10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

or

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

For the transition period from              to             

Commission file number 1-14760

RAIT FINANCIAL TRUST

(Exact name of registrant as specified in its charter)

Maryland	23-2919819
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2929 Arch Street, 17th Floor, Philadelphia, PA	19104
(Address of principal executive offices)	(Zip Code)

(215) 243-9000

(Registrant’s telephone number, including area code)

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

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

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

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

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

A total of 38,425,188 common shares of beneficial interest, par value $0.03 per share, of the registrant were outstanding as of August 3, 2011.

RAIT FINANCIAL TRUST

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		1
	Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010		2
	Consolidated Statements of Comprehensive Income (Loss) for the Three-Month and Six-Month Periods Ended June 30, 2011 and 2010		3
	Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2011 and 2010		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		41
Item 4.	Controls and Procedures		41
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		42
Item 1A.	Risk Factors		42
Item 6.	Exhibits		42
	Signatures		43

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RAIT Financial Trust

Consolidated Balance Sheets

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

	As of June 30, 2011			As of December 31, 2010
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,165,163		$	1,219,110
Allowance for losses		(57,866	)		(69,691	)
Total investments in mortgages and loans		1,107,297			1,149,419
Investments in real estate		861,810			841,488
Investments in securities and security-related receivables, at fair value		717,975			705,451
Cash and cash equivalents		24,639			27,230
Restricted cash		188,688			176,723
Accrued interest receivable		39,582			37,138
Other assets		42,362			32,840
Deferred financing costs, net of accumulated amortization of $11,154 and $9,943, respectively		22,430			19,954
Intangible assets, net of accumulated amortization of $2,057 and $1,777, respectively		2,909			3,189
Total assets	$	3,007,692		$	2,993,432
Liabilities and Equity
Indebtedness (including $145,041 and $152,494 at fair value, respectively)	$	1,816,225		$	1,838,177
Accrued interest payable		21,715			19,925
Accounts payable and accrued expenses		24,620			25,089
Derivative liabilities		177,353			184,878
Deferred taxes, borrowers’ escrows and other liabilities		25,304			6,833
Total liabilities		2,065,217			2,074,902
Equity:
Shareholders’ equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized;
7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,760,000 shares issued and outstanding		28			28
8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,258,300 shares issued and outstanding		23			23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 1,600,000 shares issued and outstanding		16			16
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 38,197,648 and 35,300,190 issued and outstanding		1,149			1,060
Additional paid in capital		1,722,797			1,691,681
Accumulated other comprehensive income (loss)		(118,485	)		(127,602	)
Retained earnings (deficit)		(666,952	)		(647,110	)
Total shareholders’ equity		938,576			918,096
Noncontrolling interests		3,899			434
Total equity		942,475			918,530
Total liabilities and equity	$	3,007,692		$	2,993,432

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

1

RAIT Financial Trust

Consolidated Statements of Operations

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

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
	2011			2010			2011			2010
Revenue:
Interest income	$	34,483		$	39,173		$	68,041		$	80,503
Rental income		22,138			17,685			43,428			33,760
Fee and other income		2,242			3,512			5,673			12,351
Total revenue		58,863			60,370			117,142			126,614
Expenses:
Interest expense		22,328			24,662			45,695			50,132
Real estate operating expense		13,791			13,399			26,408			23,921
Compensation expense		5,737			6,886			12,281			14,938
General and administrative expense		4,431			5,367			9,399			10,257
Provision for losses		950			7,644			2,900			24,994
Depreciation and amortization expense		7,249			7,013			14,368			13,196
Total expenses		54,486			64,971			111,051			137,438
Operating Income		4,377			(4,601	)		6,091			(10,824	)
Interest and other income (expense)		67			277			150			359
Gains (losses) on sale of assets		564			7,692			1,979			11,616
Gains (losses) on extinguishment of debt		3,706			17,202			3,169			37,012
Change in fair value of financial instruments		(25,727	)		4,446			(20,116	)		20,883
Income (loss) before taxes and discontinued operations		(17,013	)		25,016			(8,727	)		59,046
Income tax benefit (provision)		256			(96	)		310			(143	)
Income (loss) from continuing operations		(16,757	)		24,920			(8,417	)		58,903
Income (loss) from discontinued operations		6			456			797			926
Net income (loss)		(16,751	)		25,376			(7,620	)		59,829
(Income) loss allocated to preferred shares		(3,414	)		(3,415	)		(6,828	)		(6,821	)
(Income) loss allocated to noncontrolling interests		67			358			117			593
Net income (loss) allocable to common shares	$	(20,098	)	$	22,319		$	(14,331	)	$	53,601
Earnings (loss) per share—Basic:
Continuing operations	$	(0.53	)	$	0.81		$	(0.40	)	$	2.03
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Basic	$	(0.53	)	$	0.83		$	(0.38	)	$	2.07
Weighted-average shares outstanding—Basic		38,055,234			26,780,234			37,340,755			25,887,140
Earnings (loss) per share—Diluted:
Continuing operations	$	(0.53	)	$	0.79		$	(0.40	)	$	2.00
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Diluted	$	(0.53	)	$	0.81		$	(0.38	)	$	2.04
Weighted-average shares outstanding—Diluted		38,055,234			27,420,302			37,340,755			26,261,594
Distributions declared per common share	$	0.06		$	0.00		$	0.15		$	0.00

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

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RAIT Financial Trust

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited and dollars in thousands)

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
	2011			2010			2011			2010
Net income (loss)	$	(16,751	)	$	25,376		$	(7,620	)	$	59,829
Other comprehensive income (loss):
Change in fair value of interest rate hedges		(15,246	)		(27,473	)		(13,194	)		(42,703	)
Reclassification adjustments associated with unrealized losses (gains) from interest rate hedges included in net income (loss)		(8	)		(51	)		(8	)		(38	)
Realized (gains) losses on interest rate hedges reclassified to earnings		11,247			11,546			22,136			23,271
Change in fair value of available-for-sale securities		36			(841	)		183			(4,975	)
Total other comprehensive income (loss)		(3,971	)		(16,819	)		9,117			(24,445	)
Comprehensive income (loss) before allocation to noncontrolling interests		(20,722	)		8,557			1,497			35,384
Allocation to noncontrolling interests		67			358			117			593
Comprehensive income (loss)	$	(20,655	)	$	8,915		$	1,614		$	35,977

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

3

RAIT Financial Trust

Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)

	For the Six-Month Periods Ended June 30
	2011			2010
Operating activities:
Net income (loss)	$	(7,620	)	$	59,829
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for losses		2,900			24,994
Share-based compensation expense		317			2,292
Depreciation and amortization		14,368			14,421
Amortization of deferred financing costs and debt discounts		2,191			1,191
Accretion of discounts on investments		(1,276	)		(2,732	)
(Gains) losses on sales of assets		(1,979	)		(11,882	)
(Gains) losses on extinguishment of debt		(3,169	)		(37,012	)
Change in fair value of financial instruments		20,116			(20,883	)
Unrealized gains (losses) on interest rate hedges		(8	)		(38	)
Equity in (income) loss of equity method investments		0			(4	)
Unrealized foreign currency (gains) losses on investments		0			(189	)
Changes in assets and liabilities:
Accrued interest receivable		(2,736	)		1,554
Other assets		(7,724	)		1,947
Accrued interest payable		(20,965	)		(20,363	)
Accounts payable and accrued expenses		264			(4,645	)
Deferred taxes, borrowers’ escrows and other liabilities		5,283			(5,641	)
Cash flow from operating activities		(38	)		2,839
Investing activities:
Proceeds from sales of other securities		9,985			14,626
Purchase and origination of loans for investment		(57,553	)		(17,574	)
Principal repayments on loans		50,814			22,465
Investments in real estate		(24,808	)		(9,161	)
Proceeds from dispositions of real estate		65,750			5,124
Acquisition of Independence Realty Trust, Inc. and associated entities		(2,578	)		0
Proceeds from sale of collateral management rights		0			14,106
(Increase) Decrease in restricted cash		(31,310	)		4,438
Cash flow from investing activities		10,300			34,024
Financing activities:
Repayments on secured credit facilities and loans payable on real estate		(29,719	)		(11,599	)
Proceeds from loans payable on real estate		37,400			0
Repayments and repurchase of CDO notes payable		(20,913	)		(8,172	)
Proceeds from issuance of 7.0% convertible senior notes		115,000			0
Repayments and repurchase of 6.875% convertible senior notes		(119,320	)		(10,512	)
Issuance (acquisition) of noncontrolling interests		3,582			(46	)
Payments for deferred costs		(6,710	)		(187	)
Common share issuance, net of costs incurred		17,874			4,384
Distributions paid to preferred shares		(6,828	)		(6,821	)
Distributions paid to common shares		(3,219	)		0
Cash flow from financing activities		(12,853	)		(32,953	)
Net change in cash and cash equivalents		(2,591	)		3,910
Cash and cash equivalents at the beginning of the period		27,230			25,034
Cash and cash equivalents at the end of the period	$	24,639		$	28,944
Supplemental cash flow information:
Cash paid for interest	$	18,624		$	23,084
Cash paid (refunds received) for taxes		51			(1,781	)
Non-cash increase in investments in real estate from the conversion of loans		78,300			52,687
Non-cash decrease in indebtedness from conversion to shares or debt extinguishments		(5,788	)		(24,530	)

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

4

RAIT Financial Trust

Notes to Consolidated Financial Statements

As of June 30, 2011

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

NOTE 1: THE COMPANY

RAIT Financial Trust invests in and manages a portfolio of real-estate related assets, including direct ownership of real estate properties, and provides a comprehensive set of debt financing options to the real estate industry. References to “RAIT”, “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. We conduct our business through our subsidiaries, RAIT Partnership, L.P. and Taberna Realty Finance Trust, or Taberna, as well as through their respective subsidiaries. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT. Taberna is also a Maryland REIT.

