax expense increased $5.7 million to an expense of $5.7 million for the year ended December 31, 2010, as compared to a benefit of $2,000 for the year ended December 31, 2009 due to higher pre-tax income for the year ended December 31, 2010. In addition, the benefit incurred for the year ended December 31, 2009, was relatively low when compared to pre-tax loss due to the fact that a valuation allowance was established against certain deferred tax assets that were deemed to not be realizable at that time. The valuation has been removed for the year ended December 31, 2010 due to a change in circumstances regarding the ability to realize the deferred tax assets.

~~Year Ended December 31, 2009 as compared to the Year Ended December 31, 2008~~

Management fees – related party increased $2.1 million (33%) to $8.4 million for the year ended December 31, 2009 as compared to $6.3 million for the year ended December 31, 2008. These amounts represent compensation in the form of base management fees and incentive management fees pursuant to our management agreement. The base management fees decreased by $750,000 (17%) to $3.8 million for the year ended December 31, 2009 as compared to $4.5 million for the year ended December 31, 2008. This decline was due to decreased stockholders’ equity, a component in the formula by which base management fees are calculated, primarily as a result of significant additional provisions for loan and lease losses and asset impairments during 2009. Incentive management fees increased by $2.8 million (160%) to $4.6 million for the year ended December 31, 2009 from $1.8 million for the year ended December 31, 2008. The incentive fee is calculated for each quarter and the calculation in any quarter is not affected by the results of any other quarter. The increase is the result of fees of $3.1 million and $1.5 million for the three months ended September 30, 2009 and December 31, 2009, respectively, primarily as a result of the gains on extinguishment of debt we realized during the six months ended December 31, 2009.

Equity compensation – related party increased $700,000 (130%) to $1.2 million for the year ended December 31, 2009 as compared to $540,000 for the year ended December 31, 2008. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to several employees of Resource America who provide investment management services to us through our Manager. The increase in expense was primarily the result of an increase in our stock price and its impact on our quarterly remeasurement of the value of unvested stock and options as well as issuances of new grants during the year.

Professional services increased $517,000 (15%) to $3.9 million for the year ended December 31, 2009 as compared to $3.3 million for the year ended December 31, 2008 due to an increase of $864,000 in legal fees due to restructurings of our CRE loans as well as compliance work performed. This increase was partially offset by a decrease in lease servicing expense of $455,000 as a result of the sale of the majority of the leasing portfolio on June 30, 2009.

Income tax benefit decreased $239,000 (99%) to a benefit of $2,000 for the year ended December 31, 2009 as compared to a benefit of $241,000 for the year ended December 31, 2008 due to the establishment of a valuation allowance against deferred tax assets related to Resource TRS, our domestic taxable REIT subsidiary.

Other (Expense)/Income

The following table sets forth information relating to our other income (expense) incurred for the periods presented (in thousands):

	Years Ended
	December 31,
Other (Expense) Revenue	2011			2010			2009
Net impairment losses recognized in earnings	$	(6,898	)	$	(26,804	)	$	(13,471	)
Net realized gains (losses) on investment securities available-for sale and loans		2,622			4,821			1,890
Net realized and unrealized (loss) gain on investment securities-trading		858			14,791			−
Provision for loan and lease losses		(13,896	)		(43,321	)		(61,383	)
Gain on the extinguishment of debt		3,875			34,610			44,546
Other income (expense)		(1,663	)		513			(1,350	)
Total other expense	$	(15,102	)	$	(15,390	)	$	(29,768	)

Year Ended December 31, 2011 as compared to Year Ended December 31, 2010

Net impairment losses recognized in earnings decreased $19.9 million (74%) to a loss of $6.9 million for the year ended December 31, 2011 from a loss of $26.8 million for the year ended December 31, 2010. Impairment charges for the year ended December 31, 2011 consisted of $4.6 million on two CMBS positions and $2.2 million on our investment in preferred stock and warrants in LCC. Impairment for the year ended December 31, 2010 related to impairment charges of $26.6 million taken on five CMBS positions.

Net realized gains on investment securities available-for-sale and loans decreased $2.2 million (46%) to $2.6 million for the year ended December 31, 2011 from $4.8 million for the year ended December 31, 2010. The decrease is primarily the result of decreased gains from sales of investments in our CMBS portfolio during the year ended December 31, 2011 of $1.5 million as well as increased losses from sales of ABS of $1.5 million during the year ended December 31, 2011 as a result of tax planning with respect to our 75% gross income test for REIT qualification. The losses were partially offset by increased gains from the sale of Apidos loans of $675,000 during the year ended December 31, 2011.

Net realized and unrealized gain on investment securities-trading decreased $13.9 million (94%) to a gain of $858,000 for the year ended December 31, 2011, from a gain of $14.8 million for the year ended December 31, 2010. The decrease in gains is the result of fewer sales of structured finance securities as well as unrealized losses on the positions we still hold due to the decline in fair market value.

Our provision for loan and lease losses decreased $29.4 million (68%) to a provision of $13.9 million for the year ended December 31, 2011, as compared to a provision of $43.3 million for the year ended December 31, 2010.

The following table summarizes information relating to our provision for loan and lease losses for the periods presented (in thousands):

	Year Ended
	December 31,
	2011		2010
CRE loan portfolio	$	6,478	$	44,357
Bank loan portfolio		7,418		(1,348	)
Lease receivables		−		312
	$	13,896	$	43,321

(Back to Index)

Years Ended

December 31,

2010

2009

2008

Impairment losses on investment securities
$ (29,042 ) $ (27,490 ) $ (26,611 )
Recognized in other comprehensive loss
(2,238 ) (14,019 ) (26,611 )
Net impairment losses recognized in earnings
(26,804 ) (13,471 ) −
Net realized gains (losses) on investment securities
available-for sale and loans
4,821 1,890 (1,637 )
Net realized gain on investment securities-trading
5,052 − −
Net unrealized gain on investment securities-trading
9,739 − −
Provision for loan and lease losses
(43,321 ) (61,383 ) (46,160 )
Gain on the extinguishment of debt
34,610 44,546 1,750
Gain on the settlement of a loan
− − 574
Other income (expense)
513 (1,350 ) 115
Total
$ (15,390 ) $ (29,768 ) $ (45,358 )

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The principal reason for the decrease for the year ended December 31, 2011 was improved credit conditions for the borrowers in our CRE portfolio where we have seen a reduction in the magnitude of impaired and defaulted loans due in large part to successful restructuring of 26 loans. For the year ended December 31, 2011, we had five positions for which we took provisions. The positions had a total par value of $84.4 million and were written down to $63.4 million for a weighted average write down percentage of 24.9% of par. We had eight positions for which we took a provision during the year ended December 31, 2010. The positions had a total par value of $88.9 million and were written down to $51.7 million for a weighted average write-down percentage of 41.8% of par. The decrease in provisions for the year ended December 31, 2011 was partially offset by reserves on our bank loan portfolio principally related to reserves taken on two specific loans in December 2011 as well as by the sale of loans at losses, primarily during the three months ended December 31, 2011.

Gain on the extinguishment of debt was $3.9 million for the year ended December 31, 2011 and is due to the buyback of $10.0 million of the debt issued by our two CRE CDOs during the period. The notes, issued at par, were bought back as an investment by us at a weighted average price of 61.3% of par. Gain on the extinguishment of debt was $34.6 million during the year ended December 31, 2010 and is due to the buyback of $91.4 million of debt issued by the CRE CDOs. The notes, issued at par, were repurchased as an investment by us at a weighted average price of 62.1% of par. The related deferred debt issuance costs were immaterial.

Year Ended December 31, 2010 as compared to Year Ended December 31, 2009

Net impairment losses recognized in earnings were $26.8 million during the year ended December 31, 2010 and consisted primarily of other-than-temporary impairment losses of $26.6 million on five CMBS-private placement positions. Losses during the year ended December 31, 2009 consisted of $6.9 million on two CMBS-private placement positions, $5.7 million on our other ABS position and $895,000 on one of our investment securities held-to-maturity.

~~(Back to Index)~~

Net realized gains on investment securities available-for-sale and loans increased $2.9 million (155%) to $4.8 million for the year ended December 31, 2010 from $1.9 million for the year ended December 31, 2009. The increase is primarily due to $5.0 million of net gains on the sale of CMBS – private placement positions during the year ended December 31, 2010 as compared to $160,000 of net gains on CMBS – private placement positions during the year ended December 31, 2009, reflecting a positive effect of a market rally in CMBS pricing on our portfolio. These gains were partially offset by $1.3 million of losses on our ABS held-to-maturity portfolio from the sale of securities due to our evaluation of the creditworthiness of the underlying assets. These gains were also partially offset by a decrease of $489,000 from trading ~~losses~~loss differences on our Apidos loans recognized as held-for-sale ofwhich were losses $114,000 during the year ended December 31, 2010 ~~versus trading~~as compared to gains of $375,000 on that same portfolio for the year ended December 31, 2009 as a result of timing differences of when positions were recognized for sale and sold.

Net realized ~~gain~~and unrealized gains on investment securities-trading was ~~$5.1~~$14.8 million for the year ended December 31, 2010. The gains are the result of sales of structured finance securities as well as the result of marking the structured finance positions we still held to market as of December 31, 2010. No such portfolio existed prior to June 2010. ~~The gains are the result of sales of structured finance securities.~~

Net unrealized gain on investment securities-trading was $9.7 million for the year ended December 31, 2010. No such portfolio existed prior to June 2010. The gains are the result of marking the structured finance positions to market as of December 31, 2010.

Our provision for loan and lease losses decreased $18.1 million (29%) to $43.3 million for the year ended December 31, 2010, as compared to $61.4 million for the year ended December 31, 2009.

The following table summarizes information relating to our provision for loan and lease losses for the periods presented (in thousands):

	Year Ended
	December 31,
	2010			2009
CRE loan portfolio	$	44,357		$	31,856
Bank loan portfolio		(1,348	)		26,855
Lease receivables		312			2,672
	$	43,321		$	61,383

The principal reason for the decrease in 2010 from ~~the~~ 2009 ~~period~~ was the significant improvement in market conditions with respect to assets in our bank loan portfolio. There was also a decrease in the provision on our lease receivables which was primarily due to the sale of the legacy portfolio and subsequent acquisition of a new leasing portfolio which was underwritten with stricter credit standards. ~~The~~These improvements ~~in the provision~~ were partially offset by provisions for our CRE portfolio, which ~~has~~had declined in value. During the year ended December 31, 2010, we had 11 loans for which we had taken provisions as compared to four loans for the year ended December 31, 2009 as a result of our impairment analysis. We also increased our general reserve by $3.1 million during the year ended December 31, 2010 as a result of market conditions.

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Gain on the extinguishment of debt decreased $9.9 million (22%) during the year ended December 31, 2010 to $34.6 million for the year ended December 31, 2010 from $44.5 million for the year ended December 31, 2009. During the year ended December 31, 2010, we bought back $91.4 million of debt issued by ~~Resource Real Estate Funding CDO 2006-1, or RREF CDO 2006-1 and Resource Real Estate Funding CDO 2007-1, or RREF CDO 2007-1.~~our two CRE CDOs. The notes, issued at par, were repurchased as an investment by us at a weighted average price of 62.1% of par resulting in a gain of $34.6 million. During the year ended December 31, 2009, we bought back $55.5 million of debt issued by ~~RREF CDO 2006-1 and RREF CDO 2007-1.~~our two CRE CDOs. The notes, issued at par, were repurchased as an investment by us at a weighted average price of 19.8% of par resulting in a gain of $44.5 million. The related deferred debt issuance costs were ~~immaterial in all transactions.~~immaterial.

Other ~~income/~~(expense) income increased $1.9 million to income of $513,000 for the year ended December 31, 2010 as compared to expense of $1.4 million for the year ended December 31, 2009. The increase in income was primarily due to a non-recurring charge of $1.4 million during the year ended December 31, 2009 that was the result of an accrual for a liability related to a settlement on our equity position in the Ischus CDO II portfolio.

~~Year Ended December 31, 2009 as compared to Year Ended December 31, 2008~~

Net impairment losses recognized in earnings were $13.5 million during the year ended December 31, 2009 and consisted of other-than-temporary impairment losses of $6.9 million on two CMBS-private placement positions, $5.7 million on our other ABS position, and $895,000 on one of our investment securities held-to-maturity.

~~(Back to Index)~~

Net realized gains (losses) on securities available-for-sale and loans increased $3.5 million to a gain of $1.9 million for the year ended December 31, 2009 from a loss of $1.6 million for the year ended December 31, 2008. The primary component of the increased gain during the year ended December 31, 2009 was an increase of $1.4 million in net gains from the sale of loans and held-to-maturity securities in our bank loan portfolio. In addition, the year ended December 31, 2008 contains net losses of $2.0 million from the sale of CMBS – private placement securities as compared to $190,000 of gains during the year ended December 31, 2009, a net increase in gains of $2.2 million for the year ended December 31, 2009.

~~Other (expense) income increased $1.5 million to an expense of $1.4 million for the year ended December 31, 2009 as compared to income of $115,000 for the year ended December 31, 2008. The increase~~decrease in expense was primarily due to a charge of $1.4 million that was the result of an accrual for a liability related to a settlement on our equity position in the Ischus CDO II ~~portfolio.~~

~~Our provision for loan and lease losses increased $15.2 million (33%) to $61.4 million for the year ended December 31, 2009 as compared to $46.2 million for the year ended December 31, 2008.~~

~~The following table summarizes information relating to our provision for loan and lease losses for the periods presented (in thousands):~~

Year Ended

December 31,

2009

2008

CRE loan portfolio
$ 31,856 $ 14,817
Bank loan portfolio
26,855 30,442
Lease receivables
2,672 901
$ 61,383 $ 46,160

~~The principal reason for the increased provision is overall worsening credit markets~~portfolio in 2009. We ~~increased~~sold our ~~general allowance for loan and lease losses~~interest in 2009 by $8.0 million for bank loans, $8.1 million for CRE loans and $0.7 million on our leasing portfolio. Also, due to payment defaults, we took an $18.8 million provision on specifically impaired bank loans and a $2.0 million provision on our leasing portfolio during the year ended December 31, 2009. Lastly, because of a decision to liquidate a substantial portion of collateralIschus CDO II in ~~our largest CRE position, we took a $23.8 million provision on that portfolio of loans during the year ended December 31, 2009.~~November 2007.

Gain on the extinguishment of debt increased $42.8 million during the year ended December 31, 2009 to $44.5 million for the year ended December 31, 2009 from $1.8 million for the year ended December 31, 2008. During the year ended December 31, 2009, we bought back $55.5 million of debt issued by RREF CDO 2006-1 and RREF CDO 2007-1. The notes, issued at par, were bought back as an investment by us at a weighted average price of 19.8% of par resulting in a gain of $44.5 million. During the year ended December 31, 2008, we bought back $5.0 million of debt issued by RREF CDO 2007-1. The notes, issued at par, were bought back as an investment by us at a price of 65% of par resulting in a gain of $1.8 million. The related deferred debt issuance costs were immaterial in all transactions.

Gain on the settlement of a loan during the year ended December 31, 2008 is due to the reimbursement of a loss related to the termination of a hedge after the paydown of a commercial real estate loan. Under the terms of the agreement, we were to be reimbursed for any such termination costs. There was no similar transaction during the year ended December 31, 2009.

Financial Condition

Summary

Our total assets at December 31, ~~2010~~2011 were ~~$1.9~~$2.3 billion as compared to ~~$1.8~~$1.9 billion at December 31, ~~2009.~~2010. The increase in total assets was principally due to the ~~addition~~purchase of ~~lease receivables to~~assets for our ~~investment portfolio as a result of a~~ new ~~leasing securitization entered into~~Apidos CLO VIII which closed in ~~May 2010.~~October 2011.

Investment Portfolio

The following tables summarize the amortized cost and net carrying amount of our investment portfolio as of December 31, ~~2010~~2011 and ~~2009,~~2010, classified by interest rate type. The following table includes both (i) the amortized cost of our investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the net carrying amount of our investment portfolio and the related dollar price, which is computed by dividing the net carrying amount by par amount (in thousands, except percentages):

(Back to Index)

4650

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Amortized
cost (3)

Dollar
price

Net carrying amount

Dollar
price

Net carrying amount less amortized cost

Dollar
price

December 31, 2010

Floating rate
CMBS-private placement $ 31,127 100.00% $ 9,569 30.74% $ (21,558 ) -69.26%
Structured notes
7,984 34.09% 17,723 75.67% 9,739 41.58%
Other ABS
−     0.00% 22 0.26% 22 0.26%
B notes (1)
26,485 99.94% 26,071 98.38% (414 ) -1.56%
Mezzanine loans (1)
83,699 100.00% 82,680 98.78% (1,019 ) -1.22%
Whole loans (1)
441,372 99.92% 419,207 94.91% (22,165 ) -5.01%
Bank loans (2)
856,436 96.99% 850,500 96.32% (5,936 ) -0.67%
Loans held for sale (3)
13,593 55.92% 13,593 55.92% − 0.00%
ABS held-to-maturity (4)
29,036 91.08% 25,941 81.37% (3,095 ) -9.71%
Total floating rate
1,489,732 95.86% 1,445,306 93.01% (44,426 ) -2.85%
Fixed rate
CMBS – private placement
52,097 48.30% 54,369 50.41% 2,272 2.11%
B notes (1)
30,966 99.53% 30,482 97.97% (484 ) -1.56%
Mezzanine loans (1)
38,545 100.23% 31,012 80.64% (7,533 ) -19.59%
Loans held for sale (3)
15,000 75.00% 15,000 75.00% − 0.00%
Lease receivables (5)
109,682 100.00% 109,612 99.94% (70 ) -0.06%
Total fixed rate
246,290 80.20% 240,475 78.30% (5,815 ) -1.90%
Grand total
$ 1,736,022 93.28% $ 1,685,781 90.58% $ (50,241 ) -2.70%

December 31, 2009

Floating rate
CMBS-private placement $ 32,043 100.00% $ 11,185 34.91% $ (20,858 ) -65.09%
Other ABS
24     0.29% 24 0.29% −       −%
B notes (1)
26,479 99.92% 26,263 99.11% (216 ) -0.81%
Mezzanine loans (1)
124,048 100.00% 123,058 99.20% (990 ) -0.80%
Whole loans (1)
403,230 99.81% 381,710 94.49% (21,520 ) -5.32%
Bank loans (2)
857,202 96.87% 798,614 90.25% (58,588 ) -6.62%
Loans held for sale (3)
8,050 78.88% 8,050 78.88% −      −%
ABS held-to-maturity (4)
31,401 88.77% 21,287 60.18% (10,114 ) -28.59%
Total floating rate
1,482,477 97.23% 1,370,191 89.82% (112,286 ) -7.41%
Fixed rate
CMBS – private placement
60,067 64.08% 33,333 35.56% (26,734 ) -28.52%
B notes (1)
54,977 100.05% 54,527 99.23% (450 ) -0.82%
Mezzanine loans (1)
58,638 100.28% 53,200 90.98% (5,438 ) -9.30%
Whole loans (1)
80,305 99.78% 79,647 98.96% (658 ) -0.82%
Lease receivables (5)
2,067 100.05% 927 44.87% (1,140 ) -55.18%
Total fixed rate
256,054 88.38% 221,634 76.50% (34,420 ) -11.88%
Grand total
$ 1,738,531 95.78% $ 1,591,800 87.70% $ (146,731 ) -8.08%

	Amortized cost (3)		Dollar price		Net carrying amount		Dollar price		Net carrying amount less amortized cost			Dollar price
December 31, 2011
Floating rate
RMBS	$	8,729		18.60%	$	7,120		15.17%	$	(1,609	)		-3.43%
CMBS-private placement		28,691		100.00%		8,311		28.97%		(20,380	)		-71.03%
Structured notes		27,345		41.53%		31,553		47.93%		4,208			6.40%
ABS		28,513		88.21%		25,201		77.96%		(3,312	)		-10.25%
Other ABS		−		0.00%		23		0.28%		23			0.28%
Mezzanine loans (2)		53,908		99.97%		53,077		98.43%		(831	)		-1.54%
Whole loans (2)		537,708		99.79%		515,176		95.61%		(22,532	)		-4.18%
Bank loans (3)		1,170,599		97.33%		1,142,907		95.03%		(27,692	)		-2.30%
Loans held for sale (4)		3,154		54.59%		3,154		54.59%		−			0.00%
Total floating rate		1,858,647		93.71%		1,786,522		90.08%		(72,125	)		-3.63%
Fixed rate
CMBS – private placement		132,821		71.94%		124,509		67.44%		(8,312	)		-4.50%
B notes (2)		16,435		99.13%		16,182		97.61%		(253	)		-1.52%
Mezzanine loans (2)		13,966		100.35%		13,361		96.00%		(605	)		-4.35%
Whole loans (2)		6,965		99.47%		6,965		99.47%		−			0.00%
Loans receivable-related party		9,497		100.00%		9,497		100.00%		−			0.00%
Total fixed rate		179,684		77.58%		170,514		73.62%		(9,170	)		-3.96%
Other (non-interest bearing)
Investment in real estate		48,027		100.00%		48,027		100.00%		−			0.00%
Investment in unconsolidated entities		47,899		100.00%		47,899		100.00%		−			0.00%
Total other		95,926		100.00%		95,926		100.00%		−			0.00%
Grand total	$	2,134,257		92.36%	$	2,052,962		88.84%	$	(81,295	)		-3.52%
December 31, 2010
Floating rate
CMBS-private placement	$	31,127		100.00%	$	9,569		30.74%	$	(21,558	)		-69.26%
Structured notes		7,984		34.09%		17,723		75.67%		9,739			41.58%
ABS held-to-maturity (1)		29,036		91.08%		25,941		81.37%		(3,095	)		-9.71%
Other ABS		−		0.00%		22		0.26%		22			0.26%
B notes (2)		26,485		99.94%		26,071		98.38%		(414	)		-1.56%
Mezzanine loans (2)		83,699		100.00%		82,680		98.78%		(1,019	)		-1.22%
Whole loans (2)		441,372		99.92%		419,207		94.91%		(22,165	)		-5.01%
Bank loans (3)		856,436		96.99%		850,500		96.32%		(5,936	)		-0.67%
Loans held for sale (4)		13,593		55.92%		13,593		55.92%		−			0.00%
Total floating rate		1,489,732		95.86%		1,445,306		93.01%		(44,426	)		-2.85%
Fixed rate
CMBS – private placement		52,097		48.30%		54,369		50.41%		2,272			2.11%
B notes (2)		30,966		99.53%		30,482		97.97%		(484	)		-1.56%
Mezzanine loans (2)		38,545		100.23%		31,012		80.64%		(7,533	)		-19.59%
Loans held for sale (4)		15,000		75.00%		15,000		75.00%		−			0.00%
Lease receivables (5)		109,682		100.00%		109,612		99.94%		(70	)		-0.06%
Loans receivable-related party		9,927		100.00%		9,927		100.00%		−			0.00%
Total fixed rate		256,217		80.20%		250,402		78.30%		(5,815	)		-1.90%
Other (non-interest bearing)
Investment in unconsolidated entities		6,791		100.00%		6,791		100.00%		−			0.00%
Total other		6,791		100.00%		6,791		100.00%	��	−			0.00%
Grand total	$	1,752,740		93.28%	$	1,702,499		90.58%	$	(50,241	)		-2.70%

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(1)	ABS held-to-maturity are carried at amortized cost less other-than-temporary impairments.

