exv99w3

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following table contains information about our cash held in money market accounts, principal amounts outstanding on loans held in our portfolio, principal amounts payable on senior indebtedness relating to loans and long-term debt secured by real estate owned and the principal amount outstanding on our lines of credit and credit facility as of December 31, 2005. The presentation, for each category of information, includes the assets and liabilities by their maturity dates for maturities occurring in each of the years 2006 through 2010 and the aggregate of each category maturing thereafter. None of these instruments has been entered into for trading purposes.


	2006			2007			2008			2009			2010			Thereafter			Total
Interest earning assets:
Money market accounts	$	71,419,877																	$	71,419,877
Average interest rate		3.75	%																	3.75	%
Fixed rate first mortgages		185,325,794			62,811,626			—			—			—			—			248,137,420
Average interest rate		8.1	%		8.2	%		—			—			—			—			8.1	%
Variable rate first mortgages		65,273,871			36,820,559			73,866,426												175,960,856
Average interest rate		8.5	%		9.2	%		8.5	%											8.6	%
Fixed rate mezzanine loans		64,167,600			19,133,475			8,084,002			17,026,986			9,277,768			147,610,183			265,300,014
Average interest rate		13.5	%		13.1	%		11.9	%		13.0	%		12.3	%		11.8	%		12.4	%
Variable rate mezzanine loans		—			15,858,706			10,000,000												25,858,706
Average interest rate		—			10.4	%		9.7	%											10.1	%
Interest bearing liabilities:
Fixed rate senior indebtedness related to loans		19,000,000			35,000,000			—			—			—			—			54,000,000
Average interest rate		4.9	%		6.0	%		—			—			—			—			5.6	%
Variable rate senior indebtedness related to loans		7,500,000			5,000,000			—												12,500,000
Average interest rate		7.1	%		6.5	%		—												6.9	%
Long-term debt secured by consolidated real estate interests		186,498			198,066			1,086,118			191,497			202,924			8,253,408			8,118,511
Average interest rate		6.9	%		6.9	%		7.4	%		5.7	%		5.7	%		5.7	%		6.9	%
Unsecured credit facility		—			—			240,000,000			—			—			—			240,000,000
Average interest rate		—			—			6.2	%		—			—			—			6.2	%
Secured lines of credit		22,400,000			—			—			—			—						22,400,000
Average interest rate		6.6	%		—			—			—			—						6.6	%

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, equity prices and real estate values. At December 31, 2005, $513.4 million of our real estate loans were at fixed rates. At December 31, 2005, our credit facility, lines of credit and credit lines and $12.6 million of the senior indebtedness related to our loans were subject to floating interest rates. As a result, our primary market risk exposure is the effect of changes in interest rates on the interest cost of outstanding draws on our lines of credit and floating-rate borrowings. From time to time, we may enter into interest rate swap agreements for our floating rate debt to manage our interest rate risk.

Changes in interest rates may also affect the value of our investments and the rates at which we reinvest funds obtained from loan repayments. As interest rates increase, although the interest rates we obtain from reinvested funds will generally increase, the value of our existing loans at fixed rates will generally tend to decrease. As interest rates decrease, the amounts available to us for investment from repayment of our loans may be re-invested at lower rates than we had obtained on the repaid loans. However, the value of our fixed rate investments will generally increase as interest rates decrease. We may have some market risk exposure relating to the effect of changes in interest rates on our loans that have floating rates.

Under current market conditions, we do not believe that our risk of material potential losses in future earnings, fair values and/or

cash flows from near-term changes in market rates that we consider reasonably possible is material.

The following tables describe the carrying amounts and fair value estimates of our fixed and variable rate real estate loans, fixed and variable rate senior indebtedness relating to loans and long term debt secured by consolidated real estate interests as of December 31, 2005 and 2004. These accounts have been valued by computing the present value of expected future cash in-flows or out-flows, using a discount rate that is equivalent to the estimated current market rate for each asset or liability, adjusted for credit risk.

For cash and cash equivalents, the book value of $71.6 million and $11.0 million as of December 31, 2005 and 2004, respectively, approximated fair value. The book value of restricted cash of $20.9 million and $22.9 million approximated fair value at December 31, 2005 and 2004, respectively. The book value of the unsecured line of credit ($240.0 million at December 31, 2005) and of the aggregate outstanding balance of the secured lines of credit of $22.4 million and $49.0 million at December 31, 2005 and 2004, respectively, approximated the fair value of the amounts outstanding.


	At December 31, 2005
	Carrying		Estimated		Discount
	Amount		Fair Value		Rate
Fixed rate first mortgages	$	248,137,000	$	249,200,000		7.75	%
Variable rate first mortgages		175,961,000		178,713,000		7.75	%
Fixed rate mezzanine loans		265,300,000		282,551,000		10.0	%
Variable rate mezzanine loans		25,859,000		25,903,000		10.0	%
Fixed rate senior indebtedness relating to loans		54,000,000		53,885,000		5.9	%
Variable rate senior indebtedness relating to loans		12,500,000		12,644,000		5.9	%
Long-term debt secured by consolidated real estate interests		8,119,000		7,802,000		6.75	%


	At December 31, 2004
	Carrying		Estimated		Discount
	Amount		Fair Value		Rate
Fixed rate first mortgages	$	196,561,000	$	198,049,000		8.5	%
Variable rate first mortgages		37,270,000		37,107,000		7.5	%
Mezzanine loans		257,478,000		257,930,000		12.5	%
Fixed rate senior indebtedness relating to loans		31,165,000		31,973,000		5.25	%
Variable rate senior indebtedness relating to loans		20,140,000		20,116,000		5.25	%
Long-term debt secured by consolidated real estate interests		8,294,000		8,290,000		5.9	%

Our fixed rate interest earning assets increased $59.4 million from December 31, 2004 to December 31, 2005, and our variable rate interest earning assets increased $164.6 million for that same period. Our variable rate interest bearing liabilities increased $205.8 million from December 31, 2004 to December 31, 2005. As discussed above in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” the reasons for these increases are the continued growth of our core business of making mezzanine and bridge loans from 2004 to 2005 and our increased use of leverage from 2004 to 2005.