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

We are subject to significant competition in all aspects of our business. Existing industry participants and potential new entrants compete with us for the available supply of investments suitable for origination or acquisition, as well as for debt and equity capital. We compete with many third parties engaged in real estate finance and investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

Certain prior period amounts have been reclassified to conform with the current period presentation. Previously, interest expense was included as part of net interest margin within total revenue. We have now classified interest expense as a component of expenses. Additionally, interest expense associated with third party financing provided on our owned real estate is included in interest expense whereas previously it was reflected within property operating expenses.

b. Principles of Consolidation

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

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

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c. Use of Estimates

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

d. Investments in Loans

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

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

We maintain an allowance for losses on our investments in commercial mortgages, mezzanine loans and other loans. Management’s periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. Management reviews loans for impairment and establishes specific reserves when a loss is probable and reasonably estimable under the provisions of FASB ASC Topic 310, “Receivables.” As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower’s financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, “Contingencies.” Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off impaired loans when the investment is no longer realizable and legally discharged.

f. Investments in Real Estate

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

We acquire real estate assets either directly or through the conversion of our investments in loans into owned real estate. Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, “Business Combinations.” Fair value is determined by management based on market conditions and inputs at the time the asset is acquired. All expenses incurred to acquire a real estate asset are expensed as incurred.

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

g. Investments in Securities

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

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

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

h. Revenue Recognition

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

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

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

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

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

3) Fee and other income—We generate fee and other income through our various subsidiaries by (a) providing ongoing asset management services to investment portfolios under cancelable management agreements, (b) providing or arranging to provide financing to our borrowers, (c) providing property management services to third parties, and (d) providing fixed income trading and advisory services to our customers. We recognize revenue for these activities when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably assured and the services under the arrangement have been provided. While we may receive asset management fees when they are earned, we eliminate earned asset management fee income from CDOs while such CDOs are consolidated.

During the three-month periods ended June 30, 2011 and 2010, we received $1,302 and $1,432, respectively, of earned asset management fees associated with consolidated CDOs, of which we eliminated $924 and $967, respectively, of management fee income.

During the six-month periods ended June 30, 2011 and 2010, we received $2,600 and $5,104, respectively, of earned asset management fees associated with consolidated CDOs, of which we eliminated $1,883 and $1,983, respectively, of management fee income.

i. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where

7

observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

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

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

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

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

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

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

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

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

j. Income Taxes

RAIT and Taberna have each elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Accordingly, we generally will not be subject to U.S. federal income tax to the extent of our distributions to shareholders and as long as certain asset, income and share ownership tests are met. If we were to fail

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to meet these requirements, we would be subject to U.S. federal income tax, which could have a material adverse impact on our results of operations and amounts available for distributions to our shareholders. Management believes that all of the criteria to maintain RAIT’s and Taberna’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

We maintain various taxable REIT subsidiaries, or TRSs, which may be subject to U.S. federal, state and local income taxes and foreign taxes. Current and deferred taxes are provided on the portion of earnings (losses) recognized by us with respect to our interest in domestic TRSs. Deferred income tax assets and liabilities are computed based on temporary differences between our GAAP consolidated financial statements and the federal and state income tax basis of assets and liabilities as of the consolidated balance sheet date. We evaluate the realizability of our deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognize a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of our deferred tax assets will not be realized. When evaluating the realizability of our deferred tax assets, we consider estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires management to forecast our business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in income tax expense on the consolidated statements of operations.

From time to time, our TRSs generate taxable income from intercompany transactions. The TRS entities generate taxable revenue from fees for services provided to CDO entities. Some of these fees paid to the TRS entities are capitalized as deferred financing costs by the CDO entities. Certain CDO entities may be consolidated in our financial statements pursuant to FASB ASC Topic 810, “Consolidation.” In consolidation, these fees are eliminated when the CDO entity is included in the consolidated group. Nonetheless, all income taxes are accrued by the TRSs in the year in which the taxable revenue is received. These income taxes are not eliminated when the related revenue is eliminated in consolidation.

Certain TRS entities are domiciled in the Cayman Islands and, accordingly, taxable income generated by these entities may not be subject to local income taxation, but generally will be included in our taxable income on a current basis, whether or not distributed. Upon distribution of any previously included income, no incremental U.S. federal, state, or local income taxes would be payable by us.

The TRS entities may be subject to tax laws that are complex and potentially subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We review the tax balances of our TRS entities quarterly and as new information becomes available, the balances are adjusted as appropriate.

k. Recent Accounting Pronouncements

On January 1, 2010, we adopted Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” This accounting standard requires new disclosures for significant transfers in and out of Level 1 and 2 fair value measurements and a description of the reasons for the transfer. This accounting standard also updates existing disclosures by providing fair value measurement disclosures for each class of assets and liabilities and provides disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. For Level 3 fair value measurements, new disclosures will require entities to present information separately for purchases, sales, issuances, and settlements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not have a material effect on our consolidated financial.

On January 1, 2011, we adopted ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” This accounting standard requires that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This accounting standard also expands the supplemental pro forma disclosures under FASB ASU Topic 805, “Business Combinations” to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The adoption of this standard did not have a material effect on our consolidated financial statements.

In April 2011, the FASB issued accounting standards classified under FASB ASC Topic 310, “Receivables”. This accounting standard amends existing guidance to provide additional guidance on the determination of whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. This standard is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

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NOTE 3: INVESTMENTS IN LOANS

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

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of June 30, 2011:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	689,624		$	(4,021	)	$	685,603			42		6.7	%	Aug. 2011 to May 2021
Mezzanine loans		358,797			(5,292	)		353,505			99		9.2	%	Aug. 2011 to Nov. 2038
Preferred equity interests		74,477			(1,148	)		73,329			22		10.3	%	Nov. 2011 to Aug. 2025
Total CRE Loans		1,122,898			(10,461	)		1,112,437			163		7.7	%
Other loans		54,842			(707	)		54,135			4		6.4	%	Aug. 2011 to Oct. 2016
Total Loans	$	1,177,740		$	(11,168	)	$	1,166,572			167		7.7	%
Deferred fees		(1,409	)		0			(1,409	)
Total investments in loans	$	1,176,331		$	(11,168	)	$	1,165,163

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

In July 2011, we negotiated an agreement to sell $60.9 million in principal amount commercial mortgages to a CMBS securitization. We expect the sale to close during the three month period ended September 30, 2011.

During the six-month periods ended June 30, 2011 and 2010, we completed the conversion of three and five commercial real estate loans with a carrying value of $85,388 and $64,048 to real estate owned properties. During the six-month periods ended June 30, 2011 and 2010, we charged off $7,088 and $11,361, respectively, related to the conversion of commercial real estate loans to owned properties. See Note 5.

The following table summarizes the delinquency statistics of our commercial real estate loans as of June 30, 2011 and December 31, 2010:

Delinquency Status	As of June 30, 2011		As of December 31, 2010
30 to 59 days	$	1,230	$	27,978
60 to 89 days		0		0
90 days or more		52,434		55,450
In foreclosure or bankruptcy proceedings		41,084		46,578
Total	$	94,748	$	130,006

As of June 30, 2011 and December 31, 2010, approximately $94,117 and $122,306, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 9.7% and 8.8%, respectively. As of June 30, 2011 and December 31, 2010, approximately $19,500 and $20,908 of other loans were on non-accrual status and had a weighted-average interest rate of 7.2%.

Allowance For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the three-month periods ended June 30, 2011 and 2010:

	For the Three-Month Period Ended June 30, 2011			For the Three-Month Period Ended June 30, 2010
Beginning balance	$	66,769		$	76,823
Provision		950			7,644
Charge-offs, net of recoveries		(9,853	)		(5,795	)
Ending balance	$	57,866		$	78,672

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The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the six-month periods ended June 30, 2011 and 2010:

	For the Six-Month Period Ended June 30, 2011			For the Six-Month Period Ended June 30, 2010
Beginning balance	$	69,691		$	86,609
Provision		2,900			24,994
Charge-offs, net of recoveries		(14,725	)		(32,931	)
Ending balance	$	57,866		$	78,672

As of June 30, 2011 and December 31, 2010, we identified 22 and 27 commercial mortgages, mezzanine loans and other loans with unpaid principal balances of $115,857 and $157,746 as impaired.