(2)

Net carrying amount includes an allowance for loan losses of $24.2 million at December 31, 2011, allocated as follows: B notes ($253,000), mezzanine loans ($1.4 million) and whole loans ($22.5 million). Net carrying amount includes an allowance for loan losses of $31.6 million at December 31, 2010, allocated as follows: B notes ($899,000), mezzanine loans ($8.5 million) and whole loans ($22.2 million). Net carrying amount includes an allowance for loan losses of $29.3 million at December 31, 2009, allocated as follows: B notes ($666,000), mezzanine loans ($6.4 million) and whole loans ($22.2 million).

~~(2)~~(3)

The bank loan portfolio is carried at amortized cost less allowance for loan loss and was ~~$853.8 million~~$1.2 billion at December 31, ~~2010.~~2011. The amount disclosed represents net realizable value at December 31, ~~2010,~~2011, which includes a ~~$2.6~~$3.3 million allowance for loan losses at December 31, ~~2010.~~2011. The bank loan portfolio was ~~$839.4~~$853.8 million (net of allowance of ~~$17.8~~$2.6 million) at December 31, ~~2009.~~2010.

~~(3)~~(4)

Loans held for sale are carried at the lower of cost or market. Amortized cost is equal to fair value.

~~(4)~~

~~ABS held-to-maturity are carried at amortized cost less other-than-temporary impairments.~~

(5)	Net carrying amount includes a $70,000 ~~and $1.1 million~~ allowance for lease receivable losses at December 31, ~~2010 and 2009, respectively.~~2010.

~~(Back to Index)~~

Commercial Mortgage-Backed Securities-Private Placement. The determination of other-than-temporary impairment is a subjective process, and different judgments and assumptions could affect the timing of loss realization. We review our portfolios and make other-than-temporary impairment determinations at least quarterly. We consider the following factors when determining if there is an other-than-temporary impairment on a security:

●

~~the length of time the market value has been less than amortized cost;~~

●

~~the severity of the impairment;~~

●

~~the expected loss of the security as generated by third party software;~~

●

~~credit ratings from the rating agencies;~~

●

~~underlying credit fundamentals of the collateral backing the security; and~~

●

~~whether, based upon our intent, it is more likely than not that we will sell the security before the recovery of the amortized cost basis.~~

At December 31, 2010 and 2009, we held $64.0 million and $44.5 million, respectively, (net of net unrealized losses of $19.3 million and $47.6 million, respectively) of CMBS recorded at fair value. To determine fair value, we use two methods, either a dealer quote or an internal valuation model, depending upon when the position was purchased and the current level of market activity. As of December 31, 2010 and 2009, $53.7 million and $29.7 million, respectively, of investment securities available-for-sale were valued using dealer quotes and $10.3 million and $14.8 million, respectively, were valued using the weighted average of the three measures discussed below.

For securities purchased in 2009 and thereafter, we obtain a quote from a dealer, which typically will be the dealer who sold us the security. We have been advised that, in formulating their quotes, dealers may use recent trades in the particular security, if any, market activity in similar securities, if any, or internal valuation models. These quotes are non-binding. As a result of how the dealers develop their quotes, the market illiquidity and low levels of trading activity as of December 31, 2009, we categorized all of these investment securities available-for-sale in Level 3 in the fair value hierarchy. Due to the increased level of trading activity in 2010, we moved some of these securities into Level 2 in the fair value hierarchy. We evaluate the reasonableness of the quotes we receive by applying our own valuation models. If there is a material difference between a quote we receive and the value indicated by our valuation models, we will evaluate the difference. As part of that evaluation, we will discuss the difference with the dealer, who may revise their quote based upon these discussions. Alternatively, we may revise our valuation models.

~~For investment securities available-for-sale purchased prior to 2009, we determine fair value based on taking a weighted average of the following three measures:~~

●

~~dealer quotes, as described above;~~

●

~~quotes on more actively-traded, higher-rated securities issued in a similar time period, adjusted for differences in rating and seniority; and~~

●

the value resulting from an internal valuation model using an income approach based upon an appropriate risk-adjusted yield, time value and projected losses using default assumptions based upon an historical analysis of underlying loan performance.

In the aggregate, we purchased our CMBS-private placement portfolio at a discount. At December 31, ~~2010~~2011 and ~~2009,~~2010, the remaining discount to be accreted into income over the remaining lives of the securities was ~~$26.1~~$13.2 million and ~~$29.1~~$20.9 million, respectively. These securities are classified as available-for-sale and, as a result, are carried at their fair value.

During the year ended December 31, 2011, we recognized a $4.6 million other-than-temporary impairment on one position that supported our CMBS investments, bringing the fair value to $200,000. During the year ended December 31, 2010, we recognized $26.6 million of other-than-temporary ~~impairment~~impairments on five positions that supported our CMBS investments, bringing the combined fair value ~~of these positions~~ to $215,000. During the year ended December 31, 2009, we recognized $12.6 million of other-than-temporary impairment on two positions that supported our CMBS investments and one of our other-ABS investments bringing the combined fair value of these positions to $206,000. The assumed default of ~~the underlying~~these collateral positions in our cash flow model yielded a value ~~that would result in~~of less than a full recovery of our cost basis. The net impairment losses were recognized in earnings in the consolidated statements of operations. All of our other-than-temporary impairment losses are related to credit losses. While our remaining securities classified as available-for-sale have continued to decline in fair value on a net basis, we concluded that the decline continues to be temporary. We perform an on-going review of third-party reports and updated financial data on the underlying property financial information to analyze current and projected loan performance. Rating agency downgrades are considered with respect to our income approach when determining other-than-temporary impairment and, when inputs are stressed, the resulting projected cash flows reflect a full recovery of principal. We do not believe that any other of our securities classified as available-for-sale were other-than-temporarily impaired as of December 31, 2010.

The following table summarizes our CMBS investments (in thousands, except percentages):

	Fair Value at December 31, 2010		Net Purchases		Upgrades/ Downgrades			Mark to Market Change on Same Ratings			Fair Value at December 31, 2011
Moody’s Ratings Category:
Aaa	$	−	$	59,727	$	−		$	−		$	59,727
Aa1 through Aa3		4,493		4,115		−			(4,493	)		4,115
A1 through A3		18,570		5,038		−			(12,930	)		10,678
Baa1 through Baa3		28,660		10,666		−			(11,487	)		27,839
Ba1 through Ba3		1,480		−		(1,923	)		3,945			3,502
B1 through B3		517		−		(960	)		1,403			960
Caa1 through Caa3		6,739		−		(1,874	)		2,286			7,151
Ca through C		3,479		−		−			(1,385	)		2,094
Non-Rated		−		9,301		−			7,453			16,754
Total	$	63,938	$	88,847	$	(4,757	)	$	(15,208	)	$	132,820

S&P Ratings Category:
AAA	$	−	$	59,727	$	(783	)	$	783		$	59,727
A+ through A-		9,562		−		−			(3,639	)		5,923
BBB+ through BBB-		36,385		7,915		−			(25,121	)		19,179
BB+ through BB-		7,690		16,350		(3,200	)		289			21,129
B+ through B-		−		−		(2,310	)		4,620			2,310
CCC+ through CCC-		10,220		−		−			(3,577	)		6,643
D		81		−		(366	)		901			616
Non-Rated		−		4,855		−			12,438			17,293
Total	$	63,938	$	88,847	$	(6,659	)	$	(13,306	)	$	132,820

(Back to Index)

4852

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~~The following table summarizes our CMBS-private placement as of December 31, 2010 and 2009 (in thousands, except percentages). Dollar price is computed by dividing amortized cost by par amount.~~

December 31, 2010

December 31, 2009

Amortized Cost

Dollar Price

Amortized Cost

Dollar Price

Moody’s Ratings Category:
Aaa
$ −       −% $ 11,690 64.70%
Aa1 through Aa3
3,345 66.90% 9,639 50.73%
A1 through A3
16,853 81.24% 4,826 56.14%
Baa1 through Baa3
24,763 67.26% 2,021 33.68%
Ba1 through Ba3
1,604 14.70% 10,443 100.00%
B1 through B3
4,678 93.56% 24,449 85.27%
Caa1 through Caa3
24,603 97.57% 12,832 98.71%
Ca through C
7,377 20.90% 16,210 73.68%
Total
$ 83,223 59.88% $ 92,110 73.23%

S&P Ratings Category:
AAA
$ −       −% $ 5,997 59.97%
AA+ through AA-
−       −% 3,659 40.65%
A+ through A-
9,306 86.60% 6,544 62.75%
BBB+ through BBB-
31,072 70.91% 11,955 59.49%
BB+ through BB-
6,575 50.58% 7,847 78.76%
B+ through B-
−       −% 9,081 90.81%
CCC+ through CCC-
36,211 64.52% 47,027 83.54%
D
59 0.39% −
Total
$ 83,223 59.88% $ 92,110 73.23%

Weighted average rating factor
3,653 2,971

~~Structured notes.~~Investment Securities, Trading. The following table summarizes our structured notes and RMBS securities, which are classified as investment ~~securities-trading, which are~~securities, trading and carried at fair value (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2010:
December 31, 2011:
Structured notes									$	27,345	$	6,098	$	(1,890	)	$	31,553
Residential mortgage-backed securities, or RMBS										8,729		100		(1,709	)		7,120
Total									$	36,074	$	6,198	$	(3,599	)	$	38,673

December 31, 2010:
Structured notes	$	7,984	$	9,739	$	−	$	17,723	$	7,984	$	9,739	$	−		$	17,723
Total	$	7,984	$	9,739	$	−	$	17,723	$	7,984	$	9,739	$	−		$	17,723

We purchased 2627 securities and sold 1311 securities during the year ended December 31, ~~2010,~~2011, for a net realized gain of ~~$5.1~~$8.0 million. We held 1327 and 11 investment ~~securities-trading~~securities, trading as of December 31, ~~2010. We did not hold any such investment at~~2011 and December 31, ~~2009.~~2010, respectively.

Other Asset-Backed Securities. At December 31, 2011 and 2010, we held two other ABS positions with a fair value of $23,000. At December 31, 2009, the positions had a fair value of $24,000. During the year ended December 31, 2009, we recognized other-than-temporary impairment of $5.7 million on one of the positions. The fair value of the ABS positions decreased due to a principal paydown received during the year ended December 31, 2010. These securities are classified as available-for-sale and carried at fair value.

~~(Back to Index)~~

Real Estate Loans. The following table is a summary of the loans in our commercial real estate loan portfolio at the dates indicated (in thousands):

Description	Quantity		Amortized Cost		Contracted Interest Rates		Maturity Dates (4)
December 31, 2011:
Whole loans, floating rate (1) (5)		32	$	537,708	LIBOR plus 2.50% to LIBOR plus 5.75%		April 2012 to February 2019
Whole loans, fixed rate		1		6,965		10.00%	June 2012
B notes, fixed rate		1		16,435		8.68%	April 2016
Mezzanine loans, floating rate		3		53,908	LIBOR plus 2.50% to LIBOR plus 7.45%		May 2012 to December 2012
Mezzanine loans, fixed rate		2		13,966	8.99% to 11.00%		January 2016 to September 2016
Total (3)		39	$	628,982

December 31, 2010:
Whole loans, floating rate (1)		25	$	441,372	LIBOR plus 1.50% to LIBOR plus 5.75%		May 2011 to January 2018
B notes, floating rate		2		26,485	LIBOR plus 2.50% to LIBOR plus 3.01%		July 2011 to October 2011
B notes, fixed rate		2		30,966	7.00% to 8.68%		July 2011 to April 2016
Mezzanine loans, floating rate		6		93,266	LIBOR plus 2.15% to LIBOR plus 3.00%		May 2011 to January 2013
Mezzanine loans, fixed rate (2)		5		53,545	8.14% to 11.00%		January 2016 to September 2016
Total (3)		40	$	645,634

Description

Number of Loans

Amortized
Cost

Contracted
Interest Rates

Maturity Dates (4)
December 31, 2010:

Whole loans, floating rate  (1)
25 $ 441,372
LIBOR plus 1.50% to
LIBOR plus 5.75%

May 2011 to
January 2018
B notes, floating rate
2 26,485
LIBOR plus 2.50% to
LIBOR plus 3.01%

July 2011 to
October 2011
B notes, fixed rate
2 30,966 7.00% to 8.68%
July 2011 to
April 2016
Mezzanine loans, floating rate 6 93,266
LIBOR plus 2.15% to
LIBOR plus 3.00%

May 2011 to
January 2013
Mezzanine loans, fixed rate (3)
5 53,545 8.14% to 11.00%
January 2016 to
September 2016
Total (2)
40 $ 645,634

December 31, 2009:

Whole loans, floating rate  (1)
22 $ 403,230
LIBOR plus 1.50% to
LIBOR plus 4.40%

May 2010 to
February 2017
Whole loans, fixed rate  (1)
5 80,305 6.98% to 10.00%
May 2010 to
August 2012
B notes, floating rate
2 26,479
LIBOR plus 2.50% to
LIBOR plus 3.01%

July 2010 to
October 2010
B notes, fixed rate
3 54,977 7.00% to 8.68%
July 2011 to
July 2016
Mezzanine loans, floating rate 7 124,048
LIBOR plus 2.15% to
LIBOR plus 3.45%

May 2010 to
January 2013
Mezzanine loans, fixed rate
5 58,638 8.14% to 11.00%
May 2010 to
September 2016
Total (2)
44 $ 747,677

(Back to Index)

(1)

Whole loans had ~~$5.0~~$5.2 million and ~~$5.6~~$5.0 million in unfunded loan commitments as of December 31, ~~2010~~2011 and ~~2009,~~2010, respectively. These commitments are funded as the loans require additional funding and the related borrowers have satisfied the requirements to obtain this additional funding.

(2)	~~The total does not include an allowance for loan losses of $31.6 million and $29.3 million recorded as of December 31, 2010 and 2009, respectively.~~

~~(3)~~

Fixed rate mezzanine loan dates exclude a loan that matured in May 2010, ~~and is~~was in default and ~~has~~had been on non-accrual status since its default. The loan was written off in March 2011.

(3)	The total does not include an allowance for loan losses of $24.2 million and $31.6 million recorded as of December 31, 2011 and 2010, ~~and December 31, 2009, respectively..~~respectively.

(4)	Maturity dates do not include possible extension options that may be available to the borrowers.

Subsequent to December 31, 2010, we entered into and completed sale agreements for two commercial real estate loans. One was a loan secured by an office tower in New York City that we sold at 75% of par, resulting in a loss of $5.1 million after writing off unamortized loan origination costs. The second loan was secured by a portfolio of office complexes throughout the United States that sold at 50% of par, resulting in a loss of $9.6 million of which $290,000 had been previously allocated as part of our general reserve. We classified both loans as loans held for sale as of December 31, 2010.

(5)	Floating rate whole loans include a $2.0 million mezzanine portion of a whole loan that has a fixed rate of 15.0% and a preferred equity loan for $302,000 that has a fixed rate of 10% as of December 31, 2011.

During the year ended December 31, ~~2010,~~2011, we ~~accepted~~converted a ~~bankruptcy court-approved settlement on~~loan collateralized by a ~~portfolio of condominiums that had been in default since July 2009 and after receiving a settlement pay-down of $2.3 million, our loan balance was reduced~~multi-family apartment property to ~~$5.0 million.~~an equity position. After a review of the ~~projected sale proceeds,~~fair value of the apartment building, we determined that a ~~provision of $648,000~~gain or loss on conversion was ~~needed and upon foreclosure, we have now~~not required. We classified ~~the~~this property as ~~property available-for-sale~~investments in real estate with a fair value of ~~$4.4~~$22.4 million at June 14, 2011.

During the year ended December 31, 2011, we converted a loan collateralized by an office building to an equity position. After a review of the fair value of the office building, we determined a provision of $1.7 million was needed. We classified this property as investments in real estate with a fair value of $10.7 million at June 24, 2011.

Bank Loans. At December 31, 2011, our consolidated securitizations, Apidos CDO I, Apidos CDO II, Apidos Cinco CDO and Apidos CDO VIII, held a total of $1.1 billion of bank loans at fair value. The bank loans held by these entities secure the CDO notes they issued. The aggregate bank loans held increased by $291.5 million over their holdings at December 31, 2010. This increase was principally due to the acquisition of $334.8 million par value of bank loans through the closing of Apidos CLO VIII in October 2011. These increases were partially offset by the reduced market price for these bank loans at December 31, 2011 as compared to December 31, 2010.

We have determined that Apidos CDO I, Apidos CDO III, Apidos Cinco CDO and Apidos CDO VIII are variable interest entities, or VIEs, and that we are the primary beneficiary for each vehicle. As a result, we consolidated Apidos CDO I, Apidos CDO III, Apidos Cinco CDO and Apidos CLO VIII as of December 31, 2011. We own 100% of the equity of Apidos CDO I, Apidos CDO III and Apidos CDO Cinco. We own approximately 43% of the equity of Apidos CDO VIII.