The average unpaid principal balance of total impaired loans was $130,062 and $184,925 during the three-month periods ended June 30, 2011 and 2010 and $139,290 and $180,654 during the six-month periods ended June 30, 2011 and 2010. We recorded interest income from impaired loans of $18 and $1,178 for the three-month periods ended June 30, 2011 and 2010 and $524 and $2,492 for the six-month periods ended June 30, 2011 and 2010.

NOTE 4: INVESTMENTS IN SECURITIES

Our investments in securities and security-related receivables are accounted for at fair value. The following table summarizes our investments in securities as of June 30, 2011:

Investment Description	Amortized Cost		Net Fair Value Adjustments			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS	$	690,501	$	(222,129	)	$	468,372		4.8	%		23.3
Other securities		10,000		(10,000	)		0		4.8	%		41.4
Total trading securities		700,501		(232,129	)		468,372		4.8	%		23.5
Available-for-sale securities		3,600		(3,598	)		2		2.1	%		31.4
Security-related receivables
TruPS receivables		111,199		(28,310	)		82,889		6.9	%		11.5
Unsecured REIT note receivables		61,000		4,323			65,323		6.6	%		6.2
CMBS receivables (2)		153,868		(75,891	)		77,977		5.7	%		32.5
Other securities		75,767		(52,355	)		23,412		3.3	%		30.7
Total security-related receivables		401,834		(152,233	)		249,601		5.7	%		22.3
Total investments in securities	$	1,105,935	$	(387,960	)	$	717,975		5.1	%		23.2

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

(2) CMBS receivables include securities with a fair value totaling $22,142 that are rated between “AAA” and “A-” by Standard & Poor’s, securities with a fair value totaling $45,297 that are rated “BBB+” and “B-” by Standard & Poor’s, securities with a fair value totaling $8,647 that are rated “CCC” by Standard & Poor’s and securities with a fair value totaling $1,891 that are rated “D” by Standard & Poor’s.

A substantial portion of our gross unrealized losses is greater than 12 months.

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

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

	As of June 30, 2011							As of December 31, 2010
	Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value		Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value
TruPS and TruPS receivables	$	128,682		3.9	%	$	2,935	$	133,682		4.1	%	$	5,581
Other securities		32,335		3.2	%		2		42,754		2.8	%		976
CMBS receivables		24,408		5.9	%		5,393		29,204		5.9	%		975

The assets of our consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of June 30, 2011 and December 31, 2010, investment in securities of $801,700 and $806,700, respectively, in principal amount of TruPS and subordinated debentures, and $214,868 and $219,868, respectively, in principal amount of unsecured REIT note receivables and CMBS receivables, collateralized the consolidated CDO notes payable of such entities.

NOTE 5: INVESTMENTS IN REAL ESTATE

The table below summarizes our investments in real estate:

	As of June 30, 2011					As of December 31, 2010
	Book Value			Number of Properties		Book Value			Number of Properties
Multi-family real estate properties	$	590,280			33	$	602,183			33
Office real estate properties		247,413			10		219,567			9
Retail real estate properties		48,243			2		41,838			2
Parcels of land		22,208			3		22,208			3
Subtotal		908,144			48		885,796			47
Plus: Escrows and reserves		9,894					2,296
Less: Accumulated depreciation and amortization		(56,228	)				(46,604	)
Investments in real estate	$	861,810				$	841,488

As of June 30, 2011, our investments in real estate of $908,144 are financed through $99,305 of mortgages held by third parties and $767,598 of mortgages held by our consolidated securitizations. Together, along with commercial real estate loans held by these securitizations, these mortgages serve as collateral for the CDO notes payable issued by our consolidated securitizations. All intercompany balances and interest charges are eliminated in consolidation.

Acquisitions:

During the six-month period ended June 30, 2011, we converted three loans with a carrying value of $85,388, relating to one office property and two multi-family properties, to owned real estate. Upon conversion, we recorded the investment in real estate acquired including any related working capital at fair value of $78,167.

The following table summarizes the aggregate estimated fair value of the assets and liabilities associated with the three properties acquired during the six-month period ended June 30, 2011, on the respective date of each conversion, for the real estate accounted for under FASB ASC Topic 805.

Description	Estimated Fair Value
Assets acquired:
Investments in real estate	$	78,300
Cash and cash equivalents		402
Restricted cash		582
Other assets		137
Total assets acquired		79,421

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Description	Estimated Fair Value
Liabilities assumed:
Accounts payable and accrued expenses		775
Other liabilities		479
Total liabilities assumed		1,254
Estimated fair value of net assets acquired	$	78,167

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

Description	Estimated Fair Value
Fair value of consideration transferred:
Commercial real estate loans	$	78,300
Other considerations		(133	)
Total fair value of consideration transferred	$	78,167

During the six-month period ended June 30, 2011, these investments contributed revenue of $1,620 and a net income allocable to common shares of $751. During the six-month period ended June 30, 2011, we did not incur any third-party acquisition-related costs.

Our consolidated unaudited pro forma information, after including the acquisition of real estate properties, is presented below as if the acquisition occurred on January 1, 2010. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods:

Description	For the Six-Month Period Ended June 30, 2011			For the Six-Month Period Ended June 30, 2010
Total revenue, as reported	$	117,142		$	126,614
Pro forma revenue		119,922			130,960
Net income (loss) allocable to common shares, as reported		(14,331	)		53,601
Pro forma net income (loss) allocable to common shares		(13,536	)		54,741

These amounts have been calculated after adjusting the results of the acquired businesses to reflect the additional depreciation that would have been charged assuming the fair value adjustments to our investments in real estate had been applied from January 1, 2010 together with the consequential tax effects.

We have not yet completed the process of estimating the fair value of assets acquired and liabilities assumed. Accordingly, our preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as we complete the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in our financial statements retrospectively.

Dispositions:

During the six-month period ended June 30, 2011, we sold two multi-family properties for a total purchase price of $67,550. We recorded losses on the sale of these assets of $168.

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NOTE 6: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2011:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	107,064		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		38,813		38,943		6.9	%	Apr. 2027
Secured credit facilities		19,745		19,745		4.5	%	Dec. 2011
Senior secured notes		43,000		43,000		12.5	%	Apr. 2014
Loans payable on real estate		7,183		7,183		5.0	%	Sept. 2013
Junior subordinated notes, at fair value (3)		38,052		4,422		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
Total recourse indebtedness		286,893		245,457		7.4	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		1,337,987		1,337,987		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(4)(6)		1,134,643		140,619		0.9	%	2037 to 2038
Loans payable on real estate		92,144		92,162		5.9	%	Sept. 2011 to Mar. 2018
Total non-recourse indebtedness		2,564,774		1,570,768		0.9	%
Total indebtedness	$	2,851,667	$	1,816,225		1.6	%

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

(2) Our 6.875% convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.

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

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

(5) Collateralized by $1,774,581 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6) Collateralized by $1,279,735 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of June 30, 2011 was $875,526. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

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

The current status or activity in our financing arrangements occurring as of or during the six-month period ended June 30, 2011 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. During the six-month period ended June 30, 2011, we repurchased $104,800 in aggregate principal amount of our 6.875% Convertible Senior Notes due 2027, or the 6.875% convertible senior notes, for an aggregate purchase price of $103,213. As a result of these transactions, we recorded losses on extinguishment of debt of $1,033, net of deferred financing costs and unamortized discounts that were written off.

Our 6.875% convertible senior notes are redeemable, at the option of the holder, in April 2012. We expect to acquire, redeem, refinance or otherwise enter into transactions to satisfy our 6.875% convertible senior notes which may include any combination of payments of cash, issuances of our debt and/or equity securities, sales or exchanges of our assets or other methods.

7.0% convertible senior notes. On March 21, 2011, we issued and sold in a public offering $115,000 aggregate principal amount of our 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $109,000 of net proceeds. Interest on the 7.0% convertible senior notes is paid semi-annually and the 7.0% convertible senior notes mature on April 1, 2031.

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Prior to April 5, 2016, the 7.0% convertible senior notes are not redeemable at RAIT’s option, except to preserve RAIT’s status as a REIT. On or after April 5, 2016, RAIT may redeem all or a portion of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. Holders of 7.0% convertible senior notes may require RAIT to repurchase all or a portion of the 7.0% convertible senior notes at a purchase price equal to the principal amount plus accrued and unpaid interest on April 1, 2016, April 1, 2021, and April 1, 2026, or upon the occurrence of certain defined fundamental changes.

The 7.0% convertible senior notes are convertible at the option of the holder at an initial conversion rate of 130.0559 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to an initial conversion price of $7.69 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. The initial conversion rate is subject to adjustment in certain circumstances. We include the 7.0% convertible senior notes in earnings per share using the treasury stock method if the conversion value in excess of the par amount is considered in the money during the respective periods.

According to FASB ASC Topic 470, “Debt”, we recorded a discount on our issued and outstanding 7.0% convertible senior notes of $8,228. This discount reflects the fair value of the embedded conversion option within the 7.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 7.0% convertible senior notes agreement by a discount rate that represents management’s estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 7.0% convertible senior notes were issued. The discount will be amortized to interest expense through April 1, 2016, the date at which holders of our 7.0% convertible senior notes could require repayment.

Secured credit facility. During the six-month period ending June 30, 2011, we prepaid a $16,160 secured credit facility due to mature in October 2011.

As of June 30, 2011, we have $19,745 outstanding under our remaining secured credit facility, which is payable in December 2011 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

Senior secured notes. During the six-month period ended June 30, 2011, the holder of the 10.0% senior secured convertible note, or the 10.0% senior note, converted $5,250 principal amount of the 10.0% senior note into 1,500,000 common shares. On April 26, 2011, we prepaid the remaining $15,700 principal amount of the 10.0% senior note.

Loans payable on real estate. During the six-month period ended June 30, 2011 we refinanced recourse financing consisting of a first mortgage of $12,500 principal amount with a fixed rate of 5.8%, due in April 2012, that was associated with one of our owned real estate properties with non-recourse financing provided by a consolidated securitization.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their overcollateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2011.

During the six-month period ended June 30, 2011, we repurchased, from the market, a total of $6,700 in aggregate principal amount of CDO notes payable issued by our RAIT II CDO securitization. The aggregate purchase price was $2,499 and we recorded a gain on extinguishment of debt of $4,202, net of deferred financing costs that were written off.

CDO notes payable, at fair value. Both of our Taberna consolidated CDOs are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC tests failures are due to defaulted collateral assets and credit risk securities. During the six-month period ended June 30, 2011, $21,315 of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO notes payable.

Loans payable on real estate. During the six-month period ended June 30, 2011, we obtained a first mortgage on an investment in real estate from the Federal National Mortgage Association that has a principal balance of $13,400, 7 year term, and a 5.12% interest rate and a first mortgage on an investment in real estate from Bank of America that has a principal balance of $24,000, 10 year term, and a 6.09% interest rate.

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NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

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

Cash Flow Hedges

We have entered into various interest rate swap contracts to hedge interest rate exposure on floating rate indebtedness. We designate interest rate hedge agreements at inception and determine whether or not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of June 30, 2011, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of June 30, 2011 and December 31, 2010:

	As of June 30, 2011					As of December 31, 2010
	Notional		Fair Value			Notional		Fair Value
Cash flow hedges:
Interest rate swaps	$	1,751,563	$	(177,353	)	$	1,786,698	$	(184,878	)
Interest rate caps		36,000		1,189			36,000		1,496
Net fair value	$	1,787,563	$	(176,164	)	$	1,822,698	$	(183,382	)

For interest rate swaps that are considered effective hedges, we reclassified realized losses of $11,247 and $11,546 to earnings for the three-month periods ended June 30, 2011 and 2010 and $22,136 and $23,271 for the six-month periods ended June 30, 2011 and 2010. For interest rate swaps that are considered ineffective hedges, we reclassified unrealized gains of $51 to earnings for the three-month period ended June 30, 2010 and $38 for the six-month period ended June 30, 2010.

On January 1, 2008, we adopted the fair value option, which has been classified under FASB ASC Topic 825, “Financial Instruments”, for certain of our CDO notes payable. Upon the adoption of this standard, hedge accounting for any previously designated cash flow hedges associated with these CDO notes payable was discontinued and all changes in fair value of these cash flow hedges are recorded in earnings. As of June 30, 2011, the notional value associated with these cash flow hedges where hedge accounting was discontinued was $967,276 and had a liability balance with a fair value of $88,913. See Note 8: “Fair Value of Financial Instruments” for the changes in value of these hedges during the three-month and six-month periods ended June 30, 2011 and 2010. The change in value of these hedges was recorded as a component of the change in fair value of financial instruments in our consolidated statement of operations.

Amounts reclassified to earnings associated with effective cash flow hedges are reported in interest expense and the fair value of these hedge agreements is included in other assets or derivative liabilities.

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

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

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The following table summarizes the carrying amount and the fair value of our financial instruments as of June 30, 2011:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans and other loans	$	1,165,163	$	1,101,176
Investments in securities and security-related receivables		717,975		717,975
Cash and cash equivalents		24,639		24,639
Restricted cash		188,688		188,688
Derivative assets		1,189		1,189
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		107,088		118,828
6.875% convertible senior notes		38,943		38,896
Secured credit facilities		19,745		19,745
Senior secured notes		43,000		43,000
Junior subordinated notes, at fair value		4,422		4,422
Junior subordinated notes, at amortized cost		25,100		2,917
Loans payable on real estate		7,155		7,155
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,337,987		791,375
CDO notes payable, at fair value		140,619		140,619
Loans payable on real estate		92,166		92,166
Derivative liabilities		177,353		177,353

Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) ) (a)		Balance as of June 30, 2011
Trading securities
TruPS	$	0	$	0	$	468,372	$	468,372
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		82,889		82,889
Unsecured REIT note receivables		0		65,323		0		65,323
CMBS receivables		0		77,977		0		77,977
Other securities		0		23,412		0		23,412
Derivative assets		0		1,189		0		1,189
Total assets	$	0	$	167,903	$	551,261	$	719,164
Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) ) (a)		Balance as of June 30, 2011
Junior subordinated notes, at fair value	$	0	$	0	$	4,422	$	4,422
CDO notes payable, at fair value		0		0		140,619		140,619
Derivative liabilities		0		87,251		90,102		177,353
Total liabilities	$	0	$	87,251	$	235,143	$	322,394

(a) During the six-month period ended June 30, 2011, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

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The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the six-month period ended June 30, 2011:

Assets	Trading Securities—TruPS and Subordinated Debentures			Security-Related Receivables—TruPS and Subordinated Debenture Receivables			Total Level 3 Assets
Balance, as of December 31, 2010	$	454,473		$	83,087		$	537,560
Change in fair value of financial instruments		18,899			(198	)		18,701
Purchases		0			0			0
Sales		(5,000	)		0			(5,000	)
Balance, as of June 30, 2011	$	468,372		$	82,889		$	551,261

Liabilities	Derivative Liabilities		CDO Notes Payable, at Fair Value			Junior Subordinated Notes, at Fair Value		Total Level 3 Liabilities
Balance, as of December 31, 2010	$	87,632	$	148,072		$	4,422	$	240,126
Change in fair value of financial instruments		2,470		13,862			0		16,332
Purchases		0		0			0		0
Sales		0		0			0		0
Principal repayments		0		(21,315	)		0		(21,315	)
Balance, as of June 30, 2011	$	90,102	$	140,619		$	4,422	$	235,143

Change in Fair Value of Financial Instruments

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

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
Description	2011			2010			2011			2010
Change in fair value of trading securities and security-related receivables	$	2,081		$	35,256		$	18,635		$	82,998
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(6,831	)		5,046			(13,862	)		(8,445	)
Change in fair value of derivatives		(20,977	)		(35,856	)		(24,889	)		(53,670	)
Change in fair value of financial instruments	$	(25,727	)	$	4,446		$	(20,116	)	$	20,883

The changes in the fair value for the investment in securities, CDO notes payable and other liabilities for which the fair value option was elected for the three-month and six-month periods ended June 30, 2011 and 2010 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for which the fair value option was elected for the three-month and six-month periods ended June 30, 2011 and 2010 was mainly due to changes in interest rates.

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NOTE 9: VARIABLE INTEREST ENTITIES

The following table presents the assets and liabilities of our consolidated VIEs as of each respective date. As of June 30, 2011 our consolidated VIEs were: Taberna Preferred Funding VIII, Ltd., Taberna Preferred Funding IX, Ltd, RAIT CRE CDO I, Ltd., RAIT Preferred Funding II, Ltd., Willow Grove and Cherry Hill.

	As of June 30, 2011			As of December 31, 2010
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,901,133		$	1,913,089
Allowance for losses		(15,526	)		(15,526	)
Total investments in mortgages and loans		1,885,607			1,897,563
Investments in real estate		21,065			21,054
Investments in securities and security-related receivables, at fair value		717,983			705,455
Cash and cash equivalents		206			73
Restricted cash		153,157			151,045
Accrued interest receivable		53,560			55,105
Deferred financing costs, net of accumulated amortization of $0 and $8,608, respectively		16,829			17,999
Total assets	$	2,848,407		$	2,848,294
Liabilities and Equity
Indebtedness (including $140,619 and $148,072 at fair value, respectively)	$	1,699,670		$	1,707,352
Accrued interest payable		41,813			34,745
Accounts payable and accrued expenses		1,591			1,450
Derivative liabilities		174,880			184,878
Deferred taxes, borrowers’ escrows and other liabilities		5,279			3,814
Total liabilities		1,923,233			1,932,239
Equity:
Shareholders’ equity:
Accumulated other comprehensive income (loss)		(114,382	)		(123,316	)
RAIT Investment		70,356			103,862
Retained earnings		969,200			935,509
Total shareholders’ equity		925,174			916,055
Total liabilities and equity	$	2,848,407		$	2,848,294

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with other RAIT subsidiaries that maintain investments in the debt or equity securities issued by these entities.