The following table summarizes our bank loan investments (in thousands):

	December 31, 2011				December 31, 2010
	Amortized cost		Fair Value		Amortized cost		Fair Value
Moody’s ratings category:
Baa1 through Baa3	$	44,952	$	44,956	$	27,262	$	27,517
Ba1 through Ba3		648,543		644,497		432,153		437,801
B1 through B3		439,871		427,282		351,147		347,755
Caa1 through Caa3		19,710		12,774		20,879		16,690
Ca		5,765		2,397		7,062		2,858
No rating provided		14,912		14,155		21,960		21,906
Total	$	1,173,753	$	1,146,061	$	860,463	$	854,527
S&P ratings category:
BBB+ through BBB-	$	84,623	$	84,615	$	54,560	$	55,078
BB+ through BB-		561,375		559,211		373,971		379,074
B+ through B-		478,684		465,564		360,581		358,504
CCC+ through CCC-		27,097		19,401		29,707		22,171
CC+ through CC-		4,490		1,512		1,633		1,280
C+ through C-		−		−		−		−
D		352		343		1,050		431
No rating provided		17,132		15,415		38,961		37,989
Total	$	1,173,753	$	1,146,061	$	860,463	$	854,527
Weighted average rating factor		1,969				2,061

(Back to Index)

5054

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The following table provides information as to the lien position and status of our bank loans. All except $850,000 of the first lien loans at December 31, 2010 are held by the indicated CDOs, which we consolidate (in thousands):

	Amortized Cost
	Apidos I		Apidos III		Apidos Cinco		Apidos VIII		Total
December 31, 2011:
Loans held for investment:
First lien loans	$	295,318	$	242,628	$	293,442	$	311,923	$	1,143,311
Second lien loans		5,281		5,746		6,438		6,845		24,310
Subordinated second lien loans		163		122		−		−		285
Defaulted first lien loans		1,397		599		697		−		2,693
Defaulted second lien loans		−		−		−		−		−
Total		302,159		249,095		300,577		318,768		1,170,599
First lien loans held for sale at fair value		−		198		2,018		938		3,154
Total	$	302,159	$	249,293	$	302,595	$	319,706	$	1,173,753

December 31, 2010:
Loans held for investment:
First lien loans	$	288,163	$	236,142	$	296,208	$	−	$	820,513
Second lien loans		12,902		10,011		11,513		−		34,426
Subordinated second lien loans		163		122		−		−		285
Defaulted second lien loans		−		−		362		−		362
Total		301,228		246,275		308,083		−		855,586
First lien loans held for sale at fair value		2,822		−		1,205		−		4,027
Total	$	304,050	$	246,275	$	309,288	$	−	$	859,613

~~Bank Loans.~~Asset-backed securities. In November 2011, the investment securities held-to-maturity portfolio was reclassified to investment securities available-for-sale since management no longer intended to hold these positions until maturity. These investments are now held at fair value with any unrealized gain or loss is reported in the stockholder’s equity section of the balance sheet. At December 31, ~~2010,~~2011, we held a total of ~~$850.5~~$25.2 million ~~of bank loans at~~ fair value of ABS available-for-sale through Apidos CDO I, Apidos CDO III and Apidos Cinco CDO, all of which secure the debt issued by these entities. This is an increase of $51.9 million over our holdings at December 31, 2009. The increase in total bank loans was principally due to improved market prices for bank loans during the year ended December 31, 2010. We own 100% of the equity issued by Apidos CDO I, Apidos CDO III and Apidos Cinco CDO which we have determined are variable interest entities, or VIEs, of which we are the primary beneficiary. See “-Variable Interest Entities.” As a result, we consolidated Apidos CDO I, Apidos CDO III and Apidos Cinco CDO as of December 31, 2010.

~~The following table summarizes our bank loan investments as of December 31, 2010 and 2009 (in thousands, except percentages). Dollar price is computed by dividing amortized cost by par amount.~~

December 31, 2010

December 31, 2009

Amortized cost

Dollar price

Amortized cost

Dollar price

Moody’s ratings category:
Baa1 through Baa3
$ 27,262 98.94% $ 38,419 98.09%
Ba1 through Ba3
432,153 97.27% 404,345 96.91%
B1 through B3
351,147 96.31% 355,456 96.33%
Caa1 through Caa3
20,879 95.73% 44,265 99.79%
Ca
7,062 100.00% 13,697 88.68%
No rating provided
21,960 96.02% 9,070 91.64%
Total
$ 860,463 96.88% $ 865,252 96.67%
S&P ratings category:
BBB+ through BBB-
$ 54,560 99.13% $ 73,495 98.23%
BB+ through BB-
373,971 97.25% 353,595 97.11%
B+ through B-
360,581 96.21% 337,208 96.12%
CCC+ through CCC-
29,707 95.43% 42,198 96.65%
CC+ through CC-
1,633 100.18% 3,104 100.13%
C+ through C-
− −% − −%
D 1,050 100.00% 8,602 95.91%
No rating provided
38,961 97.39% 47,050 94.85%
Total
$ 860,463 96.88% $ 865,252 96.67%
Weighted average rating factor
2,061 2,131

~~Asset-backed securities held-to-maturity.~~At December 31, 2010, we held a total of $25.9 million fair value of ABS held-to-maturity ~~held at fair value~~ through Apidos CDO I, Apidos CDO III and Apidos Cinco CDO, all of which secure the debt issued by these entities. ~~This is an increase of $4.6 million over~~

The following table summarizes our ~~holdings~~ABS at ~~December 31, 2009. The increase in total ABS held-to-maturity was principally due to the improved market prices and the purchase of $1.3 million par~~fair value of ABS held-to-maturity during the year ended December 31, 2010. The effects of the pricing improvement and additional purchases were partially offset by the sale of two securities that were sold due to credit rating deterioration.(in thousands):

During the year ended December 31, 2009, one collateral position that supported the ABS held-to-maturity weakened to the point that default of this position became probable. The assumed default of this collateral position in our cash flow model yielded a value that would result in less than a full recovery of our cost basis. Accordingly, we recognized an $895,000 other-than-temporary impairment on our ABS held-to-maturity investment during the three months ended September 30, 2009 bringing the combined fair value to $925,000. We recognized this impairment through the consolidated statements of operations in 2009.

	December 31, 2011				December 31, 2010
	Amortized cost		Fair Value		Amortized cost		Fair Value
Moody’s ratings category:
Aaa	$	8,252	$	8,051	$	−	$	−
Aa1 through Aa3		1,723		1,593		2,766		3,025
A1 through A3		6,446		6,366		7,625		8,117
Baa1 through Baa3		2,647		2,543		1,950		1,950
Ba1 through Ba3		5,043		3,592		2,503		2,338
B1 through B3		3,613		2,346		4,998		3,881
Caa1 through Caa3		−		−		9,194		6,630
No rating provided		789		710		−		−
Total	$	28,513	$	25,201	$	29,036	$	25,941

S&P ratings category:
AA+ through AA-	$	8,138	$	7,928	$	5,099	$	5,437
A+ through A-		7,467		7,347		5,292		5,705
BBB+ through BBB-		950		866		3,516		3,479
BB+ through BB-		1,592		1,335		3,062		2,765
B+ through B-		3,639		3,200		−		−
CCC+ through CCC-		−		−		−		−
No rating provided		6,727		4,525		12,067		8,555
Total	$	28,513	$	25,201	$	29,036	$	25,941
Weighted average rating factor		582				3,105

(Back to Index)

5155

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The following table summarizes our ABS held-to-maturity, at cost as of December 31, 2010 and 2009 (in thousands, except percentages). Dollar price is computed by dividing amortized cost by par amount.

December 31, 2010

December 31, 2009

Amortized cost

Dollar price

Amortized cost

Dollar price

Moody’s ratings category:
Aa1 through Aa3
$ 2,766 85.40% $ 2,854 82.89%
A1 through A3
7,625 79.02% 303 75.75%
Baa1 through Baa3
1,950 100.00% −       −%
Ba1 through Ba3
2,503 93.57% 4,427 95.72%
B1 through B3
4,998 98.10% 4,319 97.63%
Caa1 through Caa3
9,194 99.16% 9,913 99.14%
Ca
−         −% 3,550 79.22%
No rating provided
−          −% 6,035 75.44%
Total
$ 29,036 91.08% $ 31,401 88.77%
S&P ratings category:
AA+ through AA-
$ 5,099 83.41% $ −       −%
A+ through A-
5,292 78.96% −        −%
BBB+ through BBB-
3,516 96.99% −        −%
B+ through B-
3,062 97.98% −        −%
No rating provided
12,067 98.57% 31,401 88.77%
Total
$ 29,036 91.08% $ 31,401 88.77%
Weighted average rating factor
3,105 4,028

~~The following table provides information as to the lien status of our bank loans. All, except $850,000 of first lien loans, are held by the indicated CDOs, which we consolidate (in thousands):~~

Amortized Cost (1)

Apidos I

Apidos III

Apidos Cinco

Total

December 31, 2010:

Loans held for investment:
First lien loans
$ 288,163 $ 236,142 $ 296,208 $ 820,513
Second lien loans
12,902 10,011 11,513 34,426
Subordinated second lien loans
163 122 − 285
Defaulted second lien loans
− − 362 362
Total
301,228 246,275 308,083 855,586
First lien loans held for sale at fair value 2,822 − 1,205 4,027
Total
$ 304,050 $ 246,275 $ 309,288 $ 859,613

December 31, 2009:

Loans held for investment:
First lien loans
$ 284,564 $ 232,861 $ 295,457 $ 812,882
Second lien loans
11,507 9,096 10,657 31,260
Subordinated second lien loans
163 122 − 285
Defaulted first lien loans
4,511 5,579 1,685 11,775
Defaulted second lien loans
500 500 − 1,000
Total
301,245 248,158 307,799 857,202
First lien loans held for sale at fair value 4,064 2,077 1,909 8,050
Total
$ 305,309 $ 250,235 $ 309,708 $ 865,252

~~(1)~~

~~All loans are senior and secured unless otherwise noted.~~

~~(Back to Index)~~

Lease Receivables. Investments in lease receivables, net of unearned income, were as follows (in thousands):

	December 31,						December 31,
	2010			2009			2011		2010
Leases, net of unearned income	$	75,908		$	1,397		$	−	$	75,908
Operating leases		17,900			−			−		17,900
Notes receivable		15,874			670			−		15,874
Subtotal		109,682			2,067			−		109,682
Allowance for lease losses		(70	)		(1,140	)		−		(70	)
Total	$	109,612		$	927		$	−	$	109,612

~~Leases not meeting any~~On January 4, 2011, our wholly-owned subsidiary, Resource TRS, acquired an interest in LCC, a newly-formed equipment financing subsidiary of LEAF Financial Corporation, or LEAF Financial, a subsidiary of Resource America. Resource TRS contributed initial capital of approximately $26.2 million to LCC in the form of approximately $5.2 million in cash, and all of its interest in LEAF Receivables Funding 3, a wholly-owned subsidiary of Resource TRS which held a portfolio of equipment, equipment leases and notes. As part of the ~~criteria~~transaction, LEAF Financial contributed its assets relating to beits equipment lease and note origination, servicing and finance business to LCC. Also, senior management personnel of LEAF Financial, or collectively, the Management Parties, contributed capital to LCC in the form of all of the shares of common stock they owned in LEAF Financial in exchange for 10% of the shares of LCC common stock on a fully-diluted basis. This transaction resulted in the deconsolidation of our leasing investments.

In return for Resource TRS’s capital investments, LCC issued to Resource TRS 2,626,783 shares of LCC Series A preferred stock and warrants to purchase 4,800 shares of LCC common stock for an exercise price of $0.01 per share. LCC exercised its rights granted to it under the share purchase agreement during the nine months ended September 30, 2011 and we acquired an additional $10.0 million of Series A preferred stock, representing 48% of LCC’s common stock on a fully-diluted basis, which we classified as direct financing leases are deemed to be operating leases. Under the accounting for operating leases, the cost of the leased equipment, including acquisition fees associated with lease placements, is recorded as an asset and depreciatedsecurities available-for-sale on a straight-line basis over the equipment’s estimated useful life, generally up to seven years. Rental income consists primarily of monthly periodic rental payments due under the terms of the leases. We recognize rental income on a straight-line basis and record it as interest income in our consolidated ~~statement~~balance sheet. The preferred stock carries a coupon of ~~operations. We recognized $5.0 million~~10%, of which 2% is received in ~~rental income during~~cash and 8% is paid-in-kind. During the year ended December 31, ~~2010.~~2011, $2.4 million of paid-in-kind interest was paid in the form of additional shares of Series A preferred stock as elected by LCC.

~~We have~~On July 20, 2011, we entered into an agreement with LCC, pursuant to which we provided a $10.0 million loan to LCC, which was funded on November 4, 2011. The loan was to mature on January 20, 2013 and bore interest at a fixed rate of 8.0% per annum on the ~~right to require~~unpaid principal balance, payable quarterly. The loan was secured by all the assets of LEAF Capital Funding, ~~to repurchase credit impaired contracts or replace such contracts with performing contracts.~~LLC and LEAF Financial’s interest in LEAF Receivables Funding would have to repurchase or provide substitute contracts for each credit impaired contract at an amount equal to the discounted contract balance plus any overdue payments. The foregoing is limited to 5%3. On November 16, 2011, LLC used $8.5 million of the ~~aggregate discounted contract balance of~~$11.2 million they received from a stock purchase agreement transaction to repay $8.4 million in principal plus all outstanding accrued interest on the loan, representing approximately 85% of the ~~contracts sold by LEAF Funding~~outstanding indebtedness owed to us.

~~Restricted cash.~~ ~~At December 31, 2010, we had restricted cash of $168.2 million, which consisted of $160.5 million of restricted cash~~Both parties agreed that the loan was considered paid in our five CDOs, $5.2 million of restricted cash in our leasing securitization and $2.5 million held in a margin account, related to our swap portfolio. At December 31, 2009, we had restricted cash of $85.1 million, which consisted of $80.5 million of restricted cash in our five CDOs and $4.6 million held in a margin account, related to our swap portfolio. The increase of $83.1 million is primarily related to paydowns, payoffs and sales of loans and to a lesser extent, CMBS during the year ended December 31, 2010 in our CRE CDOs. The majority of this cash had not been reinvestedfull as of December 31, ~~2010.~~ 2011. Accordingly, we recorded a charge to Additional Paid-In Capital to eliminate the remaining debt of $1.6 million.

~~Interest Receivable.~~ ~~At December 31, 2010,~~

On November 16, 2011, we, ~~had~~together with LEAF Financial and LCC, entered into a stock purchase agreement with Eos Partners, L.P., or Eos, a private investment firm, and its affiliates. In exchange for our prior interest ~~receivable~~in LCC, we received 31,341 shares of ~~$6.3~~Series A Preferred Stock, 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock, or the Series B Preferred Stock, and 2,364 shares of newly issued Series D Redeemable Preferred Stock, or the Series D Preferred Stock, collectively representing, on a fully-diluted basis, a 26.7% interest in LCC. Our investment in LEAF was valued at $36.3 million ~~which consisted~~based on a third-party valuation. Several approaches, including discounted expected cash flows, market approach and comparable sales transactions were used to estimate the fair value of ~~$6.3 million of interest on~~ our securities, loans and lease receivables and $9,000 of interest earned on escrow and sweep accounts. At December 31, 2009, we had interest receivable of $5.8 million, which consisted of $5.7 million of interest on our securities, loans and lease receivables and $9,000 of interest earned on escrow and sweep accounts. The increase of $576,000 is the result of an increase of $666,000investment in ~~interest receivable on our bank loan portfolio due to the increase in weighted average rate which increased~~LEAF as a result of ~~fewer defaulted positions at December 31, 2010,~~the transaction. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. Accordingly, we recorded a ~~$1.2~~loss of $2.2 million ~~increase~~ in conjunction with the transaction. Subsequent to this transaction, our resulting interest will be accounted for under the equity method.

In accordance with the agreement, we and Resource America have undertaken a contingent obligation with respect to the value of the equity on ~~structured notes which we did not hold~~the balance sheet of LEAF Receivables Funding 3. To the extent that the value of the equity on the balance sheet of LEAF Receivables Funding 3 is less than approximately $18.7 million (the value of the equity of LRF 3 on the date it was contributed to LCC by us), as of the final testing date within 90 days of December 31, ~~2009. This increase was partially offset by a $1.1 million decrease~~2013, we and Resource America have agreed to be jointly and severally obligated to contribute cash to LCC to make up the deficit. We do not believe it is probable or estimable that we will be required to fund LCC in interest receivable on our commercial real estate loan portfolio due to loan modifications which resulted in decreases in weighted average rates and a decrease of $174,000 on our CMBS portfolio due to $35.0 million of impaired CMBS at par being on non-accrual status as of December 31, 2010.accordance with the SPA.

~~Other Assets.~~ ~~The following table summarizes our other assets as of December 31, 2010 and 2009 (in thousands):~~

December 31,

2010

2009

Fixed assets
$ − $ 1
Other receivables
1,374 555
Prepaid assets
590 612
Principal paydown
468 1,084
Total
$ 2,432 $ 2,252

Other assets increased $181,000 to $2.4 million as of December 31, 2010 from $2.3 million as of December 31, 2009. This increase resulted primarily from an increase of $819,000 in other receivables principally due to receivables on our leasing portfolio. There was no such portfolio at December 31, 2009. These increases were partially offset by a decrease of $616,000 in principal receivables on our bank loans portfolio due to the timing of when principal was due and received, and a $22,000 decrease in prepaid assets due to a decrease in our prepaid insurance and other prepaid administrative services.

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5356

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~~Hedging Instruments.~~ Our hedges at December 31, 2010 and 2009 were fixed-for-floating interest rate swap agreements whereby we swapped the floating rate of interest on the liabilities we hedged for a fixed rate of interest. With interest rates at historically low levels and the forward curve projecting steadily increasing rates, we expect that the fair value of our hedges will modestly improve in 2011. We intend to continue to seek such hedges for our floating rate debt in the future. Our hedges at December 31, 2010 were as follows (in thousands):

Benchmark rate

Notional value

Strike rate

Effective date

Maturity date

Fair value

Interest rate swap 1 month LIBOR $ 12,965 4.63% 12/04/06 07/01/11 $ (282 )
Interest rate swap 1 month LIBOR 12,150 5.44% 06/08/07 03/25/12 (759 )
Interest rate swap 1 month LIBOR 12,750 5.27% 07/25/07 08/06/12 (971 )
Interest rate swap 1 month LIBOR 34,255 4.13% 01/10/08 05/25/16 (2,309 )
Interest rate swap 1 month LIBOR 1,681 5.72% 07/09/07 10/01/16 (161 )
Interest rate swap 1 month LIBOR 1,880 5.68% 07/13/07 03/12/17 (350 )
Interest rate swap 1 month LIBOR 81,556 5.58% 06/08/07 04/25/17 (7,603 )
Interest rate swap 1 month LIBOR 1,726 5.65% 06/28/07 07/15/17 (159 )
Interest rate swap 1 month LIBOR 3,850 5.65% 07/19/07 07/15/17 (355 )
Interest rate swap 1 month LIBOR 4,023 5.41% 08/07/07 07/25/17 (343 )
Total $ 166,836 5.17% $ (13,292 )

In addition, we also had an interest rate cap agreement with a fair value of $60 and a notional amount of $14.8 million outstanding as of December 31, 2010 which reduced our exposure to variability in future cash flows attributable to LIBOR. The interest rate cap is a non-designated cash flow hedge and, as a result, we record the change in fair value through the consolidated statement of operations. The interest rate cap had an effective date of January 8, 2009, has a maturity date of August 5, 2011 and has a cap rate of 2.00%. The interest rate cap had a fair value of $45,000 as of December 31, 2009.

As of December 31, 2009, we had entered into hedges with a notional amount of $217.9 million and maturities ranging from February 2010 to July 2017. At December 31, 2009, the fair value on our interest rate swap agreements was ($12.8) million.

~~Equipment-backed Securitized Notes.~~ In May 2010, we acquired Equipment Contract Backed Notes, Series 2010-2, issued by LEAF Funding 3, a $120.0 million transaction that provides financing for leases. The investments held by LEAF Funding 3 collateralize the debt it issued and, as a result, the investments are not available to us, our creditors or stockholders. LEAF Funding 3 issued a total of $120.0 million of senior notes at a weighted average price of $93.5 to unrelated investors generating proceeds of $112.2 million. We amortize the discount at issuance over the lives of the notes using the effective yield method, adjusted for the effects of estimated prepayments on the notes. We had $14.8 million of equity invested in LEAF Funding 3 as of December 31, 2010.

The equipment contract backed notes issued to investors by LEAF Funding 3 consist of the following classes: (i) $95.5 million of class A notes; (ii) $7.0 million of class B notes; (iii) $6.4 million of class C notes; (iv) $6.4 million of class D notes; and (v) $4.7 million of class E notes. All of the notes issued bear a fixed rate of interest 5.0%. The class A notes mature in May 2016 and the class B through E notes mature in December 2017. The balance of the Senior Notes after scheduled amortization was $102.0 million as of December 31, 2010 and we had $5.9 million of unamortized original issuance discounts, $1.1 million of unamortized debt issuance costs for a net basis of $95.0 million as of December 31, 2010.