RAIT does not have any contractual obligation to provide the VIEs listed above with any financial support. RAIT has not provided and does not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

NOTE 10: EQUITY

Preferred Shares

On January 25, 2011, our board of trustees declared a first quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on March 31, 2011 to holders of record on March 1, 2011 and totaled $3,414.

On May 17, 2011, our board of trustees declared a second quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on June 30, 2011 to holders of record on June 1, 2011 and totaled $3,414.

On July 26, 2011, our board of trustees declared a third quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends will be paid on September 30, 2011 to holders of record on September 1, 2011.

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Common Shares

Dividends:

On January 10, 2011, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of January 21, 2011. The dividend was paid on January 31, 2011 and totaled $3,204.

On May 17, 2011, the board of trustees declared a $0.06 dividend on our common shares to holders of record as of July 8, 2011. The dividend was paid on July 29, 2011 and totaled $2,293 and is included in other liabilities in the accompanying consolidated balance sheet.

Reverse Stock Split:

On May 17, 2011, the board of trustees authorized a 1-for-3 reverse stock split of our common shares of beneficial interest that became effective on June 30, 2011, or the effective time. At the effective time, every three common shares issued and outstanding were automatically combined into one issued and outstanding new common share. The par value of new common shares changed to $0.03 per share after the reverse stock split from the par value of common shares prior to the reverse stock split of $0.01 per share. The reverse stock split reduced the number of common shares outstanding but did not change the number of authorized common shares. The reverse stock split did not affect our preferred shares of beneficial interest. All references in the accompanying financial statements to the number of common shares and earnings per share data for all periods presented have been adjusted to reflect the reverse stock split.

Share Repurchases:

On January 25, 2011, the compensation committee of our board of trustees approved a cash payment to the board’s eight non-management trustees intended to constitute a portion of their respective 2011 annual non-management trustee compensation. The cash payment was subject to terms and conditions set forth in a letter agreement, or the letter agreement, between each of the non-management trustees and RAIT. The terms and conditions included a requirement that each trustee use a portion of the cash payment to purchase RAIT’s common shares in purchases that, individually and in the aggregate with all purchases made by all the other non-management trustees pursuant to their respective letter agreements, complied with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The aggregate amount required to be used by all of the non-management trustees to purchase common shares was $210 and was used to purchase 18,898 common shares, in the aggregate, in February 2011.

Equity Compensation:

During the six-months ended June 30, 2011, 340,649 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We implemented an amended and restated dividend reinvestment and share purchase plan, or DRSPP, effective as of March 13, 2008, pursuant to which we registered and reserved for issuance 6,262,545 common shares. During the six-month period ended June 30, 2011, we issued a total of 15,111 common shares pursuant to the DRSPP at a weighted-average price of $7.45 per share and we received $113 of net proceeds. As of June 30, 2011, 3,884,102 common shares, in aggregate, remain available for issuance under the DRSPP.

Capital on Demand™ Sales Agreement:

On August 6, 2010, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 5,833,333 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. For the six-month period ended June 30, 2011, 2,079,210 common shares were issued pursuant to this arrangement at a weighted average price of $9.43 and we received $19,257 of proceeds. From July 1, 2011 through August 3, 2011, 266,234 common shares were issued pursuant to this arrangement at a weighted average price of $6.73 and we received $1,777 of proceeds. After reflecting the common shares issued through August 3, 2011, 470,084 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

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NOTE 11: EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three-month and six-month periods ended June 30, 2011 and 2010:

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
	2011			2010			2011			2010
Income (loss) from continuing operations	$	(16,757	)	$	24,920		$	(8,417	)	$	58,903
(Income) loss allocated to preferred shares		(3,414	)		(3,415	)		(6,828	)		(6,821	)
(Income) loss allocated to noncontrolling interests		67			358			117			593
Income (loss) from continuing operations allocable to common shares		(20,104	)		21,863			(15,128	)		52,675
Income (loss) from discontinued operations		6			456			797			926
Net income (loss) allocable to common shares	$	(20,098	)	$	22,319		$	(14,331	)	$	53,601
Weighted-average shares outstanding—Basic		38,055,234			26,780,234			37,340,755			25,887,140
Dilutive securities under the treasury stock method		0			640,068			0			374,454
Weighted-average shares outstanding—Diluted		38,055,234			27,420,302			37,340,755			26,261,594
Earnings (loss) per share—Basic:
Continuing operations	$	(0.53	)	$	0.81		$	(0.40	)	$	2.03
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Basic	$	(0.53	)	$	0.83		$	(0.38	)	$	2.07
Earnings (loss) per share—Diluted:
Continuing operations	$	(0.53	)	$	0.79		$	(0.40	)	$	2.00
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Diluted	$	(0.53	)	$	0.81		$	(0.38	)	$	2.04

For the three-month and six-month periods ended June 30, 2011, securities convertible into 1,275,244 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive. For the three-month and six-month periods ended June 30, 2010, securities convertible into 2,231,114 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

NOTE 12: RELATED PARTY TRANSACTIONS

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

Scott F. Schaeffer is our Chairman, Chief Executive Officer and President, and is a Trustee. Mr. Schaeffer’s spouse is a director of The Bancorp, Inc., or Bancorp, and she and Mr. Schaeffer own, in the aggregate, less than 1% of Bancorp’s outstanding common shares. Each transaction with Bancorp is described below:

a). Cash and Restricted Cash—We maintain checking and demand deposit accounts at Bancorp. As of June 30, 2011 and December 31, 2010, we had $1,016 and $72, respectively, of cash and cash equivalents and $460 and $985, respectively, of restricted cash on deposit at Bancorp. We did not receive any interest income from the Bancorp during the three-month and six-month periods ended June 30, 2011 and 2010. Restricted cash held at Bancorp relates to borrowers’ escrows for taxes, insurance and capital reserves. Any interest earned on these deposits enures to the benefit of the specific borrower and not to us.

b). Office Leases—We sublease a portion of our downtown Philadelphia office space from Bancorp under a lease agreement extending through August 2014 at an annual rental expense based upon the amount of square footage occupied. We have signed a sublease agreement with a third party for the remaining term of our sublease. Rent paid to Bancorp was $78 and $79 for the three-month periods ended June 30, 2011 and 2010, respectively and $162 and $147 for the six-month periods ended June 30, 2011. Rent received for our sublease was $43 and $41 for the three-month periods ended June 30, 2011 and 2010 and was $85 and $82 for the six-month periods ended June 30, 2011 and 2010.

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NOTE 13: DISCONTINUED OPERATIONS

For the three-month and six-month periods ended June 30, 2011, income (loss) from discontinued operations relates to one real estate property sold since January 1, 2011. For the three-month and six-month periods ended June 30, 2010, income (loss) from discontinued operations relates to four real estate properties designated as held for sale and three real estate properties that we sold or deconsolidated since January 1, 2010. The following table summarizes revenue and expense information for real estate properties classified as discontinued operations:

	For the Three-Month Periods Ended June 30					For the Six-Month Periods Ended June 30
	2011			2010		2011			2010
Revenue:
Rental income	$	295		$	2,569	$	2,072		$	5,099
Expenses:
Real estate operating expense		223			1,509		1,208			3,215
General and administrative expense		0			0		1			0
Depreciation expense		0			605		0			1,225
Total expenses		223			2,114		1,209			4,440
Income (loss) before interest and other income		72			455		863			659
Interest and other income		0			1		0			1
Income (loss) from discontinued operations		72			456		863			660
Gain (loss) on sale of assets		(66	)		0		(66	)		266
Total income (loss) from discontinued operations	$	6		$	456	$	797		$	926

Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.

NOTE 14: COMMITMENTS AND CONTINGENCIES

Riverside National Bank of Florida Litigation

On August 6, 2009, Riverside National Bank of Florida commenced a lawsuit which named as defendants the three major credit rating agencies, various CDO sellers and collateral managers, including our subsidiary, Taberna Capital Management, LLC. The suit was filed in the Supreme Court of the State of New York, Kings County, and subsequently discontinued without prejudice and refiled in New York County on November 13, 2009. On April 16, 2010, the Office of the Comptroller of the Currency closed Riverside and named the Federal Deposit Insurance Corporation as receiver and thus as successor-in-interest to Riverside as plaintiff in the action, and the defendants subsequently removed the case to the United States District Court for the Southern District of New York. On April 22, 2011, following a series of stays requested by the FDIC, the FDIC voluntarily dismissed the action without prejudice. The claims asserted in this action were described in RAIT’s annual report on Form 10-K for the year ended December 31, 2010. RAIT believes that the FDIC plans to file a new lawsuit pursuing the same or substantially similar claims against an expanded list of defendants. If the FDIC files such a lawsuit, an adverse resolution of the litigation could have a material adverse effect on our financial condition and results of operations.