~~Collateralized Debt Obligations.~~ ~~As of December 31, 2010, we had executed and retained equity in five CDO transactions as follows:~~

●

In June 2007, we closed RREF CDO 2007-1, a $500.0 million CDO transaction that provided financing for commercial real estate loans. The investments held by RREF CDO 2007-1 collateralized $390.0 million of senior notes issued by the CDO vehicle, of which RCC Real Estate, Inc., or RCC Real Estate, a subsidiary of ours, purchased 100% of the class H senior notes, class K senior notes, class L senior notes and class M senior notes for $68.0 million at closing, $5.0 million of the Class J senior notes purchased in February 2008, $2.5 million of the Class J senior notes in November 2009, $11.9 million of the Class E senior notes, $11.9 million of the Class F senior notes and $7.3 million of the Class G senior notes in December 2009, an additional $250,000 of the Class J senior notes in January 2010, $7.5 million of Class B senior notes in June 2010 and $15.0 million of Class A-2 note in December 2010. In addition, RREF 2007-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $41.3 million equity interest representing 100% of the outstanding preference shares. At December 31, 2010, the notes issued to outside investors, net of repurchased notes, had a weighted average borrowing rate of 0.82%.

●

In May 2007, we closed Apidos Cinco CDO, a $350.0 million CDO transaction that provided financing for bank loans. The investments held by Apidos Cinco CDO collateralized $322.0 million of senior notes issued by the CDO vehicle, of which RCC Commercial Inc., or RCC Commercial, a subsidiary of ours, purchased a $28.0 million equity interest representing 100% of the outstanding preference shares. At December 31, 2010, the notes issued to outside investors had a weighted average borrowing rate of 0.79%.

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●

In August 2006, we closed RREF CDO 2006-1, a $345.0 million CDO transaction that provided financing for commercial real estate loans. The investments held by RREF CDO 2006-1 collateralized $308.7 million of senior notes issued by the CDO vehicle, of which RCC Real Estate purchased 100% of the class J senior notes and class K senior notes for $43.1 million at closing and $7.5 million of the Class F senior notes in June 2009, $3.5 million of the Class E senior note and $4.0 million of the Class F senior notes in September 2009, an additional $20.0 million of Class A-1 senior notes in February 2010, $12.0 million of Class A-2 senior notes, $6.9 million of Class B senior notes, $7.7 million of Class C senior notes in April 2010, $7.5 million of Class D senior notes in June 2010 and $20.0 million of Class A-1 senior notes in July 2010. In addition, RREF 2006-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $36.3 million equity interest representing 100% of the outstanding preference shares. At December 31, 2010, the notes issued to outside investors, net of repurchased notes had a weighted average borrowing rate of 1.33%.

●

In May 2006, we closed Apidos CDO III, a $285.5 million CDO transaction that provided financing for bank loans. The investments held by Apidos CDO III collateralized $262.5 million of senior notes issued by the CDO vehicle, of which RCC Commercial purchased $23.0 million equity interest representing 100% of the outstanding preference shares. At December 31, 2010, the notes issued to outside investors had a weighted average borrowing rate of 0.75%.

●

In August 2005, we closed Apidos CDO I, a $350.0 million CDO transaction that provided financing for bank loans. The investments held by Apidos CDO I collateralize $321.5 million of senior notes issued by the CDO vehicle, of which RCC Commercial purchased $28.5 million equity interest representing 100% of the outstanding preference shares. At December 31, 2010, the notes issued to outside investors had a weighted average borrowing rate of 0.87%.

~~Trust Preferred Securities.~~ In May and September 2006, we formed Resource Capital Trust I and RCC Trust II, respectively, for the sole purpose of issuing and selling trust preferred securities. Resource Capital Trust I and RCC Trust II are not consolidated into our consolidated financial statements because we are not deemed to be the primary beneficiary of either trust. We own 100% of the common shares of each trust, each of which issued $25.0 million of preferred shares to unaffiliated investors. Our rights as the holder of the common shares of each trust are subordinate to the rights of the holders of preferred shares only in the event of a default; otherwise, our economic and voting rights are pari passu with the preferred shareholders. We record each of our investments in the trusts’ common shares of $774,000 as an investment in unconsolidated trusts and record dividend income upon declaration by each trust.

In October 2009, we amended our unsecured junior subordinated debentures held by RCT I and RCT II with a total value outstanding of $51.5 million. The amendment provides for an interest rate increase of 2% (from LIBOR plus 3.95% to LIBOR plus 5.95%) on both issuances for a period of two years and a one-time restructuring fee of $250,000 in exchange for the waiver of financial covenants under our guarantee. The covenant waiver expires on January 1, 2012. The junior subordinated debentures debt issuance costs are included in borrowings in the consolidated balance sheets. We record interest expense on the junior subordinated debentures and amortization of debt issuance costs in our consolidated statements of operations. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2010 were $590,000 and $604,000, respectively. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2009 were $742,000 and $754,000, respectively. The interest rate adjustment took effect as of October 1, 2009 and expires on September 30, 2011. The rates for RCT I and RCT II at December 31, 2010, were 6.25% and 6.24%, respectively and 6.18% and 6.19% at December 31, 2009, respectively. The additional cost is approximately $260,000 per quarter.

~~Secured Term Facility.~~ In April 2010, Resource TRS entered into a loan and security agreement with The Bancorp Bank to finance the purchase of lease receivables. The maximum amount of the borrowing under this agreement was $6.5 million. Borrowings under this agreement bore interest at six percent (6%) per annum. The facility was repaid in full and was terminated on May 27, 2010. There were no such borrowings as of December 31, 2009.

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Financing Receivables

The disclosures in this footnote are required per new guidance issued by the FASB that requires companies to provide more information about the credit quality of their financing receivables including, but not limited to, significant purchases and sales of financing receivables, aging information and credit quality indicators.

The following tables show the allowance for loan and lease receivable losses and recorded investments in loans and lease receivables for the years indicated (in thousands):

	Commercial Real Estate Loans			Bank Loans			Lease Receivables			Loans Receivable-Related Party		Total			Commercial Real Estate Loans			Bank Loans			Lease Receivables			Loans Receivable-Related Party		Total
December 31, 2010:
December 31, 2011:
Allowance for losses at January 1, 2011															$	31,617		$	2,616		$	70		$	−	$	34,303
Provision for loan loss																6,478			7,418			−			−		13,896
Loans charged-off																(13,874	)		(6,737	)		(70	)		−		(20,681	)
Recoveries																−			−			−			−		−
Allowance for losses at December 31, 2011															$	24,221		$	3,297		$	−		$	−	$	27,518
Ending balance:
Individually evaluated for impairment															$	17,065		$	1,593		$	−		$	−	$	18,658
Collectively evaluated for impairment															$	7,156		$	1,704		$	−		$	−	$	8,860
Loans acquired with deteriorated credit quality															$	−		$	−		$	−		$	−	$	−
Loans:
Ending balance:
Individually evaluated for impairment															$	113,038		$	2,693		$	−		$	−	$	115,731
Collectively evaluated for impairment															$	515,944		$	1,171,060		$	−		$	9,497	$	1,696,501
Loans acquired with deteriorated credit quality															$	−		$	−		$	−		$	−	$	−

December 31, 2010:
Allowance for losses at January 1, 2010	$	29,297		$	17,825		$	1,140		$	−	$	48,262		$	29,297		$	17,825		$	1,140		$	−	$	48,262
Provision for loan loss		44,357			(1,348	)		312			−		43,321			44,357			(1,348	)		312			−		43,321
Loans charged-off		(42,037	)		(13,861	)		(1,432	)		−		(57,330	)		(42,037	)		(13,861	)		(1,432	)		−		(57,330	)
Recoveries		−			−			50			−		50			−			−			50			−		50
Allowance for losses at December 31, 2010	$	31,617		$	2,616		$	70		$	−	$	34,303		$	31,617		$	2,616		$	70		$	−	$	34,303

Ending balance:
Individually evaluated for impairment	$	20,844		$	112		$	4,107		$	−	$	25,063		$	20,844		$	112		$	−		$	−	$	20,956
Collectively evaluated for impairment	$	10,773		$	2,504		$	70		$	−	$	13,347		$	10,773		$	2,504		$	70		$	−	$	13,347
Loans acquired with deteriorated credit quality	$	−		$	−		$	−		$	−	$	−		$	−		$	−		$	−		$	−	$	−

Loans:
Loans:
Ending balance:
Individually evaluated for impairment	$	42,219		$	362		$	10,024		$	−	$	52,605		$	153,620		$	362		$	10,024		$	−	$	164,006
Collectively evaluated for impairment	$	603,415		$	860,101		$	99,658		$	9,927	$	1,573,101		$	492,015		$	860,101		$	99,658		$	9,927	$	1,461,700
Loans acquired with deteriorated credit quality	$	−		$	−		$	−		$	−	$	−		$	−		$	−		$	−		$	−	$	−

December 31, 2009:
Allowance for losses at January 1, 2009	$	15,109		$	28,758		$	450		$	−	$	44,317
Provision for loan loss		31,856			26,855			2,672			−		61,383
Loans charged-off		(17,668	)		(37,788	)		(1,994	)		−		(57,450	)
Recoveries		−			−			12			−		12
Allowance for losses at December 31, 2009	$	29,297		$	17,825		$	1,140		$	−	$	48,262

Ending balance:
Individually evaluated for impairment	$	18,764		$	9,578		$	2,617		$	−	$	30,959
Collectively evaluated for impairment	$	10,533		$	23,780		$	1,140		$	−	$	35,453
Loans acquired with deteriorated credit quality	$	−		$	−		$	−		$	−	$	−

Loans:
Ending balance:
Individually evaluated for impairment	$	66,797		$	12,772		$	2,617		$	−	$	82,186
Collectively evaluated for impairment	$	680,880		$	852,480		$	(550	)	$	−	$	1,532,810
Loans acquired with deteriorated credit quality	$	−		$	−		$	−		$	−	$	−

NOTE 2225 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the filing of this form and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements, other than listed below.

On December ~~16, 2010,~~12, 2011, the Company declared a quarterly distribution of $0.25 per share of common stock, ~~$14.6~~$20.0 million in the aggregate, which was paid on January ~~26,~~27, 2011 to stockholders of record as of December ~~31, 2010.~~30, 2011.

The Company received $16.0 million in proceeds from the issuance of 2,914,978 shares of common stock through the Company’s dividend reinvestment plan during January 2012 and February 2012.

Under a dividend reinvestment plan authorized by the board of directors on February 16, 2012, the Company is authorized to issue up to 15.0 million shares of common stock. This plan will supersede the March 2011 plan.

On January 4, 2011, the Company made an investment, in conjunction with a debt financing commitment from Guggenheim Securities, in LEAF Commercial Capital, Inc. (“LCC”). LCC is a newly formed commercial finance company specializing in equipment leasing and is a subsidiary of LEAF. LEAF contributed its leasing platform and directly-held leases and loans to LCC while the Company and Guggenheim Securities committed to investing up to $44.0 million of capital (which includes the option to invest an additional $10 million at a later date) in the form of preferred stock and subordinated debt, respectively, into LCC. A portion of the Company’s investment consisted of the contribution of leases and loans and equity in these investments it had acquired from LEAF. In return, the Company received 2,626 shares of LEAF Commercial Series A preferred stock and warrants to purchase 4,800 shares of LCC common stock for an exercise price of $0.01 per share (representing 48% of LCC’s common stock on a fully-diluted basis).

On February ~~1, 2011,~~27, 2012, the Company entered into a master repurchase and securities agreement with Wells Fargo Bank, National Association to finance the ~~purchase~~origination of ~~securities.~~commercial real estate loans. The maximum amount of the facility is ~~$100.0~~$150.0 million with an origination fee of 37.5 basis points and has ~~a two year~~an initial 18 month term with atwo one year ~~option~~options to extend.

On February 8, 2011, the Company sold a mezzanine loan secured by an office building with an amortized cost of $20.1 million for $15.0 million and recorded a $5.1 million provision for loan losses as of December 31, 2010, accordingly. This loan is classified as a loan held for sale on the consolidated balance sheet as of December 31, 2010.

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~~115~~127

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~~RESOURCE CAPITAL CORP. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~DECEMBER 31, 2010~~

~~NOTE 22 – SUBSEQUENT EVENTS – (Continued)~~

On February 6, 2011, the Company sold a mezzanine loan secured by an office building with an amortized cost of $19.1 million for $9.6 million and recorded a $9.3 million provision after a general provision of $290,000 covered some of the losses as of December 31, 2010. This loan is classified as a loan held for sale on the consolidated balance sheet as of December 31, 2010.

On February 24, 2011, the Company announced that it had entered into a definitive agreement that will expand its management in broadly syndicated bank loans. A subsidiary of the Company has agreed to purchase 100% of the ownership interests in Churchill Pacific Asset Management LLC ("CPAM") from Churchill Financial Holdings LLC ("Churchill") for $22.5 million. Through CPAM, the Company will be entitled to collect senior, subordinated and incentive fees related to five Collateralized Loan Obligations (“CLOs”) totaling approximately $1.9 billion in assets managed by CPAM. CPAM will be assisted by Apidos Capital Management, LLC, in managing the five CLOs. CPAM has subsequently changed its name to Resource Capital Asset Management.

~~The Company received $20.0 million in proceeds related to the issuance of 2.8 million shares of common stock on the Company’s dividend reinvestment plan during January 2011 and February 2011.~~

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~~116~~

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ITEM 9.

~~ITEM 9~~.

CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

~~ITEM 9A~~.

CONTROLS AND ~~PROCEDURES~~PROCEDURES

Disclosure Controls and Procedures

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

Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2010.~~2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated ~~Framework~~Framework. Based on this assessment, management believes that, as of December 31, ~~2010,~~2011, our internal control over financial reporting is effective.

Our independent registered public accounting firm, Grant Thornton LLP, audited our internal control over financial reporting as of December 31, ~~2010.~~2011. Their report, dated March 14, ~~2011,~~2012, expressed an unqualified opinion on our internal control over financial reporting. This report is included in this Item 9A.

Changes in Internal Control of Financial Reporting

There were no ~~significant~~ changes in our internal control over financial reporting during the ~~fiscal year~~three months ended December 31, ~~2010~~2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~117~~128

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Resource Capital Corp.

We have audited Resource Capital Corp. (a Maryland Corporation) and its subsidiaries’ ~~(a Maryland Corporation)~~(the Company) internal control over financial reporting as of December 31, ~~2010,~~2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ~~Resource Capital Corp. and its subsidiaries’ management~~Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on ~~Resource Capital Corp. and its subsidiaries’~~the Company’s internal control over financial reporting based on our audit.

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Resource Capital Corp. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2010,~~2011, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Resource Capital Corp. and its subsidiaries as of December 31, ~~2010~~2011 and ~~2009,~~2010, and the related consolidated statements of operations, changes in ~~stockholders’~~ equity, and cash flows for each of the three years in the period ended December 31, ~~2010~~2011 and our report dated March 14, ~~2011~~2012 expressed an unqualified opinion.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

March 14, ~~2011~~2012

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ITEM 9B.

~~ITEM 9B~~.

OTHER INFORMATION

None.

PART III

ITEM 10.10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE ~~GOVERNANCE~~GOVERNANCE

All members of the board of directors are elected for a term of one year or until their successors are elected and qualified. Information is set forth below regarding the principal occupation of each of our directors. There are no family relationships among the directors and executive officers except that Jonathan Z. Cohen, our Chief Executive Officer, President and a director, is a son of Edward E. Cohen, a director and, until November 2009, our Chairman of the Board.

Names of Directors, Principal Occupation and Other Information

Walter T. Beach, age ~~44,~~45, has been a director since March 2005. Mr. Beach has been Managing Director of Beach Investment Counsel, Inc., an investment management firm, since 1997. From 1993 to 1997, Mr. Beach was a Senior Analyst and Director of Research at Widmann, Siff and Co., Inc., an investment management firm where, beginning in 1994, he was responsible for the firm’s investment decisions for its principal equity product. Before that he was an associate and financial analyst at Essex Financial Group, a consulting and merchant banking firm, and an analyst at Industry Analysis Group, an industry and economic consulting firm. Mr. Beach has served as a director of The Bancorp, Inc., a publicly-traded (NASDAQ: TBBK) bank holding company, and its subsidiary bank, The Bancorp Bank, since 1999. Mr. Beach has also served as a director of Institutional Financial Markets, Inc. and its predecessor, Cohen & Company, a publicly-traded (AMEX: IFMI) financial services company specializing in credit related fixed income investments, since December 2009.

Edward E. Cohen, age ~~72,~~73, has been a director since March 2005 and was our Chairman from March 2005 to November 2009. Mr. Cohen ~~was~~is Chairman of Resource America, the corporate parent of our manager, a position he has held since 1990. He was Resource America’s Chief Executive Officer from 1988 to 2004 and its President from 2000 to 2003. He is Chairman and Chief Executive Officer of Atlas Energy, Inc. (f/k/a/ Atlas America, Inc.), a publicly-traded (NASDAQ: ATLS) energy company, from 2000 to February 2011; Chairman of Atlas Pipeline Holdings GP, LLC, a wholly-owned subsidiary of Atlas Energy that ishas been the general partner of Atlas Energy, L.P., a publicly-traded (NYSE: AHD) energy company, from 2006 to February 2011; Chief Executive Officer and President of Atlas Pipeline Holdings, GP since February 2011; and Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC ~~a wholly-owned subsidiary of~~since its formation in 1999 and was Chief Executive Officer from 1999 to 2009. Atlas ~~Energy that~~Pipeline GP is the general partner of Atlas Pipeline Partners, L.P., a publicly-traded (NYSE: APL) natural gas pipeline ~~company, since~~limited partnership. He has also been the Chairman of the Board of Atlas Energy GP, LLC from its formation in ~~1999.~~2006 through February 2011 and was Chief Executive Officer from 2006 until February 2009 and Chief Executive Officer and President since February 2011. Atlas Energy GP is the general partner of Atlas Energy, L.P., a publicly-traded (NYSE: ATLS) energy limited partnership. He iswas also the Chairman of the Board and Chief Executive Officer of Atlas Energy, Inc., formerly known as Atlas America, Inc., from its formation in 2000 until its sale in February 2011. He was also a director of TRM Corporation, a then publicly-traded consumer services company, from 1998 to July 2007. He also has been Chairman of the Board of Brandywine Construction & Management, Inc., a privately-held real estate management ~~company.~~company, since 1994. From 1981 to 1999 he was Chairman of the Executive Committee of JeffBanks, Inc., a bank holding company acquired by Hudson United Bancorporation. From 1969 to 1989 he was Chairman of the Executive Committee of State National Bank of Maryland (now a part of Wachovia Bank).

Jonathan Z. Cohen, age ~~40,~~41, has been our Chief Executive Officer, President and a director since March 2005. Mr. Cohen has been President since 2003, Chief Executive Officer since 2004 and a ~~Director~~director since 2002 of Resource America. He was Chief Operating Officer of Resource America from 2002 to 2004, Executive Vice President ~~of Resource America~~ from 2001 to 2003, and a Senior Vice President from 1999 to 2001. He has been Vice Chairman of the Managing Board of Atlas Pipeline ~~Partners GP~~ since its formation in ~~1999,~~1999. He has also been Chairman of the Board of Atlas Energy GP since February 2011 and was Vice Chairman from 2006 until February 2011. He was also Vice Chairman of the Board of Atlas Energy, Inc. from its formation in 2000 tountil its sale in February ~~2011 and Vice Chairman of Atlas Pipeline Holdings GP from 2006 to February 2011, and Chairman of Atlas Pipeline Holdings GP since~~ 2011. He was the Vice Chairman of RAIT Investment Trust, (now RAIT Financial Trust) a publicly-traded (NYSE: RAS) REIT, from 2003 to 2006, and Secretary, trustee and a member of RAIT’s investment committee from 1997 to 2006.

William B. Hart, age ~~67,~~68, has been a director since March 2005. Mr. Hart was Chairman of the Board of Trustees of the National Trust for Historic Preservation from 1999 to 2004. He was also a director of Anthem, Inc. (now Wellpoint, Inc.), a publicly-traded (NYSE: WLP) health insurance company, from 2000 to 2004. Mr. Hart was Director of SIS Bancorp from 1995 to 2000. From 1988 to 1999, Mr. Hart served in various positions with Blue Cross/Blue Shield of New Hampshire, ending as Chairman of the Audit Committee and Chairman of the Board of Directors from 1996 to 1999. He also served as President of the Foundation for the National Capital Region, Washington, DC, from 1993 to 1996 and President of The Dunfey Group, a private investment firm, from 1986 to 1998. From 1986 to 1994 he was a director of First NH Banks where he was Chairman of the Audit Committee from 1992 to 1994.

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Gary Ickowicz, age ~~55,~~56, has been a director since February 2007. Mr. Ickowicz has been the Managing Partner of IR Capital LLC, a real estate company that owns and operates real estate assets in the New York Metropolitan area since 2008. He was a Managing Principal of Lazard Freres Real Estate Investors, a manager of funds invested in debt and equity securities of North American real estate assets and enterprises ~~since 2001.~~from 2001 to 2011. He was a director of Lazard Freres’s real estate investment banking unit from 1989 through 2001. Since 2000 he has been a director of Grant Street Settlement, and since 2002 he has been a director of NCC/Neumann, both not-for-profit developers of senior housing. ~~Since~~From 2001 to 2011, he ~~has been~~was a director of Commonwealth Atlantic Properties, Inc., a privately-held REIT. From 2001 to 2006 he was a director of Kimsouth, Inc., a joint venture with Kimco Realty Corporation, a publicly-traded (NYSE: KIM) REIT.

Steven J. Kessler, age ~~68,~~69, has been our ~~chairman~~Chairman since November 2009 and was our Senior Vice President - Finance from September 2005 to November 2009 and, before that, served as our Chief Financial Officer, Chief Accounting Officer and Treasurer from March 2005 to September 2005. Mr. Kessler has been Executive Vice President of Resource America since 2005 and was Chief Financial Officer from 1997 to December 2009 and Senior Vice President from 1997 to 2005. He was a Trustee of GMH Communities Trust, a ~~previously publicly traded (NYSE: GCT)~~then publicly-traded specialty housing REIT, from 2004 to 2008 when GCT was sold. He was Vice President - Finance and Acquisitions at Kravco Company, a then national shopping center developer and operator, from 1994 to 1997. From 1983 to 1993 he was employed by Strouse Greenberg & Co., a regional full service real estate company, ending as Chief Financial Officer and Chief Operating Officer. Before that, he was a partner at Touche Ross & Co. (now Deloitte & Touche LLP), independent public accountants.

Murray S. Levin, age ~~68,~~69, has been a director since March 2005. Mr. Levin is a senior litigation partner at Pepper Hamilton LLP, a law firm with which he has been associated since 1970. Mr. Levin served as the first American president of the Association Internationale des Jeunes Avocats (Young Lawyers International Association), headquartered in Western Europe. He is a past president of the American Chapter and a member of the board of governors of the Union Internationale des Avocats (International Association of Lawyers), a Paris-based organization that is the world’s oldest international lawyers association.

P. Sherrill Neff, age ~~59,~~60, has been a director since March 2005. Mr. Neff is a founder of Quaker ~~BioVentures, Inc.,~~Partners, a life sciences venture and growth equity fund, and has been a Partner since 2002. From 1994 to 2002 he was President and Chief Financial Officer, and from 1994 to 2003, a director of Neose Technologies, Inc., a ~~then-publicly-traded (NASDAQ: NTEC)~~then publicly-traded life sciences company. Mr. Neff was also a director of The Bancorp, Inc. (NASDAQ: TBBK), a publicly traded bank holding company, from its formation in 1999 until ~~2002.~~2002, and a director of Resource America from 1998 to 2005. Mr. Neff is on the boards of directors of six privately-held Quaker ~~BioVentures~~Partners portfolio ~~companies, including Amicus Therapeutics, Inc. (NASDAQ: FOLD) and five privately held~~ companies. He is a member of the board of directors of the National Venture Capital Association.

The board of directors has not adopted specific minimum qualifications for service on our board, but rather seeks a mixture of skills that are relevant to our business as an externally-managed REIT that focuses primarily upon investments in commercial real estate and commercial finance assets, principally loans and interests in loans. The following presents a brief summary of the attributes of each director that led to the conclusion that he should serve as such:

Mr. Beach has extensive experience in finance and investment management and a strong financial background.

Mr. E. Cohen has lengthy experience in real estate and real estate finance (a principal business of Resource America), corporate finance (through the formation and funding of public companies such as Atlas Energy, Atlas America, Atlas Pipeline, and Resource America, and his banking experience) and operations of both public and private companies, and is affiliated with the Manager.

Mr. J. Cohen has significant real estate, real estate finance and operational experience as an officer (currently Chief Executive Officer and President) and director of Resource America, and is affiliated with the Manager.

Mr. Hart has extensive experience in finance and investment management, both as an officer and director of banks and insurance companies, as well as an officer of a private investment firm.

Mr. Ickowicz has broad real estate and real estate finance experience as a principal in the real estate operations of an international investment bank, as a director of a REIT and as a director ~~three~~of several real estate ventures.

Mr. Kessler has a significant financial and accounting background in real estate as the former Chief Financial Officer of Resource America and, previously, as a principal financial officer for a major operator of commercial real estate.

Mr. Levin has a lengthy and diverse legal background and has practiced complex litigation for over forty years.

Mr. Neff has significant experience in investments, operations and finance as a principal or officer of a venture fund and a public company and, prior thereto, as an investment banker.

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Non-Director Executive Officers

Jeffrey D. Blomstrom, age ~~42,~~43, has been our Senior Vice President since March 2005. Mr. Blomstrom has been President and Managing Director of Resource Financial Fund Management, Inc., an asset management subsidiary of Resource America, since 2003. Mr. Blomstrom serves as the head of collateral origination and as a member of the credit committee for Trapeza Capital, Resource America’s trust preferred ~~security~~securities collateral manager. From 2001 to 2003 Mr. Blomstrom was a Managing Director at Cohen and Company. From 2000 to 2001 he was Senior Vice President of iATMglobal.net, Inc., an ATM software development company. Mr. Blomstrom was, from 1999 to 2000, an associate at Covington & Burling, a law firm, where he focused on mergers and acquisitions and corporate governance.

David E. Bloom, age ~~46,~~47, has been our Senior Vice President-Real Estate Investments since March 2005. Mr. Bloom has been Senior Vice President of Resource America since 2001. He has also been President of Resource Real Estate, Inc., a wholly-owned real estate subsidiary of Resource America, since 2004 and was President of Resource Capital Partners, ~~an indirect~~a wholly-owned real estate subsidiary of Resource America, from 2002 to 2006. From 2001 to 2002 he was President of Resource Properties, a former real estate subsidiary of Resource America. Before that he was Senior Vice President at Colony Capital, LLC, an international real estate opportunity fund, from 1999 to 2001. From 1998 to 1999 he was Director at Sonnenblick-Goldman Company, a real estate investment bank. From 1995 to 1998 he was an attorney at the law firm of Willkie Farr & Gallagher, LLP.

Jeffrey F. Brotman, ~~47,~~48, has been our Executive Vice President since June 2009 and Executive Vice President of Resource America since June 2007. He was co-founder of Ledgewood, P.C. (a Philadelphia-based law firm) and affiliated with the firm from 1992 until June 2007, serving as managing partner from 1995 until March 2006. Mr. Brotman is also a non-active certified public accountant and an Adjunct Professor at the University of Pennsylvania Law School. Mr. Brotman was Chairman of the Board of Directors of TRM Corporation (a then publicly-traded consumer services company) from September 2006 until September 2008 and was its President and Chief Executive Officer from March 2006 through June 2007.

David J. Bryant, age ~~53,~~54, has been our Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer since June 2006. From 2005 to 2006 Mr. Bryant served as Senior Vice-President, Real Estate Services, at Pennsylvania Real Estate Investment Trust, a publicly-traded (NYSE: PEI) REIT principally engaged in owning, managing, developing and leasing malls and strip centers in the eastern United States. From 2000 to 2005, Mr. Bryant served as PEI’s Senior Vice President - Finance and Treasurer, and was its principal accounting officer. From 1994 to 2000, Mr. Bryant was Vice President –Finance and Controller at PEI and its predecessor, The Rubin Organization. Mr. Bryant is also a certified treasury professional and a non-active certified public accountant.

Other Significant Employees

The following sets forth certain information regarding other significant employees of the Manager and Resource America who provide services to us:

Christopher D. Allen, age ~~41,~~42, has been our Senior Vice President-Commercial Lending since March 2005. Mr. Allen has been a Managing Director of Resource Financial Fund Management, a wholly-owned subsidiary of Resource America since 2003. At Resource Financial Fund Management, Mr. Allen is in charge of identifying, implementing and overseeing new leveraged loan and CDO products. He is a member of the investment committee of Apidos Capital Management, LLC, a wholly-owned asset management subsidiary of Resource America, where he serves as the Chief Operating Officer. Before joining Resource Financial Fund Management, from 2002 to 2003 he was a Vice President at Trenwith Securities, the investment banking arm of BDO Seidman, LLP, where he was in charge of corporate finance, mergers and acquisitions and restructuring transactions. From 1994 to 1997 he was an Associate with Citicorp Venture Capital working on leveraged buyout and recapitalization transactions.

Gretchen L. Bergstresser, age ~~48,~~49, has been our Senior Vice President-Bank Loans since March 2005. Ms. Bergstresser has been the President and Senior Portfolio Manager of Apidos Capital Management, LLC since 2005. Before joining Apidos Capital Management LLC, from 2003 to 2005 she was the Managing Director and Portfolio Manager of MJX Asset Management, a multi-billion dollar boutique asset management firm managing leveraged loans across five structured vehicles. From 1996 to 2003 Ms. Bergstresser was CDO Portfolio Manager and Head Par Loan Trader at Eaton Vance Management, an investment management company. From 1995 to 1996 she was a Vice President in the Diversified Finance Division of Bank of Boston. From 1991 to 1995 she was a Vice President at ING (U.S.), Capital Markets, an investment banking firm.

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~~Crit DeMent~~, age 58, has been our Senior Vice President-Equipment Leasing since March 2005. Mr. DeMent has been Chairman and Chief Executive Officer of LEAF Financial Corporation, a majority-owned commercial finance subsidiary of Resource America, since 2001. Mr. DeMent has been Chairman and Chief Executive Officer of LEAF financial subsidiary, LEAF Commercial Capital Inc., since January 2011. From 2000 to 2001 he was President of the Small Ticket Group, an equipment leasing division of European American Bank. Before that, he was President and Chief Operating Officer of Fidelity Leasing, Inc., then the equipment leasing subsidiary of Resource America, and its successor, the Technology Finance Group of CitiCapital Vendor Finance, from 1996 to 2000. From 1987 to 1996 he was Vice President of Marketing for Tokai Financial Services, an equipment leasing firm.

Thomas C. Elliott, age ~~37,~~38, has been our Senior Vice President-Finance and Operations since September 2006 and, prior to that, was our Chief Financial Officer, Chief Accounting Officer and Treasurer from September 2005 to June 2006. He was our Senior Vice President - Assets and Liabilities Management from June 2005 until September 2005 and, before that, served as our Vice President - Finance from March 2005. Mr. Elliott has been Chief Financial Officer of Resource America since December 2009 and Senior Vice President since 2005. He was Senior Vice President - Finance and Operations of Resource America from 2006 to December 2009; Senior Vice President – Finance from 2005 to 2006 and Vice President - Finance from 2001 to 2005. From 1997 to 2001 Mr. Elliott was a Vice President at Fidelity Leasing, where he managed all capital market functions, including the negotiation of all securitizations and credit and banking facilities in the U.S. and Canada. Mr. Elliott also oversaw the financial controls and budgeting departments.

Alan F. Feldman, age ~~47,~~48, has been our Senior Vice President-Real Estate Investments since March 2005. Mr. Feldman has been Chief Executive Officer of Resource Real Estate since 2004 and Senior Vice President of Resource America since 2002. Mr. Feldman was President of Resource Properties from 2002 to 2005. From 1998 to 2002, Mr. Feldman was Vice President at Lazard Freres & Co., an investment banking firm, specializing in real estate mergers and acquisitions, asset and portfolio sales and recapitalization. From 1992 through 1998, Mr. Feldman was Executive Vice President of PREIT-RUBIN, Inc. the management subsidiary of Pennsylvania Real Estate Investment Trust and its predecessor, The Rubin Organization. Before that, from 1990 to 1992, he was a Director at Strouse, Greenberg & Co., a regional full service real estate company.

~~Kevin M. Finkel~~, age 39, has been our Vice President-Real Estate Investments since January 2006. He has also been employed by Resource Capital Partners since 2002, having been its Vice President and Director of Acquisitions from 2003 to 2006 and President since 2006. Mr. Finkel has also been an officer of Resource Real Estate since 2004, and is currently its Executive Vice President and Director of Acquisitions. In 2000, Mr. Finkel was an investment banking Associate at Lehman Brothers. From 1998 to 1999, Mr. Finkel was an Associate at Barclays Capital, the investment banking division of Barclays Bank PLC. From 1994 to 1998, Mr. Finkel was an investment banker at Deutsche Bank Securities, the investment banking division of Deutsche Bank AG.

Kyle Geoghegan, age ~~42,~~43, has been our Senior Vice President – Loan Originations since 2007. Mr. Geoghegan has been a Managing Director of Resource Real Estate Funding, Inc., a real estate subsidiary of Resource America, since July 2006. Mr. Geoghegan co-manages the whole loan origination platform for Resource Real Estate Funding and is based in Los Angeles. Mr. Geoghegan worked at Bear Stearns from January 1998 to May 2006, serving as a Managing Director who co-managed the Bear Stearns Commercial Mortgage office in Los Angeles. Prior to joining Bear Stearns, Mr. Geoghegan spent four years as a real estate loan officer at PNC Bank in Philadelphia, PA, primarily originating construction and bridge loans.

~~Yvana Melini,~~David Jansky, age ~~35,~~41, has been ~~our Vice President and Director of Asset Management since 2008. Ms. Melini has served as Vice~~ President of ~~Debt Asset Management~~Resource Capital Markets, Inc., a subsidiary of Resource America, since April 2008. Mr. Jansky was head of Global ABS CDOs in the Structured Credit Products group at J.P. Morgan from 2005 to 2008. Prior thereto, he was an Executive Director at Credit Suisse First Boston from 2002 to 2005. Mr. Jansky was also responsible for ~~Resource Real Estate since 2006. From 2000 to 2006, Ms. Melini served~~structuring CDOs as a Vice President ~~of both the Structured Asset Management~~at Deutsche Bank from 1997 to 2000 and ~~CMBS Credit Administration groups for Capmark Finance, Inc. (formerly GMAC Commercial Mortgage Corporation). Prior~~as an Associate at Merrill Lynch from 1996 to her employment with Capmark, Ms. Melini served as Senior Underwriter for the Northeast Commercial Real Estate Lending division of Washington Mutual Bank. Ms. Melini has also privately consulted on various due diligence projects for large institutional investors and B-note buyers within the CMBS marketplace.1997.

Darryl Myrose, age ~~37,~~38, has been our Senior Vice President – Loan Originations since 2007. Mr. Myrose has been a Managing Director of Resource Real Estate Funding since July 2006. Mr. Myrose co-manages the whole loan origination platform for Resource Real Estate Funding and is based in Los Angeles. Mr. Myrose worked at Bear Stearns from April 1996 to May 2006, serving as a Managing Director who co-managed the Bear Stearns Commercial Mortgage office in Los Angeles. Prior to joining Bear Stearns, Mr. Myrose was employed with Clarion Advisors (formerly Jones Lang Wootton Realty Advisors) where he was an asset management analyst.

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Thomas C. Powers, age ~~46,~~47, has been our Vice President – Loan Originations since 2007. Mr. Powers has been Senior Vice President of Resource Real Estate Funding since January 2008 and was Vice President from 2006 to 2008. Mr. Powers is responsible for all real estate asset management including investment origination and transaction management. Mr. Powers has over 20 years of commercial real estate, workout and risk management experience. Prior to joining Resource Real Estate Funding, Mr. Powers was a senior member of the real estate credit risk management and workout group at Merrill Lynch. Prior to his employment with Merrill Lynch, Mr. Powers worked in the project finance group at UBS Investment Bank.

Joan M. Sapinsley, age ~~58,~~59, has been our Senior Vice President – CMBS since 2007. Ms. Sapinsley joined Resource Financial Fund Management, Inc. in February 2007 as Managing Director and manages our CMBS portfolio. Prior to joining Resource Financial Fund Management, Ms. Sapinsley was a Managing Director at ~~TIAA,~~Teachers Insurance and Annuity Association (“TIAA”), where she worked from 1992 through 2006 purchasing CMBS. She was responsible for all single borrower and single asset CMBS, as well as subordinate CMBS and B-notes. She also directed TIAA’s conduit origination and securitization activities. Before TIAA, Ms. Sapinsley was a Director in the Financial Services Group of Cushman & Wakefield, a global commercial real estate company, and a real estate consultant at Laventhol & ~~Horwath.~~Horwath, an accounting firm.

Michael S. Yecies, age ~~43,~~44, has been our Chief Legal Officer and Secretary since March 2005 and our Senior Vice President since July 2007. Mr. Yecies has been Senior Vice President of Resource America since 2005, Chief Legal Officer and Secretary since 1998 and was Vice President from 1998 to 2005. From 1994 to 1998 he was an attorney at the law firm of Duane Morris LLP.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than ~~ten percent~~10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies of all such reports.

Based solely on our review of the reports received by us, we believe that, during fiscal ~~2010,~~2011, our officers, directors and greater than ten percent shareholders complied with all applicable filings requirements.

Code of Ethics

We have adopted a code of business conduct and ethics applicable to all directors, officers and employees. Our code of conduct is available on our website: www.resourcecapitalcorp.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver ~~of,~~from, a provision of this code of conduct by posting such information on our website, unless otherwise required by applicable law or regulation.

Information Concerning the Audit Committee

Our Board of Directors has a standing audit committee. The audit committee reviews the scope and effectiveness of audits by the independent accountants, is responsible for the engagement of independent accountants, and reviews the adequacy of our internal financial controls. Members of the committee are Messrs. Neff (Chairman), Beach and Hart. The board of directors has determined that each member of the audit committee meets the independence standards for audit committee members set forth in the listing standards of the New York Stock Exchange, or NYSE, including those set forth in Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, and that Messrs. Beach and Neff each qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations thereunder.

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ITEM 11.

~~ITEM 11~~EXECUTIVE COMPENSATI.ON

~~EXECUTIVE COMPENSATION~~

Compensation Discussion and Analysis

We are required to provide information regarding the compensation program in place for our Chief Executive Officer, Chief Financial Officer and the three other most highly-compensated executive officers. In the following discussion, we refer to our Chief Executive Officer, Chief Financial Officer and the other most highly-compensated executive officers whose compensation for fiscal ~~2010~~2011 exceeded $100,000 as our “Named Executive Officers” or “NEOs.”

Objectives of Our Compensation Program

We have no employees. We are managed by our Manager pursuant to a management agreement, between our Manager and us. All of our NEOs are employees of our Manager or one of its affiliates. We have not paid, and do not intend to pay, any cash compensation to our NEOs although we reimburse the Manager for the wages, salary and benefits established and paid by the Manager to our Chairman and Chief Financial Officer. However, our Compensation Committee may, from time to time, grant equity awards in the form of restricted stock, stock options or performance awards to our NEOs pursuant to our 2005 Stock Incentive Plan and/or the Amended and Restated 2007 Omnibus Equity Compensation Plan. These awards are designed to align the interests of our NEOs with those of our stockholders, by allowing our NEOs to share in the creation of value for our stockholders through stock appreciation and dividends. These equity awards are generally subject to time-based vesting requirements designed to promote the retention of management and to achieve strong performance for our company. These awards further provide us flexibility in our ability to enable our Manager to attract, motivate and retain talented individuals at our Manager.

Setting Executive Compensation

Our NEOs are employees of Resource America, which determines the base salary, cash incentive compensation and, for grants of Resource America equity securities, equity incentive compensation that is paid to our NEOs. A portion of the base salary and cash incentive compensation paid to them is derived from the fees paid by us under the management agreement. We do not control how such fees are allocated by Resource America to its employees. For a description of our management agreement, see Item 1: “Business-Management Agreement.” We disclose the cash amounts paid by Resource America to our Chief Financial Officer (for which we reimburse Resource America), our only NEO who devotes his full business time to our affairs, in the Summary Compensation Table below.

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When Resource America makes its determination of the amount of compensation it will award to one of our NEOs, including in particular the amount of Resource America securities that Resource America will grant as equity incentive compensation, Resource America also considers, but does not determine, the amount of our securities we propose to grant as equity incentive compensation to that NEO. Similarly, in determining the amount of equity incentive compensation we grant to one of our NEOs, our compensation committee considers, but does not determine, the compensation that Resource America proposes to grant to that NEO, including Resource America’s grant of Resource America securities as equity incentive compensation. Our respective compensation committees base their analyses and determinations upon recommendations submitted by Jonathan Z. Cohen, who is chief executive officer of both companies, for all of our NEOs other than himself. Resource America’s compensation committee determines the amount of compensation Resource America will award Mr. J. Cohen, while our compensation committee determines the amount of any Resource Capital equity incentive compensation we award to Mr. J. Cohen. These analyses and determinations are not based upon any particular compensation matrix or formula, but instead are based upon qualitative evaluations by Mr. J. Cohen and the compensation committees. Our compensation committee does not make recommendations to Resource America as to the amount of compensation Resource America grants to our NEOs, nor does Resource America’s compensation committee make recommendations to us regarding the amount of equity incentive compensation awarded by us to our NEOs.