Routine Litigation

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

NOTE 15: ACQUISITIONS

On January 20, 2011, we acquired a development stage, non-traded public REIT and subsequently changed its name to Independence Realty Trust, Inc., or Independence. We paid approximately $2.5 million for Independence and certain of its affiliated entities including the entity that serves as Independence’s external advisor and its dealer manager. Independence is currently a subsidiary of RAIT.

We are the external manager of Independence and expect Independence to raise capital for investing in multi-family commercial real estate assets through a public offering of its common stock. The registration statement relating to Independence’s public offering of its common stock was declared effective by the SEC on June 10, 2011. We are the sponsor of Independence’s offering and we incurred expenses on Independence’s behalf in connection with this offering. Our ability to be reimbursed for these expenses will depend on the terms and success of the offering. Any disclosure concerning Independence is neither an offer nor a solicitation to purchase securities issued by Independence.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Trustees and Shareholders of RAIT Financial Trust

We have reviewed the accompanying consolidated balance sheet of RAIT Financial Trust and subsidiaries as of June 30, 2011 and the related consolidated statements of operations, other comprehensive income (loss) and cash flows for the three and six month periods ended June 30, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

The Company adopted the new accounting standards classified under FASB ASC Topic 810, “Consolidation” for variable interest entities on January 1, 2010.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2010, and the related consolidated statements of operations, other comprehensive income (loss), shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 25, 2011, we expressed an unqualified opinion on those consolidated financial statements.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

August 5, 2011

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

Forward-Looking Statements

In addition to historical information, this discussion and analysis contains forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “continue” or similar words. These forward-looking statements are subject to risks and uncertainties, as more particularly set forth in our filings with the Securities and Exchange Commission, including those described in the “Forward Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2010, that could cause actual results to differ materially from those projected in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report, except as may be required by applicable law.

Overview

We are a vertically integrated commercial real estate company capable of originating, investing in, managing, servicing, trading and advising on commercial real estate-related assets. We continue to progress in adapting RAIT to the current market environment. We are positioning RAIT for future growth in the area of its historical core competency, commercial real estate lending, while diversifying the revenue generated from our commercial real estate loans and properties and reducing or removing other non-core assets and activities.

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

• expanding RAIT’s commercial real estate revenue by investing in commercial real estate-related assets, managing and servicing investments for our own account or for others, providing property management services and providing our broker-dealer activities, including fixed-income trading and real estate advisory services;

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

• reducing our leverage while developing new financing sources;

• accessing capital through the independent broker-dealer networks;

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

• managing the size and cost structure of our business to match our operating environment.

We generated net loss allocable to common shares of $14.3 million, or $0.38 per common share-diluted, during the six-month period ended June 30, 2011. The primary items affecting our performance were the following:

• Change in fair value of financial instruments. For the six-month period ended June 30, 2011, the net change in fair value of financial instruments decreased net income by $20.1 million. The primary driver of this decrease was our interest rate hedges and CDO Notes payable that we record at fair value under FASB ASC Topic 825, “Financial Instruments”. During the six-months ended June 30, 2011, we experienced a general decline in interest rates across the interest rate curve which caused declines in the value of our interest rate hedges.

• Gains (losses) on debt extinguishments. During the six-month period ended June 30, 2011, we repurchased $104.8 million of our 6.875% convertible senior notes for an aggregate purchase price of $103.2 million. These transactions generated a loss on debt extinguishment of $1.0 million, including the write-off of unamortized deferred financing costs. See “Liquidity and Capital Resources-Capitalization” below for more information regarding these transactions.

We expect to continue to focus our efforts on enhancing our commercial real estate loan portfolio and our investments in real estate, which are our primary investment portfolios. Although economic conditions are improving, some of our borrowers within our commercial real estate loan portfolio are under financial stress. Where it is likely to enhance our ultimate returns, we will consider restructuring loans or foreclosing on the underlying property. During the six-month period ended June 30, 2011, we converted two loans into direct ownership. We expect to engage in ongoing workout activity with respect to our commercial real estate loans that may result in the conversion of the property into owned real estate. We may take a non-cash charge to earnings at the time of any loan conversion to the extent the amount of our loan, reduced by any allowance for losses and certain other expenses, exceeds the fair value of the property at the time of the conversion.

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Key Statistics

Set forth below are key statistics relating to our business through June 30, 2011 (dollars in thousands, except per share data):

	As of or For the Three-Month Periods Ended
	June 30, 2011			March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010
Financial Statistics:
Recourse debt maturing within 1-year	$	19,745		$	20,040		$	41,489		$	7,919		$	9,919
Assets under management	$	3,763,184		$	3,822,534		$	3,837,526		$	3,901,342		$	4,014,556
Debt to equity		2.2	x		2.1	x		2.3	x		2.6	x		2.7	x
Total revenue	$	58,863		$	58,279		$	59,057		$	58,899		$	60,370
Earnings per share, diluted	$	(0.53	)	$	0.16		$	0.86		$	0.49		$	0.81
Commercial Real Estate (“CRE”) Loan Portfolio (a):
Reported CRE Loans—unpaid principal	$	1,122,898		$	1,149,169		$	1,173,141		$	1,216,875		$	1,288,466
Non-accrual loans—unpaid principal	$	94,117		$	121,054		$	122,306		$	143,212		$	131,377
Non-accrual loans as a % of reported loans		8.4	%		10.5	%		10.4	%		11.8	%		10.2	%
Reserve for losses	$	49,906		$	58,809		$	61,731		$	73,029		$	70,699
Reserves as a % of non-accrual loans		53.0	%		48.6	%		50.5	%		51.0	%		53.8	%
Provision for losses	$	950		$	1,950		$	2,500		$	10,813		$	7,644
CRE Property Portfolio:
Reported investments in real estate	$	861,810		$	867,726		$	841,488		$	823,881		$	803,548
Number of properties owned		48			48			47			47			47
Multifamily units owned		8,014			8,311			8,311			8,231			7,893
Office square feet owned		1,786,908			1,786,908			1,632,978			1,634,997			1,732,626
Retail square feet owned		1,116,171			1,116,063			1,116,112			1,069,588			1,069,588
Average physical occupancy data:
Multifamily properties		88.6	%		88.0	%		85.5	%		84.6	%		83.5	%
Office properties		68.8	%		70.7	%		67.8	%		52.5	%		55.5	%
Retail properties		62.0	%		56.3	%		58.8	%		57.7	%		58.7	%
Total		83.1	%		82.4	%		79.2	%		74.8	%		74.4	%

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

Investors should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, or the Annual Report, for a detailed discussion of the following items:

• Credit, capital markets and liquidity risk.

• Interest rate environment.

• Prepayment rates.

• Commercial real estate lack of liquidity and reduced performance.

Our Investment Portfolio

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

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

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The tables below describe certain characteristics of our commercial mortgages, mezzanine loans, other loans and preferred equity interests as of June 30, 2011 (dollars in thousands):

	Book Value		Weighted- Average Coupon			Range of Maturities	Number of Loans
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	685,603		6.7	%	Aug. 2011 to May 2021		42
Mezzanine loans		353,505		9.2	%	Aug. 2011 to Nov. 2038		99
Preferred equity interests		73,329		10.3	%	Nov. 2011 to Aug. 2025		22
Total CRE Loans		1,112,437		7.7	%			163
Other loans		54,135		6.4	%	Aug. 2011 to Oct. 2016		4
Total investments in loans	$	1,166,572		7.7	%			167

We currently have limited capacity to originate new investments. However, we are focusing on this asset class as economic conditions improve and our lending capacity increases. For the six month period ended June 30, 2011, we originated $52 million in commercial mortgages. In July 2011, we negotiated an agreement to sell $60.9 million in principal amount commercial mortgages to a CMBS securitization. We expect the sale to close during the three month period ended September 30, 2011.

The charts below describe the property types and the geographic breakdown of our commercial mortgages, mezzanine loans, other loans, and preferred equity interests as of June 30, 2011:

(a) Based on book value.

Investments in real estate. We generate a return on our real estate investments through rental income and other sources of income from the operations of our real estate investments. By owning real estate, we also participate in any increase in the value of the real estate in addition to current income. We finance our real estate holdings through a combination of secured mortgage financing provided by financial institutions and existing financing provided by our two CRE loan securitizations. During the six-month period ended June 30, 2011, we acquired $78.3 million of real estate investments upon conversion of $85.4 million of commercial real estate loans, typically retaining the existing financing provided by our two CRE loan securitizations.