Our compensation committee operates under a written charter adopted by our Board of Directors, a copy of which is available on our website at www.resourcecapitalcorp.com. Our compensation committee determines compensation amounts after the end of Resource America’s fiscal year and makes equity awards after our fiscal year end. Awards made after our fiscal year end are reflected in our Summary Compensation Table but not our Grants of Plan-Based Awards table until our following fiscal year. Our compensation committee has the discretion to issue equity awards at other times during our fiscal year.

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Elements of Our Compensation Program

As described above, our NEOs do not receive cash compensation from us, although beginning in October 2009, we agreed to reimburse Resource America for the wages, salary and benefits of our Chief Financial Officer. In addition, we began reimbursing Resource America for ~~our Chairman for~~the wages, salary and benefits of our Chairman in February 2010. However, our compensation committee may, from time to time, grant equity awards in the form of restricted stock, stock options or performance awards to our NEOs pursuant to our 2005 Stock Incentive Plan and/or the Amended and Restated 2007 Omnibus Equity Compensation Plan as ~~follows~~follows:

Stock Options. Stock options provide value to the executive only if our stock price increases after the grants are made. Stock options typically vest 33.3% per year.

Restricted Stock. Restricted stock units reward stockholder value creation slightly differently than stock options: restricted stock units are impacted by all stock price changes, both increases and decreases. Restricted stock units generally vest 33.3% per year and include a right to receive dividends on unvested shares.

~~Resource America Restricted Stock~~. As described above, Resource America’s compensation committee approves awards of Resource America restricted stock to NEOs. These awards generally vest 25% per year, and may include a right to receive dividends on unvested shares.

~~Resource America Stock Options. As described above, Resource America’s compensation committee approves awards of Resource America options to receive restricted stock to NEOs. These awards generally vest 25% per year.~~

Supplemental Incentive Arrangement with David Bloom. In December 2007, Resource America entered into an agreement with David Bloom, our Senior Vice President – Real Estate Investments, which provides for awards to him of our restricted stock and Resource America restricted stock. With respect to our restricted stock, Mr. Bloom was awarded 120,000 shares, 60,000 of which were subject to vesting over time and 60,000 of which were to vest based on the achievement of predetermined, objective performance goals over a multi-year performance period. We ~~pay~~paid dividends on unvested awards. With respect to the shares that ~~vest~~vested over time, 15% vested on June 30, 2008, 15% vested on June 30, 2009 and 70% vested on March 9, 2011. Performance-based shares were to be earned on achievement of performance goals over the performance period beginning July 1, 2007 and ending June 30, 2010, with one-third of the shares potentially being earned at the end of each 12-month measurement period. AsAt the end of ~~December 31, 2010,~~the measurement period, one-third of such shares had been earned and two-thirds of such shares had been forfeited.

How We Determined ~~2010~~2011 Compensation

~~In 2011~~As discussed above, our Compensation Committee ~~decided~~believes that it is important for our NEOs, who are employees of our Manager, to ~~issue more substantial stock awards~~remain significantly aligned to our ~~NEOs than in past years as part~~shareholders. Accordingly, we have traditionally made grants of ~~a long-term compensation plan~~restricted stock to ~~retain, motivate and incentivize employees who are critical to our continued success over the coming years. To enhance the retentive nature of~~such NEOs.

For 2010, such stock awards ~~all such stock awards cliff~~were more substantial than in the past and will vest in full three years after the dates of ~~grant.~~grant to enhance their retentive value. For 2011, our Compensation Committee determined that based upon our performance, such stock awards should be more in keeping with years other than 2010 and, accordingly, approved the awards discussed below, which vest 33.33% per year over three years. Among the factors considered by our Compensation Committee were our continued growth, distributions to our shareholders and our ability to raise and deploy capital. Our Compensation Committee considered these stock awards in addition to considering the total compensation that Resource America proposed for our NEOs.

~~In light of the long-term compensation plan discussed above, and our improved performance,~~

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For Mr. Bryant, our Compensation Committee ~~decided to significantly increase~~determined that no stock award would be granted for 2011, after considering the ~~value~~amount of ~~the bonus awards to our NEOs. The Committee recognized our NEOs’ prudent management efforts in a challenging environment, and believed that significant restricted~~previous stock awards, ~~were~~the increase in his base compensation and the awarding of a $200,000 cash bonus, which was the same cash bonus amount as for 2010. Our Compensation Committee further determined that, in the aggregate, such compensation paid to Mr. Bryant for 2011 was reasonable and appropriate, ~~to recognize those efforts~~taking into consideration his accomplishments, previous cash and ~~retain their services.~~stock awards and level of ownership of our stock.

Upon our CEO’s recommendation, other than for himself, our Compensation Committee ~~made~~approved the following awards for fiscal ~~2010:~~

2011:

●

Mr. J. Cohen was awarded 62,056 shares of restricted stock for fiscal 2011, as compared to 138,504 shares of restricted stock for fiscal ~~2010, as compared to 57,803 shares of restricted stock for fiscal 2009.~~2010.

●

Mr. Blomstrom was awarded 17,452 shares of restricted stock for fiscal 2011, as compared to 82,987 shares of restricted stock for fiscal ~~2010, as compared to 14,450 shares of restricted stock for fiscal 2009.~~2010.

●

Mr. Bloom was awarded 21,815 shares of restricted stock for fiscal 2011, as compared to 27,662 shares of restricted stock for fiscal ~~2010, as compared to 19,267 shares of restricted stock for fiscal 2009.~~2010. See “- Elements of Our Compensation Program-Supplemental Incentive Arrangements with David Bloom.”

●

Mr. Brotman was awarded 35,460 shares of restricted stock for fiscal 2011, as compared to 83,102 shares of restricted stock for fiscal ~~2010, as compared to 19,267 shares of restricted stock for fiscal 2009.~~2010.

●

Mr. Bryant was awarded 0 shares of restricted stock for fiscal 2011, as compared to 27,662 shares of restricted stock for fiscal ~~2010, as compared to 19,267 shares of restricted stock for fiscal 2009.~~2010. Mr. Bryant was also awarded 0 shares of restricted Resource America stock for fiscal 2011, as compared to 3,654 shares of restricted Resource America stock for fiscal ~~2010, as compared to 5,980 shares of restricted Resource America stock for fiscal 2009.~~

2010.

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~~Report of the~~ Compensation Committee Report

The compensation committee has reviewed and discussed the forgoing Compensation Discussion and Analysis with management and, based on its review and discussions, the compensation committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this filing.

This report has been provided by the compensation committee of the Board of Directors of Resource Capital Corp.

Walter T. Beach, Chairman

Murray S. Levin

P. Sherrill Neff

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The following table sets forth certain information concerning the compensation earned for fiscal 2011, 2010 ~~2009~~ and ~~2008~~2009 for our NEOs:

SUMMARY COMPENSATION

Name and Principal Position	Year	Salary ($)			Bonus ($)			Stock Awards ($)(2)		Option Awards ($)(2)		All Other Compen-sation ($)(3)		Total ($)		Year	Salary ($)			Bonus ($)			Stock Awards ($)(2)		All Other Compen-sation ($) (3)		Total ($)
Jonathan Z. Cohen	2010		−			−			999,999		−		−		999,999	2011		−			−			349,996		−		349,996
Chief Executive Officer,	2009		−			−			299,998		−		−		299,998	2010		−			−			999,999		−		999,999
President and Director	2008		−			−			−		−		−		−	2009		−			−			299,998		−		299,998

David J. Bryant	2010		240,000	(1)		200,000	(1)		199,996		−		24,993		664,990	2011		275,000	(1)		200,000	(1)		−		−		475,000
Senior Vice President,	2009		240,000	(1)		140,000	(1)		99,996		−		24,996		504,992	2010		240,000	(1)		200,000	(1)		199,996		24,993		664,990
Chief Financial Officer, Chief Accounting Officer and Treasurer	2008		240,000	(1)		120,000	(1)		49,999		−		15,425		425,424	2009		240,000	(1)		140,000	(1)		99,996		24,996		504,992

Jeffrey D. Blomstrom	2010		−			−			599,996		−		−		599,996	2011		−			−			100,000		−		100,000
Senior Vice President	2009		−			−			74,996		−		−		74,996	2010		−			−			599,996		−		599,996
	2008		−			−			−		−		−		−	2009		−			−			74,996		−		74,996

David E. Bloom	2010		−			−			199,996		−		10,000		209,996	2011		−			−			125,000		−		125,000
Senior Vice President−,	2009		−			−			99,996		−		35,000		134,996
Senior Vice President−																2010		−			−			199,996		10,000		209,996
Real Estate Investments	2008		−			−			151,777		−		80,400		232,177	2009		−			−			99,996		35,000		134,996

Jeffrey F. Brotman	2010		−			−			599,996		−		−		599,996	2011		−			−			199,994		−		199,994
Executive Vice President	2009		−			−			99,996		−		−		99,996	2010		−			−			599,996		−		599,996
	2008		−			−			−		−		−		−	2009		−			−			99,996		−		99,996

(1)	Mr. Bryant’s salary and bonus were paid by Resource America. We began to reimburse Resource America for Mr. Bryant’s salary and bonus in October 2009. Amounts represent salary and bonus earned for the years indicated, but may not have been paid in full in the respective years.

(2)	Grant date fair value, valued in accordance with FASB Accounting Standards Codification Topic 718 as the closing price of our common stock on the grant date.

(3)

2010 ~~amount represents award~~and 2009 amounts for Mr. Bryant represent awards of Resource America restricted stock earned during 2010 and 2009, respectively, valued at the closing price of Resource America common stock on the ~~date~~dates of the grant in February ~~2010. 2008 amount represents award of options to purchase Resource America~~2010 and February 2009. Amounts for Mr. Bloom represent dividend equivalent rights on restricted common ~~stock. The grant date fair value is $3.09 per option, using the Black-Scholes option pricing model to estimate the fair value~~stock granted, but not yet earned. See “- Elements of ~~each option granted~~Our Compensation Program-Supplemental Incentive Arrangements with ~~assumptions for (a) expected dividend yield of 3.4%, (b) risk-free interest rate of 3.8%, (c) expected volatility of 49.5%, and (d) an expected life of 6.3 years.~~David Bloom.”

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GRANTS OF PLAN-BASED AWARDS TABLE

During ~~2010,~~2011, we made restricted stock awards to our NEOs. There were no stock options granted to such officers during 2011. The following table sets forth information with respect to each of these awards on a grant-by-grant basis. Dividends are payable on these awards of our stock, which vest in full three years after the date of grant. Dividends are payable on the Resource America restricted stock, which vests 25% per year over a four year period after issuance.

Name	Grant date	All other stock awards: number of shares of stock (#)		Grant date fair value of stock awards ($) (1), (2)
Jonathan Cohen
Our restricted stock	01/26/11		138,504		999,999

David J. Bryant
Our restricted stock	02/08/11		27,662		199,996
Resource America restricted stock	02/07/11		3,654		24,993

Jeffrey D. Blomstrom
Our restricted stock	02/08/11		82,987		599,996

David E. Bloom
Our restricted stock	02/08/11		27,662		199,996

Jeffrey F. Brotman
Our restricted stock	01/26/11		83,102		599,996

Name

Grant date

All other stock
awards: number
of shares of
stock (#)

All other
option awards:
number of securities
underlying
options (#)

Exercise or
base price of
option awards ($/Sh)

Grant date
fair value
of stock and
option
awards ($)(1)

Jonathan Cohen
Our restricted stock
01/22/10 57,803 299,998

David J. Bryant
Our restricted stock
01/22/10 19,267 99,996
Resource America restricted stock
02/10/10 5,980 24,996

David E. Bloom
Our restricted stock
01/22/10 19,267 99,996

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(1)	Does not include shares of restricted stock granted in 2012 as compensation earned in fiscal 2011 as follows: Mr. J. Cohen – 62,056 shares; Mr. Blomstrom – 17,452 shares; Mr. Bloom – 21,815 shares; and Mr. Brotman – 35,460 shares.

(2)	Based on the closing price of our stock on the respective grant ~~date~~dates with the exception of Mr. Bryant’s Resource America stock grant, which was valued based on the closing price of Resource America’s stock on the respective grant date.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Option Awards

Stock Awards

Name
Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

Option Exercise Price($)

Option Expiration Date

Number of Shares or Units of Stock That Have Not Vested (#)

Market Value of Shares or Units of Stock That Have Not Vested
($) (1)

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($) (1)

Jonathan Z. Cohen 100,000 − − 15.00 03/07/15 57,803 426,586 − −

David J. Bryant 10,000 − − 15.00 03/07/15 23,763 175,371 − −
− 5,000 (2) 8.14 05/21/18 6,100 (3) 41,846 (3) − −

David E. Bloom 100,000 − − 15.00 03/07/15 67,561 498,600 − −
The following equity awards granted to our NEOs were outstanding as of the end of fiscal 2011:

●

Restricted stock awards;

●

Stock options; and

●

Resource America restricted stock awards.

The following table sets forth information with respect to each of these awards on an award-by-award basis.

	Option Awards								Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable			Option Exercise Price($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#) (5)			Market Value of Shares or Units of Stock That Have Not Vested ($) (1)

Jonathan Z. Cohen		100,000		−			15.00	03/07/15		177,040			993,194

David J. Bryant		10,000		−			15.00	03/07/15		40,507			227,244
		3,750		1,250	(2)		8.14	05/21/18		8,139	(3)		37,928	(4)

Jeffrey D. Blomstrom		10,000		−			15.00	03/07/15		92,621			519,604

David E. Bloom		100,000		−			15.00	03/07/15		40,507			227,244

Jeffrey F. Brotman		−		−			N/A	N/A		95,947			538,263

(1)	Based on the closing price of our common stock ~~$7.38~~ on December ~~31, 2010.~~30, 2011 of $5.61.

(2)	Represents options to purchase shares of Resource America common stock that vest ¼25% on each anniversary date through May 21, 2012.

(3)	Represents shares of Resource America common stock.

(4)	Based upon ~~a price of $6.86,~~ the closing price of Resource America’s common stock on December ~~31, 2010.~~30, 2011 of $4.66.

(5)

Includes shares of our restricted stock that vest in 2012, 2013 and 2014, respectively as follows: Mr. J. Cohen – 19,267 shares, 19,269 shares and 138,504 shares; Mr. Bryant – 6,422 shares, 6,423 shares and 27,662 shares; Mr. Blomstrom – 4,816 shares, 4,818 shares and 82,987 shares; Mr. Bloom – 6,422 shares, 6,423 shares and 27,662 shares; and Mr. Brotman – 6,422 shares, 6,423 shares and 83,102 shares.

~~2010~~

2011 OPTION EXERCISES AND STOCK VESTED

Stock Awards

Name

Number of Shares Acquired on
Vesting (#)

Value Realized on Vesting ($) (1)

Jonathan Z. Cohen 7,265 36,688

David J. Bryant (our stock) 28,211 170,934
(Resource America stock)
460 2,197

David E. Bloom 36,766 220,140
The following table sets forth information regarding restricted stock awards that vested during 2011 for our NEOs. There were no stock options exercised by such officers during 2011.

	Stock Awards
Name	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($) (1)
Jonathan Z. Cohen		19,267		135,832

David J. Bryant (our stock)		10,918		78,546
(Resource America stock)		1,615		10,570

Jeffrey D. Blomstrom		8,413		60,571

David E. Bloom		54,716		395,931

Jeffrey F. Brotman		6,422		45,275

(1)	Represents the per share market value of ~~our~~the respective common stock on the vesting ~~date~~dates multiplied by the number of shares vesting.

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~~127~~138

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Director Compensation

We compensate only independent directors for their services as directors; however, we reimburse Resource America for all of the wages, salary and benefits established and paid by Resource America to our Chairman of the Board. In fiscal 2011, we reimbursed Resource America $378,000 for Mr. Kessler’s compensation and related business expenses, since Resource America employs Mr. Kessler; Mr. Kessler, however, is dedicated exclusively to his service as our Chairman. In addition, in January 2011, we awarded Mr. Kessler 13,850 shares of restricted stock with a grant date fair value of approximately $100,000. Mr. Kessler had 8,221 shares vest in 2011 and realized $58,588 upon vesting. Our 2011 compensation package for independent directors was comprised of cash (annual retainer) and restricted stock awards. The annual pay package is designed to attract and retain highly-qualified, independent professionals to represent our stockholders. Our compensation package is also designed to create alignment between our directors and our stockholders through the use of equity-based grants.

For 2011, the Board approved compensation for each independent director consisting of an annual cash retainer of $52,500 and an annual stock award valued at $22,500 on the date of grant on the anniversary of the date each of them became a director. The following table sets forth director compensation for each of our independent directors and the Chairman of our Board of Directors for ~~2010.~~2011:

Name (1)	Fees Earned or Paid in Cash ($)	Stock Awards ($) (2)	Total ($)	Fees Earned or Paid in Cash ($)		Stock Awards ($) (2)		Total ($)
Walter T. Beach	52,500	22,498	74,998		52,500		22,499		74,999
William B. Hart	52,500	22,498	74,998		52,500		22,499		74,999
Murray S. Levin	52,500	22,498	74,998		52,500		22,499		74,999
P Sherrill Neff	52,500	22,498	74,998
P. Sherrill Neff					52,500		22,499		74,999
Gary Ickowicz	52,500	22,497	74,997		52,500		22,495		74,995
Edward E. Cohen	−	−	−		−		−		−
Steven J. Kessler ~~(3)~~	−	99,996	99,996		378,000		99,997		477,997

(1)	Table excludes Mr. J. Cohen, an NEO, whose compensation is set forth in the Summary Compensation Table.

(2)

On March 8, ~~2010,~~2011, Messrs. Beach, Hart, Levin and Neff, were each granted ~~3,214~~3,020 shares based upon a price of ~~$7.00,~~$7.45, the closing price on that day. On February 1, ~~2010,~~2011, Mr. Ickowicz was granted ~~4,083~~3,120 shares based upon a price of ~~$5.51,~~$7.21, the closing price on that day.

~~(3)~~

We do not compensate our non-independent directors for their service on our Board. However, in fiscal 2010, we reimbursed RAI $323,000 for Mr. Kessler’s compensation and related business expenses, since Resource America employs Mr. Kessler but he devotes substantially all of his business time to his service as our Chairman. In addition, Mr. Kessler received a stock award from the Company valued at approximately $100,000 in January 2010.

Compensation Committee Interlocks and Insider Participation

The compensation committee of the board during ~~2010~~2011 consisted of Messrs. Beach, Levin and Neff. None of such persons was an officer or employee during 2011, or former officer or employee, of our company or any of its ~~subsidiaries during 2010.~~subsidiaries. None of our executive officers was a director or executive officer of any entity of which any member of the compensation committee was a director or executive officer during ~~2010.~~2011.

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139

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ITEM 12.	~~ITEM 12~~.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
	MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

The following table sets forth the number and percentage of shares of common stock owned, as of March 8, ~~2011,~~2012, by (a) each person who, to our knowledge, is the beneficial owner of more than 5% of the outstanding shares of common stock, (b) each of our present directors, (c) each of our executive officers and (d) all of our named executive officers and directors as a group. This information is reported in accordance with the beneficial ownership rules of the Securities and Exchange Commission under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days. Shares of common stock issuable pursuant to options or warrants are deemed to be outstanding for purposes of computing the percentage of the person or group holding such options or warrants but are not deemed to be outstanding for purposes of computing the percentage of any other person.