The table below describes certain characteristics of our investments in real estate as of June 30, 2011 (dollars in thousands, except average effective rent):

	Investments in Real Estate (a)		Average Physical Occupancy			Units/ Square Feet/ Acres		Number of Properties		Average Effective Rent (a)
Multi-family real estate properties (b)	$	559,589		88.6	%		8,014		33	$	685
Office real estate properties (c)		228,685		68.8	%		1,786,908		10		18.16
Retail real estate properties (c)		51,328		62.0	%		1,116,171		2		8.20
Parcels of land		22,208		0	%		7.3		3		N/A
Total	$	861,810		83.1	%				48

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(a) Based on operating performance for the six-month period ended June 30, 2011.

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

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

We expect this asset category to increase in size as we may find it desirable to protect or enhance our risk-adjusted returns by taking control of properties underlying our commercial real estate loans when restructuring or otherwise exercising our remedies regarding underperforming loans.

The charts below describe the property types and the geographic breakdown of our investments in real estate as of June 30, 2011:

(a) Based on book value.

Investment in debt securities—TruPS and Subordinated Debentures. Historically, we provided REITs and real estate operating companies the ability to raise subordinated debt capital through TruPS and subordinated debentures. TruPS are long-term instruments, with maturities ranging from 5 to 30 years, which are priced based on short-term variable rates, such as the three-month London Inter-Bank Offered Rate, or LIBOR. TruPS are unsecured and generally contain minimal financial and operating covenants. We financed most of our debt securities portfolio in a series of non-recourse securitizations which provided long-dated, interest-only, match funded financing to the TruPS and subordinated debenture investments. As of June 30, 2011, we retained a controlling interest in two such securitizations—Taberna VIII and Taberna IX, which are consolidated entities. All of the collateral assets for the debt securities and the related non-recourse securitization financing obligations are presented at fair value in our consolidated financial statements. During 2011, due to the non-recourse nature of these entities and the recent credit performance of the underlying collateral, we received only our senior collateral management fees from these two securitizations.

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The table below describes our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of June 30, 2011 (dollars in thousands):

						Issuer Statistics
Industry Sector	Estimated Fair Value		Weighted- Average Coupon			Weighted Average Ratio of Debt to Total Capitalization			Weighted Average Interest Coverage Ratio
Commercial Mortgage	$	100,638		2.8	%		69.7	%		2.6x
Office		140,662		7.8	%		57.4	%		2.4x
Residential Mortgage		44,910		2.5	%		79.1	%		2.4x
Specialty Finance		80,466		5.0	%		83.7	%		1.1x
Homebuilders		64,537		7.8	%		63.8	%		0.4x
Retail		72,933		3.9	%		62.8	%		2.0x
Hospitality		23,098		6.3	%		82.4	%		1.8x
Storage		24,017		8.0	%		60.4	%		4.5x
Total	$	551,261		5.2	%		67.9	%		2.0x

The chart below describes the equity capitalization of our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of June 30, 2011:

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

(b) Based on estimated fair value.

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

Unsecured REIT notes are publicly traded debentures issued by large public reporting REITs and other real estate companies. These debentures generally pay interest semi-annually. These companies are generally rated investment grade by one or more nationally recognized rating agencies.

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

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The table and the chart below describe certain characteristics of our real estate-related debt securities as of June 30, 2011 (dollars in thousands):

Investment Description	Estimated Fair Value		Weighted- Average Coupon			Weighted- Average Years to Maturity		Book Value
Unsecured REIT note receivables	$	65,323		6.6	%		6.2	$	61,000
CMBS receivables		77,977		5.7	%		32.5		153,868
Other securities		23,414		3.2	%		31.8		89,367
Total	$	166,714		5.1	%		27.3	$	304,235

(a) S&P Ratings as of June 30, 2011.

Independence Realty Trust, Inc.

On January 20, 2011, we acquired a development stage, non-traded public REIT and subsequently changed its name to Independence Realty Trust, Inc., or Independence. We paid approximately $2.5 million for Independence and certain of its affiliated entities including the entity that serves as Independence’s external advisor and its dealer manager. Independence is currently a subsidiary of RAIT.

We are the external manager of Independence and expect Independence to raise capital for investing in multi-family commercial real estate assets through a public offering of its common stock. The registration statement relating to Independence’s public offering of its common stock was declared effective by the SEC on June 10, 2011. We are the sponsor of Independence’s offering and we incurred expenses on Independence’s behalf in connection with this offering. Our ability to be reimbursed for these expenses will depend on the terms and success of the offering. Any disclosure concerning Independence is neither an offer nor a solicitation to purchase securities issued by Independence.

Securitization Summary

Overview. We have used securitizations, mainly through CDOs, to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our portfolios for the long-term. To finance our investments in the foreseeable future, management will seek to structure match funded financing through reinvesting asset repayments in our existing securitizations, loan participations, bank lines of credit, joint-venture opportunities and other methods that preserve our capital while making investments that generate an attractive return.

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

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As of the most recent payment information, the Taberna I, Taberna VIII and Taberna IX CDO securitizations that we manage were not passing all of their required interest coverage or OC Triggers and we received only senior asset management fees. While events of default do not currently exist in the CDO securitizations that we manage, we are unable to predict with certainty which CDOs, in the future, will experience events of default or which, if any, remedies the appropriate note holders may seek to exercise in the future. All applicable interest coverage and OC Triggers continue to be met for our two commercial real estate CDOs, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these CDOs.

A summary of the CDO investments in our consolidated securitizations as of the most recent payment information is as follows (dollars in millions):

• RAIT I—RAIT I has $1.0 billion of total collateral, of which $64.4 million is defaulted. The current overcollateralization (O/C) test is passing at 123.6% with an O/C trigger of 116.2%. We currently own $243.7 million of the securities issued by this CDO. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees.

• RAIT II—RAIT II has $821.6 million of total collateral, of which $4.2 million is defaulted. The current O/C test is passing at 118.9% with an O/C trigger of 111.7%. We currently own $229.7 million of the securities issued by this CDO. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees.

• Taberna VIII—Taberna VIII has $617.5 million of total collateral, of which $101.0 million is defaulted. The current O/C test is failing at 83.9% with an O/C trigger of 103.5%. We currently own $133.0 million of the securities issued by this CDO. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

• Taberna IX—Taberna IX has $649.2 million of total collateral, of which $163.9 million is defaulted. The current O/C test is failing at 75.7% with an O/C trigger of 105.4%. We currently own $186.5 million of the securities issued by this CDO. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

Generally, our investments in the subordinated notes and equity securities in our consolidated CDOs are subordinate in right of payment and in liquidation to the senior notes issued by the CDOs. We may also own common shares, or the non-economic residual interest, in certain of the entities above.

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from Operations

We believe that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and us in particular. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common shares (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles.

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

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

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

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Set forth below is a reconciliation of FFO and AFFO to net income (loss) allocable to common shares for the three-month and six-month periods ended June 30, 2011 and 2010 (in thousands, except share information):

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
	2011			2010			2011			2010
Funds From Operations:
Net income (loss) allocable to common shares	$	(20,098	)	$	22,319		$	(14,331	)	$	53,601
Adjustments:
Real estate depreciation and amortization		6,961			7,016			13,531			13,019
(Gains) losses on the sale of real estate		168			0			46			(266	)
Funds From Operations	$	(12,969	)	$	29,335		$	(754	)	$	66,354
Weighted-average shares—diluted		38,055,234			27,420,302			37,340,755			26,261,594
Adjusted Funds From Operations:
Funds From Operations	$	(12,969	)	$	29,335		$	(754	)	$	66,354
Adjustments:
Change in fair value of financial instruments		25,727			(4,446	)		20,116			(20,883	)
(Gains) losses on debt extinguishment		(3,706	)		(17,202	)		(3,169	)		(37,012	)
Capital expenditures, net of direct financing		(413	)		(410	)		(775	)		(568	)
Straight-line rental adjustments		(922	)		(9	)		(1,687	)		(35	)
Amortization of deferred items and intangible assets		763			(845	)		1,436			(846	)
Share-based compensation		58			623			317			2,294
Adjusted Funds From Operations	$	8,538		$	7,046		$	15,484		$	9,304
Weighted-average shares—diluted		38,055,234			27,420,302			37,340,755			26,261,594

Assets Under Management

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

The table below summarizes our AUM as of June 30, 2011 and December 31, 2010 (dollars in thousands):

	AUM as of June 30, 2011		AUM as of December 31, 2010
Commercial real estate portfolio (1)	$	1,972,458	$	1,976,815
U.S. TruPS portfolio (2)		1,790,726		1,860,711
Total	$	3,763,184	$	3,837,526

(1) As of June 30, 2011 and December 31, 2010, our commercial real estate portfolio was comprised of $1.1 billion of assets collateralizing RAIT I and RAIT II, $861.8 million and $841.5 million, respectively, of investments in real estate and $28.0 million and $30.4 million, respectively, of commercial mortgages, mezzanine loans and preferred equity interests that were not securitized.