	Shares beneficially owned		Percentage(1)
Executive officers and directors: (2)						Shares beneficially owned		Percentage(1)
Walter T. Beach (4) (5)		1,049,032		1.80	%		385,931		*
Edward E. Cohen (3)		574,120		*
Edward E. Cohen							574,120		*
Jonathan Z. Cohen (3)		933,163		1.60	%		995,219		1.20	%
William B. Hart (5)		34,416		*			38,335		*
Gary Ickowicz (5)		16,996		*			20,829		*
Steven J. Kessler (3)		98,919		*			133,865		*
Murray S. Levin (5)		28,416		*			32,335		*
P. Sherrill Neff (5)		34,416		*			38,335		*

Jeffrey D. Blomstrom (3)		119,263		*			136,715		*
David E. Bloom (3)		248,024		*			262,296		*
Jeffrey F. Brotman (3)		102,369		*			137,829		*
David J. Bryant (3)		104,460		*			105,460		*
All executive officers and directors as a group (12 persons)		3,343,594		5.72	%		2,861,269		3.43	%

Maryland			20-2287134
~~(State~~(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
712 5th Avenue, 12th Floor, New York, NY 10019
(Address of principal executive offices) (Zip code)

(212) 506-3870
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
~~Common Stock, $.001 par value~~		~~New York Stock Exchange (NYSE)~~
Title of each class	Name of each exchange on which registered
Common Stock, $.001 par value		New York Stock Exchange (NYSE)
Securities registered pursuant to Section 12(g) of the Act:
None

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

			Page
		Forward-Looking Statements

PART I

	Item 1:	Business	3

	Item 1A:	Risk Factors	15

	Item 1B:	Unresolved Staff Comments	3234

	Item 2:	Properties	3234

	Item 3:	Legal Proceedings	3234

	Item 4:	~~[Omitted and Reserved]~~Mine Safety Disclosures	3234

PART II

	Item 5:	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3235

	Item 6:	Selected Financial Data	3437

	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3538

	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	6772

	Item 8:	Financial Statements and Supplementary Data	6974

	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~117~~128

	Item 9A:	Controls and Procedures	~~117~~128

	Item 9B:	Other Information	~~119~~130

PART III

	Item 10:	Directors, Executive Officers and Corporate Governance	~~119~~130

	Item 11:	Executive Compensation	~~124~~134

	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~128~~140

	Item 13:	Certain Relationships and Related Transactions and Director Independence	~~130~~141

	Item 14:	Principal ~~Accounting~~Accountant Fees and Services	~~132~~145

PART IV

	Item 15:	Exhibits, ~~and~~ Financial Statement Schedules	~~133~~146

SIGNATURES			~~135~~148

Asset Class		Principal Investments
Commercial real estate-related assets		● First mortgage loans, which we refer to as whole loans; ● First priority interests in first mortgage real estate loans, which we refer to as A notes; ● Subordinated interests in first mortgage real estate loans, which we refer to as B notes; ● Mezzanine debt related to commercial real estate that is senior to the borrower’s equity position but subordinated to other third-party financing; ● Commercial mortgage-backed securities, which we refer to as CMBS; and ● Commercial real estate, or CRE, primarily multifamily properties.

Commercial finance assets		● Senior secured corporate loans, which we refer to as bank loans; ● Other asset-backed securities, which we refer to as other ABS; ● ~~Lease receivables, principally~~Preferred equity investment in a commercial leasing enterprise comprised of small- and middle-ticket commercial direct financing leases and notes; ● Structured note investments and residential mortgage-backed securities, which we refer to as RMBS, which comprise our trading securities portfolio; ● Debt tranches of collateralized debt obligations and collateralized loan obligations, which we refer to as CDOs and CLOs, respectively.

	Amortized cost		Estimated fair value (1)		Percent of portfolio		Weighted average coupon
Loans Held for Investment:
Commercial real estate loans:
Mezzanine loans	$	117,245	$	134,330		8.09%		4.48%
B notes		57,451		56,644		3.41%		5.62%
Whole loans		441,372		398,538		24.01%		4.17%
Bank loans		856,436		850,500		51.24%		3.57%
		1,472,504		1,440,012		86.75%
Loans held for sale:
Bank loans		4,027		4,027		0.24%		3.07%
Commercial loans		24,566		24,566		1.48%		5.90%
		28,593		28,593		1.72%
Investments in Available-for-Sale Securities:
CMBS		83,224		63,938		3.85%		5.08%
Other ABS		−		22		−%		−%
		83,224		63,960		3.85%
Investment Securities-Trading:
Structured notes		7,984		17,723		1.07%		−%

Investment in lease receivables:		109,682		109,612		6.61%		10.50%
Total portfolio/weighted average	$	1,701,987	$	1,659,900		100.00%

	Amortized cost		Estimated fair value (1)		Percent of portfolio		Weighted average coupon
Loans Held for Investment:
Commercial real estate loans:
Mezzanine loans	$	67,874	$	67,046		3.26%		4.88%
B notes		16,435		16,338		0.80%		8.68%
Whole loans		544,673		522,937		25.45%		4.81%
Bank loans		1,170,599		1,142,907		55.63%		4.03%
Loans receivable-related party		9,497		9,497		0.46%		8.35%
		1,809,078		1,758,725		85.60%
Loans held for sale:
Bank loans		3,154		3,154		0.15%		1.94%
		3,154		3,154		0.15%
Investments in Available-for-Sale Securities:
CMBS		161,512		132,820		6.46%		4.69%
ABS (2)		28,513		25,224		1.23%		2.79%
		190,025		158,044		7.69%
Investment Securities-Trading:
Structured notes		27,345		31,553		1.54%		N/A (3)
RMBS		8,729		7,120		0.35%		N/A (3)
		36,074		38,673		1.89%
Other (non-interest bearing):
Investment in real estate		48,027		48,027		2.34%		N/A
Investment in unconsolidated entities		47,899		47,899		2.33%		N/A
		95,926		95,926		4.67%
Total portfolio/weighted average	$	2,134,257	$	2,054,522		100.00%

~~Diversified/conglomerate manufacturing~~	~~3.3%~~
~~Leisure, amusement, motion pictures, entertainment~~	~~3.1%~~
~~Aerospace and defense~~	~~3.0%~~
~~Hotels, motels, inn and gaming~~	~~2.4%~~
~~Finance~~	~~1.9%~~
~~Machinery (non-agriculture, non-construction, non-electronic)~~	~~1.7%~~
~~Ecological~~	~~1.6%~~
~~Cargo transport~~	~~1.5%~~
~~Utilities~~	~~1.4%~~
~~Oil and gas~~	~~1.3%~~
~~Buildings and real estate~~	~~1.3%~~
~~Diversified natural resources, precious metals and minerals~~	~~1.2%~~
~~Personal and nondurable consumer products (mfg. only)~~	~~1.2%~~
~~Mining, steel, iron and non-precious metals~~	~~1.1%~~
~~Farming and agriculture~~	~~1.0%~~
~~Packaging and forest products~~	~~0.9%~~
~~Beverage, food and tobacco~~	~~0.6%~~
~~Containers, packaging and glass~~	~~0.6%~~
~~Home and office furnishings, housewares and durable consumer products~~	~~0.4%~~
~~Textiles and leather~~	~~0.3%~~
~~Temporary staffing~~	~~0.1%~~
~~Insurance~~	~~0.1%~~

	Personal, Food and Miscellaneous Services	3.2%
	CDO	2.6%
	Aerospace and Defense	2.5%
	Diversified/conglomerate manufacturing	2.4%
	Mining, Steel, Iron and Non-Precious Metals	2.0%
	Buildings and Real Estate	1.7%
	Finance	1.4%
	Packaging and Forest Products	1.4%
	Containers, Packaging and Glass	1.4%
	Diversified Natural Resources, Precious Metals and Minerals	1.2%
	Personal and Non Durable Consumer Products (Mfg. Only)	1.2%
	Beverage, Food and Tobacco	1.1%
	Oil and Gas	1.0%
	Ecological	0.9%
	Cargo Transport	0.8%
	Home and Office Furnishings, Housewares and Durable Consumer Products	0.7%
	Machinery (Non-Agriculture, Non-Construction, Non-Electronic)	0.7%
	Utilities	0.7%
	Insurance	0.3%
	Farming and Agriculture	0.2%
	Grocery	0.2%
	Textiles and Leather	0.2%
	Contractor - Specialty Services	0.1%
	Consumer Non-Durables	0.1%

	As of and for the years ended
	December 31,
	2010			2009			2008			2007			2006
Consolidated Statement of Operations Data:
REVENUES:
Interest income	$	103,911		$	97,593		$	134,341		$	176,995		$	137,075
Interest expense		36,466			45,427			79,619			121,564			101,851
Net interest income		67,445			52,166			54,722			55,431			35,224

OPERATING EXPENSES		32,608			16,059			12,438			13,415			11,144

		34,837			36,107			42,284			42,016			24,080

OTHER (EXPENSES) REVENUES:
Impairment losses on investment securities		(29,042	)		(27,490	)		(26,611	)		(48,853	)		(2,612	)
Recognized in other comprehensive loss		(2,238	)		(14,019	)		(26,611	)		(22,576	)		(2,612	)
Net impairment losses recognized in earnings		(26,804	)		(13,471	)		−			(26,277	)		−
Net realized gain (loss) on investment securities available-for-sale and loans		4,821			1,890			(1,637	)		(15,098	)		(8,627	)
Net realized gain on investments securities-trading		5,052			−			−			−			−
Net unrealized gain on investments securities-trading		9,739			−			−			−			−
Gain on deconsolidation		−			−			−			14,259			−
Provision for loan and lease losses		(43,321	)		(61,383	)		(46,160	)		(6,211	)		−
Gain on the extinguishment of debt		34,610			44,546			1,750			−			−
Gain on the settlement of loan		−			−			574			−			−
Other income (expense)		513			(1,350	)		115			201			153
Total other (expense) revenue		(15,390	)		(29,768	)		(45,358	)		(33,126	)		(8,474	)
NET INCOME (LOSS)	$	19,447		$	6,339		$	(3,074	)	$	8,890		$	15,606

Consolidated Balance Sheet Data:
Cash and cash equivalents	$	29,488		$	51,991		$	14,583		$	6,029		$	5,354
Restricted cash		168,192			85,125			60,394			119,482			30,721
Investment securities-trading		17,723			−			−			−			−
Investment securities available-for-sale, pledged as collateral, at fair value		57,998			39,304			22,466			65,464			420,997
Investment securities available-for-sale, at fair value		5,962			5,238			6,794			−			−
Investment securities held-to-maturity, pledged as collateral		29,036			31,401			28,157			18,517			3,978
Property available-for-sale		4,444			−			−			−			−
Loans, pledged as collateral and net of allowances of $34.2 million, $47.1 million, $43.9 million, $0 and $0		1,443,271			1,557,757			1,684,622			1,748,122			1,236,310
Loans held for sale		28,593			8,050			−			−			−
Lease receivables, net of allowances of $70,000, $1.1 million, $450,000, $293,000 and $0, net of unearned income		109,612			927			104,015			95,030			88,970
Total assets		1,934,200			1,791,404			1,936,031			2,072,148			1,802,829
Borrowings		1,543,251			1,534,874			1,699,763			1,760,969			1,463,853
Total liabilities		1,585,874			1,562,574			1,749,726			1,800,542			1,485,278
Total stockholders’ equity		348,326			228,830			186,305			271,606			317,551

Per Share Data:
Dividends declared per common share	$	1.00		$	1.15		$	1.60		$	1.62		$	1.49
Net income (loss) per share – basic	$	0.41		$	0.25		$	(0.12	)	$	0.36		$	0.89
Net income (loss) per share − diluted	$	0.41		$	0.25		$	(0.12	)	$	0.36		$	0.87
Weighted average number of shares outstanding - basic		47,715,082			25,205,403			24,757,386			24,610,468			17,538,273
Weighted average number of shares outstanding - diluted		47,907,281			25,355,821			24,757,386			24,860,184			17,881,355

	Amortized cost (3)		Dollar price		Net carrying amount		Dollar price		Net carrying amount less amortized cost			Dollar price
December 31, 2010
Floating rate
CMBS-private placement	$	31,127		100.00%	$	9,569		30.74%	$	(21,558	)		-69.26%
Structured notes		7,984		34.09%		17,723		75.67%		9,739			41.58%
Other ABS		−		0.00%		22		0.26%		22			0.26%
B notes (1)		26,485		99.94%		26,071		98.38%		(414	)		-1.56%
Mezzanine loans (1)		83,699		100.00%		82,680		98.78%		(1,019	)		-1.22%
Whole loans (1)		441,372		99.92%		419,207		94.91%		(22,165	)		-5.01%
Bank loans (2)		856,436		96.99%		850,500		96.32%		(5,936	)		-0.67%
Loans held for sale (3)		13,593		55.92%		13,593		55.92%		−			0.00%
ABS held-to-maturity (4)		29,036		91.08%		25,941		81.37%		(3,095	)		-9.71%
Total floating rate		1,489,732		95.86%		1,445,306		93.01%		(44,426	)		-2.85%
Fixed rate
CMBS – private placement		52,097		48.30%		54,369		50.41%		2,272			2.11%
B notes (1)		30,966		99.53%		30,482		97.97%		(484	)		-1.56%
Mezzanine loans (1)		38,545		100.23%		31,012		80.64%		(7,533	)		-19.59%
Loans held for sale (3)		15,000		75.00%		15,000		75.00%		−			0.00%
Lease receivables (5)		109,682		100.00%		109,612		99.94%		(70	)		-0.06%
Total fixed rate		246,290		80.20%		240,475		78.30%		(5,815	)		-1.90%
Grand total	$	1,736,022		93.28%	$	1,685,781		90.58%	$	(50,241	)		-2.70%

December 31, 2009
Floating rate
CMBS-private placement	$	32,043		100.00%	$	11,185		34.91%	$	(20,858	)		-65.09%
Other ABS		24		0.29%		24		0.29%		−			−%
B notes (1)		26,479		99.92%		26,263		99.11%		(216	)		-0.81%
Mezzanine loans (1)		124,048		100.00%		123,058		99.20%		(990	)		-0.80%
Whole loans (1)		403,230		99.81%		381,710		94.49%		(21,520	)		-5.32%
Bank loans (2)		857,202		96.87%		798,614		90.25%		(58,588	)		-6.62%
Loans held for sale (3)		8,050		78.88%		8,050		78.88%		−			−%
ABS held-to-maturity (4)		31,401		88.77%		21,287		60.18%		(10,114	)		-28.59%
Total floating rate		1,482,477		97.23%		1,370,191		89.82%		(112,286	)		-7.41%
Fixed rate
CMBS – private placement		60,067		64.08%		33,333		35.56%		(26,734	)		-28.52%
B notes (1)		54,977		100.05%		54,527		99.23%		(450	)		-0.82%
Mezzanine loans (1)		58,638		100.28%		53,200		90.98%		(5,438	)		-9.30%
Whole loans (1)		80,305		99.78%		79,647		98.96%		(658	)		-0.82%
Lease receivables (5)		2,067		100.05%		927		44.87%		(1,140	)		-55.18%
Total fixed rate		256,054		88.38%		221,634		76.50%		(34,420	)		-11.88%
Grand total	$	1,738,531		95.78%	$	1,591,800		87.70%	$	(146,731	)		-8.08%

Description	Number of Loans		Amortized Cost		Contracted Interest Rates	Maturity Dates (4)
December 31, 2010:
Whole loans, floating rate (1)		25	$	441,372	LIBOR plus 1.50% to LIBOR plus 5.75%	May 2011 to January 2018
B notes, floating rate		2		26,485	LIBOR plus 2.50% to LIBOR plus 3.01%	July 2011 to October 2011
B notes, fixed rate		2		30,966	7.00% to 8.68%	July 2011 to April 2016
Mezzanine loans, floating rate		6		93,266	LIBOR plus 2.15% to LIBOR plus 3.00%	May 2011 to January 2013
Mezzanine loans, fixed rate (3)		5		53,545	8.14% to 11.00%	January 2016 to September 2016
Total (2)		40	$	645,634

December 31, 2009:
Whole loans, floating rate (1)		22	$	403,230	LIBOR plus 1.50% to LIBOR plus 4.40%	May 2010 to February 2017
Whole loans, fixed rate (1)		5		80,305	6.98% to 10.00%	May 2010 to August 2012
B notes, floating rate		2		26,479	LIBOR plus 2.50% to LIBOR plus 3.01%	July 2010 to October 2010
B notes, fixed rate		3		54,977	7.00% to 8.68%	July 2011 to July 2016
Mezzanine loans, floating rate		7		124,048	LIBOR plus 2.15% to LIBOR plus 3.45%	May 2010 to January 2013
Mezzanine loans, fixed rate		5		58,638	8.14% to 11.00%	May 2010 to September 2016
Total (2)		44	$	747,677

	Amortized Cost (1)
	Apidos I		Apidos III		Apidos Cinco		Total
December 31, 2010:
Loans held for investment:
First lien loans	$	288,163	$	236,142	$	296,208	$	820,513
Second lien loans		12,902		10,011		11,513		34,426
Subordinated second lien loans		163		122		−		285
Defaulted second lien loans		−		−		362		362
Total		301,228		246,275		308,083		855,586
First lien loans held for sale at fair value		2,822		−		1,205		4,027
Total	$	304,050	$	246,275	$	309,288	$	859,613

December 31, 2009:
Loans held for investment:
First lien loans	$	284,564	$	232,861	$	295,457	$	812,882
Second lien loans		11,507		9,096		10,657		31,260
Subordinated second lien loans		163		122		−		285
Defaulted first lien loans		4,511		5,579		1,685		11,775
Defaulted second lien loans		500		500		−		1,000
Total		301,245		248,158		307,799		857,202
First lien loans held for sale at fair value		4,064		2,077		1,909		8,050
Total	$	305,309	$	250,235	$	309,708	$	865,252

	Benchmark rate	Notional value		Strike rate		Effective date	Maturity date	Fair value
Interest rate swap	1 month LIBOR	$	12,965		4.63%	12/04/06	07/01/11	$	(282	)
Interest rate swap	1 month LIBOR		12,150		5.44%	06/08/07	03/25/12		(759	)
Interest rate swap	1 month LIBOR		12,750		5.27%	07/25/07	08/06/12		(971	)
Interest rate swap	1 month LIBOR		34,255		4.13%	01/10/08	05/25/16		(2,309	)
Interest rate swap	1 month LIBOR		1,681		5.72%	07/09/07	10/01/16		(161	)
Interest rate swap	1 month LIBOR		1,880		5.68%	07/13/07	03/12/17		(350	)
Interest rate swap	1 month LIBOR		81,556		5.58%	06/08/07	04/25/17		(7,603	)
Interest rate swap	1 month LIBOR		1,726		5.65%	06/28/07	07/15/17		(159	)
Interest rate swap	1 month LIBOR		3,850		5.65%	07/19/07	07/15/17		(355	)
Interest rate swap	1 month LIBOR		4,023		5.41%	08/07/07	07/25/17		(343	)
Total		$	166,836		5.17%			$	(13,292	)

											Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of December 31, 2011:
Bank loans											$	1,076,298	$	19,739	$	60,329	$	11,540	$	2,693	$	3,154	$	1,173,753
	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5
As of December 31, 2010:
Bank loans	$	759,817	$	43,858	$	48,486	$	7,940	$	362	$	759,161	$	43,858	$	45,115	$	7,940	$	362	$	4,027	$	860,463

As of December 31, 2009:
Bank loans	$	680,761	$	62,102	$	88,320	$	21,505	$	12,564

					Greater								Total Loans
		30-59		60-89	than 90		Total Past				Total Loans		> 90 Days and
	Days		Days		Days		Due		Current		Receivable		Accruing
December 31, 2010:
Whole loans	$	−	$	−	$	−	$	−	$	441,372	$	441,372	$	−
B notes		−		−		−		−		57,451		57,451		−
Mezzanine loans		−		−		5,000		5,000		141,811		146,811		−
Bank loans		−		−		−		−		860,463		860,463		−
Lease receivables		630		237		829		1,696		107,986		109,682		−
Loans receivable- related party		−		−		−		−		9,927		9,927		−
Total loans	$	630	$	237	$	5,829	$	6,696	$	1,619,010	$	1,625,706	$	−

December 31, 2009:
Whole loans	$	−	$	−	$	7,378	$	7,378	$	476,157	$	483,535	$	−
B notes		−		−		−		−		81,456		81,456		−
Mezzanine loans		−		−		−		−		182,686		182,686		−
Bank loans		−		−		−		−		865,252		865,252		−
Lease receivables		−		−		1,815		1,815		252		2,067		−
Loans receivable- related party		−		−		−		−		−		−		−
Total loans	$	−	$	−	$	9,193	$	9,193	$	1,605,803	$	1,614,996	$	−

	30 – 59 Days		60 – 89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
December 31, 2011:
Whole loans	$	−	$	−	$	−	$	−	$	544,673	$	544,673	$	−
B notes		−		−		−		−		16,435		16,435		−
Mezzanine loans		−		−		−		−		67,874		67,874		−
Bank loans		−		−		−		−		1,173,753		1,173,753		−
Lease receivables		−		−		−		−		−		−		−
Loans receivable- related party		−		−		−		−		9,497		9,497		−
Total loans	$	−	$	−	$	−	$	−	$	1,812,232	$	1,812,232	$	−

December 31, 2010:
Whole loans	$	−	$	−	$	−	$	−	$	441,372	$	441,372	$	−
B notes		−		−		−		−		57,451		57,451		−
Mezzanine loans		−		−		5,000		5,000		141,811		146,811		−
Bank loans		−		−		−		−		860,463		860,463		−
Lease receivables		630		237		829		1,696		107,986		109,682		−
Loans receivable- related party		−		−		−		−		9,927		9,927		−
Total loans	$	630	$	237	$	5,829	$	6,696	$	1,619,010	$	1,625,706	$	−

								Average
			Unpaid					Investment		Interest
	Recorded		Principal		Specific			in Impaired		Income
	Balance		Balance		Allowance			Loans		Recognized
December 31, 2011:
Loans and lease receivables without a specific valuation allowance:
Whole loans	$	75,273	$	75,273	$	−		$	75,263	$	2,682
B notes	$	−	$	−	$	−		$	−	$	−
Mezzanine loans	$	−	$	−	$	−		$	−	$	−
Bank loans	$	−	$	−	$	−		$	−	$	−
Loans and lease receivables with a specific valuation allowance:
Whole loans	$	37,765	$	37,765	$	(17,065	)	$	36,608	$	920
B notes	$	−	$	−	$	−		$	−	$	−
Mezzanine loans	$	−	$	−	$	−		$	−	$	−
Bank loans	$	2,693	$	2,693	$	(1,593	)	$	2,693	$	−

Total:
Whole loans	$	113,038	$	113,038	$	(17,065	)	$	111,871	$	3,602
B notes		−		−		−			−		−
Mezzanine loans		−		−		−			−		−
Bank loans		2,693		2,693		(1,593	)		2,693		−
	$	115,731	$	115,731	$	(18,658	)	$	114,564	$	3,602

	Number of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
December 31, 2011:
Whole loans		3	$	67,985	$	64,573
B notes		−		−		−
Mezzanine loans		−		−		−
Bank loans		−		−		−
Loans receivable - related party		1		7,981		7,981
Total loans		4	$	75,966	$	72,554

	As of December 31, 2011
	Book Value			Number of Properties
Multi-family property	$	38,577			2
Office property		10,149			1
Subtotal		48,726
Less: Accumulated depreciation		(699	)
Investments in real estate	$	48,027

Description	Estimated Fair Value
Assets acquired:
Investments in real estate	$	48,683
Cash and cash equivalents		177
Restricted cash		2,360
Intangible assets		2,490
Other assets		391
Total assets acquired		54,101
Liabilities assumed:
Accounts payable and other liabilities		673
Total liabilities assumed		673
Estimated fair value of net assets acquired	$	53,428

	Year Ended
	December 31,
	2011 (2)
Net income − GAAP	$	37,716
Adjustments:
Real estate depreciation and amortization		2,606
Impairment charges on repossessed real estate assets (1)		1,449
FFO		41,771
Adjustments:
Non-cash items:
Impairment losses on financial instruments		6,898
Provisions for loan losses		317
Straight line rental adjustments		(17	)
Share-based compensation		2,526
Amortization of deferred costs (non real estate) and intangible assets		5,870
(Gains) on debt extinguishment		(3,875	)
REIT tax planning adjustments (3)		11,751
Cash items:
Capital expenditures		(1,296	)
AFFO	$	63,945
Weighted average shares – diluted		70,809
AFFO per share – diluted	$	0.90

						Annualized											Annualized
						Interest											Interest
						Coverage		Overcollateralization									Coverage		Overcollateralization
		Cash Distributions				Cushion		Cushion					Cash Distributions				Cushion		Cushion
		Years Ended				As of		As of		As of Initial			Years Ended				As of		As of		As of Initial
		December 31,		December 31,		December 31,		December 31,		Measurement
��													December 31,		December 31,		December 31,		December 31,		Measurement
Name	CDO Type	2010 (1)		2009 (1)		2010 (2) (3)		2010 (4)		Date		CDO Type	2011 (1)		2010 (1)		2011 (2) (3)		2011 (4)		Date
		(actual)		(actual)									(actual)		(actual)
Apidos CDO I	CLO	$	7,695	$	6,643	$	8,528	$	12,854	$	17,136	CLO	$	9,305	$	7,695	$	2,588	$	14,187	$	17,136
Apidos CDO III	CLO	$	6,552	$	6,390	$	3,483	$	8,531	$	11,269	CLO	$	8,351	$	6,552	$	4,961	$	9,634	$	11,269
Apidos Cinco CDO	CLO	$	7,792	$	7,553	$	4,488	$	21,030	$	17,774	CLO	$	9,941	$	7,792	$	4,924	$	19,623	$	17,774
RREF 2006-1	CRE CDO	$	8,929	$	13,222	$	7,555	$	18,446	$	24,941	CRE CDO	$	11,637	$	8,929	$	13,590	$	53,698	$	24,941
RREF 2007-1	CRE CDO	$	15,068	$	20,536	$	11,918	$	14,024	$	26,032	CRE CDO	$	10,743	$	15,068	$	8,806	$	39,293	$	26,032

	Contractual Commitments (dollars in thousands)
	Payments due by period
	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
CDOs	$	1,397,880	$	−	$	−	$	−	$	1,397,880	(1)
Equipment contract backed notes, Series 2010-2		95,016		−		−		−		95,016	(2)
Unsecured junior subordinated debentures		51,548		−		−		−		51,548	(3)
Base management fees (4)		6,258		6,258		−		−		−
Total	$	1,550,702	$	6,258	$	−	$	−	$	1,544,444

	December 31, 2010									December 31, 2011
	Interest rates fall 100 basis points			Unchanged			Interest rates rise 100 basis points			Interest rates fall 100 basis points			Unchanged			Interest rates rise 100 basis points
CMBS – private placement (1):
Fair value	$	56,491		$	54,125		$	51,939		$	121,534		$	119,274		$	117,101
Change in fair value	$	2,336		$	−		$	(2,216	)	$	2,260					$	(2,173	)
Change as a percent of fair value		4.31	%		−	%		4.09	%		1.89%						1.82%

Hedging instruments:
Fair value	$	(20,622	)	$	(13,292	)	$	(6,162	)	$	(18,851	)	$	(13,210	)	$	(6,782	)
Change in fair value	$	(7,330	)	$	−		$	7,130		$	(5,641	)				$	6,428
Change as a percent of fair value		55.15	%		−	%		53.64	%		42.70%						48.66%

	Shares			Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Distributions in Excess of Earnings			Treasury Shares			Total Stockholders’ Equity			Comprehensive (Loss)/Income
Balance, January 1, 2008		25,103,532		$	25	$	357,976		$	(38,323	)	$	−−		$	(45,301	)	$	(2,771	)	$	271,606
Net proceeds from dividend reinvestment and stock purchase plan		10,831			−		40			−			−			−			−			40			−
Offering costs		−			−		(22	)		−			−			−			−			(22	)		−
Retirement of treasury shares		−			−		(2,771	)		−			−			−			2,771			−			−
Stock based compensation		234,871			1		340			−			−			−			−			341			−
Amortization of stock based compensation		−			−		540			−			−			−			−			540			−
Forfeiture of unvested stock		(4,367	)		−		−			−			−			−			−			−
Net income		−			−		−			−			(3,074	)		−			−			(3,074	)		(3,074	)
Available-for-sale securities, fair value adjustment		−			−		−			(24,288	)		−			−			−			(24,288	)		(24,288	)
Designated derivatives, fair value adjustment		−			−		−			(18,096	)		−			−			−			(18,096	)		(18,096	)
Distributions on common stock		−			−		−			−			3,074			(43,816	)		−			(40,742	)
Comprehensive loss		−			−		−			−			−			−			−			−		$	(45,458	)
Balance, December 31, 2008		25,344,867			26		356,103			(80,707	)		−			(89,117	)		−			186,305
Proceeds from common stock offering		10,294,455			10		46,316			−			−			−			−			46,326			−
Proceeds from dividend reinvestment and stock purchase plan		1,895,043			1		8,994			−			−			−			−			8,995			−
Offering costs		−			−		(2,964	)		−			−			−			−			(2,964	)		−
Repurchase and retirement of treasury shares		(1,400,000	)		(1		(5,039	)		−			−			−						(5,040	)		−
Stock based compensation		419,563					867			−			−			−			−			867			−
Amortization of stock based compensation		−			−		1,240			−			−			−			−			1,240			−
Forfeiture of unvested stock		(8,191	)		−		−			−			−			−			−			−			−
Net income		−			−		−			−			6,339			−			−			6,339			6,339
Securities available-for-sale, fair value adjustment, net		−			−		−			(729	)		−			−			−			(729	)		(729	)
Designated derivatives, fair value adjustment		−			−		−			19,282			−			−			−			19,282			19,282
Distributions on common stock		−			−		−			−			(6,339	)		(25,452	)		−			(31,791	)
Comprehensive income		−			−		−			−			−			−			−			−		$	24,892
Balance, December 31, 2009		36,545,737		$	36	$	405,517		$	(62,154	)	$	−		$	(114,569	)	$	−		$	228,830
Proceeds from dividend reinvestment and stock purchase plan		12,422,956			12		76,797			−			−			−			−			76,809			−
Proceeds from common stock offering		8,625,000			9		45,273			−			−			−			−			45,282			−
Offering costs		−			−		(2,875	)		−			−			−			−			(2,875	)		−
Stock based compensation		589,732			1		1,440			−			−			−			−			1,441			−
Amortization of stock based compensation		−			−		2,221			−			−			−			−			2,221			−
Net income		−			−		−			−			19,447			−			−			19,447			19,447
Securities available-for-sale, fair value adjustment, net		−			−		−			28,329			−			−			−			28,329			28,329
Designated derivatives, fair value adjustment		−			−		−			(93	)		−			−			−			(93	)		(93	)
Distributions on common stock		−			−		−			−			(19,447	)		(31,618	)		−			(51,065	)
Comprehensive income		−			−		−			−			−			−			−			−		$	47,683
Balance, December 31, 2010		58,183,425		$	58	$	528,373		$	(33,918	)	$	−		$	(146,187	)	$	−		$	348,326

	Common Stock
	Shares			Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Distributions in Excess of Earnings			Total Stockholders’ Equity			Comprehensive (Loss)/Income
Balance, January 1, 2009		25,344,867		$	26		$	356,103		$	(80,707	)	$	−		$	(89,117	)	$	186,305
Proceeds from common stock offering		10,294,455			10			46,315			−			−			−			46,325
Proceeds from dividend reinvestment and stock purchase plan		1,895,043			1			8,994			−			−			−			8,995
Offering costs		−			−			(2,964	)		−			−			−			(2,964	)
Repurchase and retirement of treasury shares		(1,400,000	)		(1	)		(5,038	)		−			−			−			(5,039	)
Stock based compensation		419,563						867			−			−			−			867
Amortization of stock based compensation		−			−			1,240			−			−			−			1,240
Forfeiture of unvested stock		(8,191	)		−			−			−			−			−			−
Net income		−			−			−			−			6,339			−			6,339		$	6,339
Securities available-for-sale, fair value adjustment, net		−			−			−			(729	)		−			−			(729	)		(729	)
Designated derivatives, fair value adjustment		−			−			−			19,282			−			−			19,282			19,282
Distributions on common stock		−			−			−			−			(6,339	)		(25,452	)		(31,791	)
Comprehensive income		−			−			−			−			−			−			−		$	24,892
Balance, January 1, 2010		36,545,737		$	36		$	405,517		$	(62,154	)	$	−		$	(114,569	)	$	228,830
Proceeds from dividend reinvestment and stock purchase plan		12,422,956			12			76,797			−			−			−			76,809
Proceeds from common stock offering		8,625,000			9			45,273			−			−			−			45,282
Offering costs		−			−			(2,875	)		−			−			−			(2,875	)
Stock based compensation		589,732			1			1,440			−			−			−			1,441
Amortization of stock based compensation		−			−			2,221			−			−			−			2,221
Net income		−			−			−			−			19,447			−			19,447		$	19,447
Securities available-for-sale, fair value adjustment, net		−			−			−			28,329			−			−			28,329			28,329
Designated derivatives, fair value adjustment		−			−			−			(93	)		−			−			(93	)		(93	)
Distributions on common stock		−			−			−			−			(19,447	)		(31,618	)		(51,065	)
Comprehensive income		−			−			−			−			−			−			−		$	47,683
Balance, January 1, 2011		58,183,425		$	58		$	528,373		$	(33,918	)	$	−		$	(146,187	)	$	348,326
Proceeds from dividend reinvestment and stock purchase plan		13,511,300			14			83,561			−			−			−			83,575
Proceeds from common stock offering		6,900,000			7			47,603			−			−			−			47,610
Offering costs		−						(1,274	)		−			−			−			(1,274	)
Related party debt forgiveness		−			−			(1,552	)		−			−						(1,552	)
Stock based compensation		1,286,593			1			463			−			−			−			464
Amortization of stock based compensation		−						2,526			−			−			−			2,526
Forfeitures		(3,802	)		−			−			−			−			−			−
Net income		−			−			−			−			37,716			−			37,716		$	37,716
Securities available-for-sale, fair value adjustment, net		−			−			−			(12,718	)		−			−			(12,718	)		(12,718	)
Designated derivatives, fair vaule adjustment		−			−			−			309			−			−			309			309
Distributions on common stock		−			−			−			−			(37,716	)		(37,576	)		(75,292	)
Comprehensive income		−			−			−			−			−			−			−		$	25,307
Balance, December 31, 2011		79,877,516		$	80		$	659,700		$	(46,327	)	$	−		$	(183,763	)	$	429,690

Category		Term
Building		25 – 40 years
Site improvements		Lesser of the remaining life of building or useful life

	Years Ended December 31,
	2011			2010			2009
Non-cash investing activities include the following:
Transfer of lease receivables	$	−		$	−		$	89,763
Acquisition of lease receivables	$	−		$	(100,305	)	$	−
Contribution of lease receivables and other assets	$	117,840		$	−		$	−
Conversion of equity in LEAF Funding 3 to preferred stock and warrants	$	(21,000	)	$	−		$	−
Increase in bank loan investments	$	−		$	−		$	1,148
Decrease in bank loan investments	$	−		$	−		$	(1,148	)
Net purchase of loans on warehouse line	$	(52,735	)	$	−		$	−
Loans, pledged as collateral	$	−		$	(4,444	)	$	−
Property available-for-sale	$	−		$	4,444		$	−
Acquisition of real estate investments	$	(33,073	)	$	−		$	−
Conversion of loans to investment in real estate	$	34,550		$	−		$	−
Conversion of PIK interest in securities available-for-sale	$	2,364		$	−		$	−

Non-cash financing activities include the following:
Distributions on common stock declared but not paid	$	19,979		$	14,555		$	9,170
Issuance of restricted stock	$	1,203		$	338		$	242
Transfer of secured term facility	$	−		$	−		$	(82,319	)
Assumption of equipment-backed securitized notes	$	−		$	112,223		$	−
Settlement of a secured term facility	$	−		$	(6,131	)	$	−
Settlement of debt issuance costs	$	−		$	(1,012	)	$	−
Contribution of equipment-backed securitized notes and other liability	$	(96,840	)	$	−		$	−
Acquisition of loans on warehouse line	$	52,735		$	−		$	−

	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2011:
CMBS	$	161,512	$	1,192	$	(29,884	)	$	132,820
ABS		28,513		215		(3,527	)		25,201
Other asset-backed		−		23		−			23
Total	$	190,025	$	1,430	$	(33,411	)	$	158,044

December 31, 2010:
CMBS	$	83,223	$	7,292	$	(26,578	)	$	63,937
ABS		−		−		−			−
Other asset-backed		−		23		−			23
Total	$	83,223	$	7,315	$	(26,578	)	$	63,960

	Amortized Cost (2)		Unrealized Gains		Unrealized Losses			Fair Value (1)
December 31, 2010:
Commercial mortgage-backed securities	$	83,223	$	7,292	$	(26,578	)	$	63,937
Other asset-backed		−		23		−			23
Total	$	83,223	$	7,315	$	(26,578	)	$	63,960

December 31, 2009:
Commercial mortgage-backed securities	$	92,110	$	2,622	$	(50,214	)	$	44,518
Other asset-backed		24		−		−			24
Total	$	92,134	$	2,622	$	(50,214	)	$	44,542

Weighted Average Life	Fair Value			Amortized Cost		Weighted Average Coupon		Fair Value			Amortized Cost		Weighted Average Coupon
December 31, 2010:
December 31, 2011:
Less than one year								$	61,137	(1)	$	65,485		2.73%
Greater than one year and less than five years									69,376			91,826		4.75%
Greater than five years									25,596			29,527		3.90%
Greater than ten years									1,935			3,187		3.84%
Total								$	158,044		$	190,025		3.82%

December 31, 2010:
Less than one year	$	3,264	(1)	$	6,911		1.51%	$	3,264	(2)	$	6,911		1.51%
Greater than one year and less than five years		29,004			46,138		3.45%		29,004			46,138		3.45%
Greater than five years		31,692			30,174		5.64%		31,692			30,174		5.64%
Total	$	63,960		$	83,223		4.08%	$	63,960		$	83,223		4.08%

December 31, 2009:
Less than one year	$	7,503		$	20,043		1.50%
Greater than one year and less than five years		4,346			12,728		2.24%
Greater than five years		32,693			59,363		5.76%
Total	$	44,542		$	92,134		4.35%

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
December 31, 2011:
CMBS	$	99,974	$	(17,096	)	$	8,281	$	(12,788	)	$	108,255	$	(29,884	)
ABS		13,583		(935	)		4,473		(2,592	)		18,056		(3,527	)
Total temporarily impaired securities	$	113,557	$	(18,031	)	$	12,754	$	(15,380	)	$	126,311	$	(33,411	)

December 31, 2010:
CMBS	$	10,134	$	(4,383	)	$	8,302	$	(22,195	)	$	18,436	$	(26,578	)
ABS		−		−			−		−			−		−
Total temporarily impaired securities	$	10,134	$	(4,383	)	$	8,302	$	(22,195	)	$	18,436	$	(26,578	)

Contractual Life	Fair Value		Amortized Cost		Weighted Average Coupon
December 31, 2010:
Greater than one year and less than five years	$	4,830	$	5,000		6.14%
Greater than five years and less than ten years		15,073		15,891		1.97%
Greater than ten years		6,038		8,145		4.11%
Total	$	25,941	$	29,036

December 31, 2009:
Greater than five years and less than ten years	$	15,628	$	19,667		3.06%
Greater than ten years		5,692		11,734		4.14%
Total	$	21,320	$	31,401

	As of December 31, 2011
	Book Value			Number of Properties
Multi-family property	$	38,577			2
Office property		10,149			1
Subtotal		48,726
Less: Accumulated depreciation		(699	)
Investments in real estate	$	48,027

Loan Description	Principal			Unamortized (Discount) Premium (1)			Carrying Value (2)			Principal			Unamortized (Discount) Premium (1)			Carrying Value (2)
December 31, 2010:
December 31, 2011:
Bank loans (3)	$	887,667		$	(27,204	)	$	860,463		$	1,205,826		$	(32,073	)	$	1,173,753
Commercial real estate loans:
Whole loans		441,706			(334	)		441,372			545,828			(1,155	)		544,673
B notes		57,613			(162	)		57,451			16,579			(144	)		16,435
Mezzanine loans (3)		146,668			143			146,811			67,842			32			67,874
Total commercial real estate loans		645,987			(353	)		645,634			630,249			(1,267	)		628,982
Subtotal loans before allowances		1,533,654			(27,557	)		1,506,097			1,836,075			(33,340	)		1,802,735
Allowance for loan loss		(34,233	)		−			(34,233	)		(27,518	)		−			(27,518	)
Total	$	1,499,421		$	(27,557	)	$	1,471,864		$	1,808,557		$	(33,340	)	$	1,775,217

December 31, 2009:
December 31, 2010:
Bank loans (3)	$	893,183		$	(27,931	)	$	865,252		$	887,667		$	(27,204	)	$	860,463
Commercial real estate loans:
Whole loans		484,464			(929	)		483,535			441,706			(334	)		441,372
B notes		81,450			6			81,456			57,613			(162	)		57,451
Mezzanine loans		182,523			163			182,686
Mezzanine loans (3)											146,668			143			146,811
Total commercial real estate loans		748,437			(760	)		747,677			645,987			(353	)		645,634
Subtotal loans before allowances		1,641,620			(28,691	)		1,612,929			1,533,654			(27,557	)		1,506,097
Allowance for loan loss		(47,122	)		−			(47,122	)		(34,233	)		−			(34,233	)
Total	$	1,594,498		$	(28,691	)	$	1,565,807		$	1,499,421		$	(27,557	)	$	1,471,864