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

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Results of Operations

Three-Month Period Ended June 30, 2011 Compared to the Three-Month Period Ended June 30, 2010

Revenue

Interest income. Interest income decreased $4.7 million, or 12.0%, to $34.5 million for the three-month period ended June 30, 2011 from $39.2 million for the three-month period ended June 30, 2010. Interest income from our investments in loans decreased $3.0 million due to $157.0 million of principal repayments and $2.6 million due to $132.6 million of loans transitioned to owned real estate, less $1.2 million generated from $64.2 million of new loans. Interest income from our investments in securities declined $0.2 million due to sales and principal repayments. Additionally, both portfolios were impacted by the reduction in short-term LIBOR of approximately 30 basis points during the three-month period ended June 30, 2011 compared to the three-month period ended June 30, 2010.

Rental income. Rental income increased $4.4 million to $22.1 million for the three-month period ended June 30, 2011 from $17.7 million for the three-month period ended June 30, 2010. Seven properties acquired or consolidated since June 30, 2010, contributed $3.0 million to the increase while an additional $0.4 million is attributable to one property acquired in May, 2010 which was present for a full quarter of operations in 2011. The remaining $1.0 million increase in rental income is due to improved occupancy and rental rates at properties we acquired prior to April 1, 2010.

Fee and other income. Fee and other income decreased $1.3 million, or 37.1%, to $2.2 million for the three-month period ended June 30, 2011 from $3.5 million for the three-month period ended June 30, 2010. This decrease is attributable to a decrease of $0.8 million in riskless trade income, $0.3 million decrease in our collateral management and restructuring fee income as we sold several collateral management contracts in April 2010, and $0.2 million decrease in property reimbursement income due to lower expenses at managed properties.

Expenses

Interest expense. Interest expense decreased $2.4 million, or 9.7%, to $22.3 million for the three-month period ended June 30, 2011 from $24.7 million for the three-month period ended June 30, 2010. The decrease is primarily attributable to repurchases of $133.1 million of our 6.875% convertible senior notes and $40.2 million of our CDO notes payable since June 30, 2010 net of additional interest cost incurred for the issuance of new debt instruments associated therewith. Our interest expense also decreased due to the effect on our floating rate indebtedness from the reduction in short-term LIBOR of approximately 30 basis points during the three-month period ended June 30, 2011 compared to the three-month period ended June 30, 2010.

Real estate operating expense. Real estate operating expense increased $0.4 million to $13.8 million for the three-month period ended June 30, 2011 from $13.4 million for the three-month period ended June 30, 2010. The increase is attributable to $1.3 million of operating expenses from seven new properties acquired or consolidated since June 30, 2010 and $0.1 million from one property acquired during the three months ended June 30, 2010 which was present for a full quarter of operations in 2011. These increases were offset by $1.0 million of decreased expenses at our owned properties acquired prior to April 1, 2010.

Compensation expense. Compensation expense decreased $1.2 million, or 17.4%, to $5.7 million for the three-month period ended June 30, 2011 from $6.9 million for the three-month period ended June 30, 2010. This decrease was due to a reduction of $0.6 million in salary expense, payroll tax and benefits expenses. Additionally, there was a reduction in stock based compensation expense of $0.6 million as several awards were fully vested in 2010 and no corresponding awards were made in 2011.

General and administrative expense. General and administrative expense decreased $1.0 million, or 18.5%, to $4.4 million for the three-month period ended June 30, 2011 from $5.4 million for the three-month period ended June 30, 2010. Expenses for professional fees related to legal, tax, and audit services declined $0.7 million, insurance expenses decreased by $0.2 million, and other G&A expenses including IT services, rent, and travel and entertainment decreased by $0.4 million. These decreases were partially offset by $0.4 million of acquisition expenses related to the acquisition and development of our non-traded public REIT, Independence Realty Trust, Inc.

Provision for losses. The provision for losses relates to our investments in our commercial mortgage loan portfolios. The provision for losses decreased by $6.6 million for the three-month period ended June 30, 2011 to $1.0 million as compared to $7.6 million for the three-month period ended June 30, 2010. The decrease is attributable to the improved performance of our investment in loans portfolio during 2011 as compared to 2010. At June 30, 2011 we had $113.6 million of investment in loans on non-accrual, down from $162.9 million of investment in loans on non-accrual as of June 30, 2010. While we believe we have properly reserved for the probable losses in our portfolio, we continually monitor our portfolio for evidence of loss and accrue additional provisions for loan losses as circumstances or conditions change.

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Depreciation and amortization expense. Depreciation expense increased $0.2 million to $7.2 million for the three-month period ended June 30, 2011 from $7.0 million for the three-month period ended June 30, 2010. This increase was primarily attributable to seven new properties, acquired or consolidated since June 30, 2010. The increase is also driven by one property acquired during the three months ended June 30, 2010 present for a full quarter during the three months ended June 30, 2011.

Interest and other income (expense)

Gains (Losses) on sale of assets. Gains on sale of assets were $0.6 million during the three-month period ended June 30, 2011. We recorded gains of $2.1 million as a result of the sale of certain bonds held in Taberna Preferred Funding VIII, Ltd. The gains were partially offset by $1.5 million of losses incurred from the disposition of two loans from our consolidated CRE securitizations.

Gains on extinguishment of debt. Gains on extinguishment of debt during the three-month period ended June 30, 2011 decreased $13.5 million to $3.7 million from $17.2 million for the three-month period ended June 30, 2010. These gains are attributable to the repurchase of $6.7 million principal amount of RAIT CRE CDO I debt notes from the market for $2.5 million of cash, resulting in gains on extinguishment of debt of $4.2 million. These gains were partially offset by repurchase of $16.8 million in aggregate principal amount of our 6.875% convertible senior notes due April 2027. The notes were repurchased for $16.8 million of cash. As a result of these repurchases, we recorded losses on extinguishment of debt of $0.5 million, including the write-off of associated deferred financing costs and debt discounts.

Change in fair value of financial instruments. The change in fair value of financial instruments pertains to the majority of our assets within our investments in securities and any related CDO notes payable and derivative instruments used to finance such assets. During the three-month periods ended June 30, 2011 and 2010, the fair value adjustments we recorded were as follows (dollars in thousands):

Description	For the Three-Month Period Ended June 30, 2011			For the Three-Month Period Ended June 30, 2010
Change in fair value of trading securities and security-related receivables	$	2,081		$	35,256
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(6,831	)		5,046
Change in fair value of derivatives		(20,977	)		(35,856	)
Change in fair value of financial instruments	$	(25,727	)	$	4,446

Discontinued operations. We recorded no income from discontinued operations for the three-month period ended June 30, 2011 compared to $0.5 million for the three-month period ended June 30, 2010. The decrease is attributable to the timing of properties acquired, sold, or deconsolidated during the respective periods.

Six-Month Period Ended June 30, 2011 Compared to the Six-Month Period Ended June 30, 2010

Revenue

Interest income. Interest income decreased $12.5 million, or 15.5%, to $68.0 million for the six-month period ended June 30, 2011 from $80.5 million for the six-month period ended June 30, 2010. Interest income from our investments in loans decreased $7.6 million due to $198.1 million of principal repayments and $7.6 million due to $198.2 million of loans transitioned to owned real estate, less $3.5 million generated from $88.8 million of new loans. Interest income from our investments in securities declined $0.8 million due to sales and principal repayments.

Rental income. Rental income increased $9.6 million to $43.4 million for the six-month period ended June 30, 2011 from $33.8 million for the six-month period ended June 30, 2010. Seven properties acquired or consolidated since June 30, 2010, contributed $5.4 million to the increase while $1.8 million is attributable to eight properties acquired or consolidated during the six months ended June 30, 2010 which were present for a full quarter of operations in 2011. The remaining $2.4 million increase resulted from improved occupancy and rental rates at our owned properties acquired prior to January 1, 2010.

Fee and other income. Fee and other income decreased $6.7 million, or 54.0%, to $5.7 million for the six-month period ended June 30, 2011 from $12.4 million for the six-month period ended June 30, 2010. Collateral management and restructuring fee income decreased $2.4 million and $2.9 million, respectively, due to the sale or delegation of our collateral management rights on eight Taberna securitizations during April 2010. Additionally, riskless trade income decreased $0.8 million and property reimbursement income decreased $0.6 million due to lower expenses at managed properties.

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Expenses

Interest expense. Interest expense decreased $4.4 million, or 8.8%, to $45.7 million for the six-month period ended June 30, 2011 from $50.1 million for the six-month period ended June 30, 2010. The decrease is primarily attributable to repurchases of $133.1 million of our 6.875% convertible senior notes and $40.2 million of our CDO notes payable since June 30, 2010 net of additional interest cost incurred for the issuance of new debt instruments associated therewith.

Real estate operating expense. Real estate operating expense increased $2.5 million to $26.4 million for the six-month period ended June 30, 2011 from $23.9 million for the six-month period ended June 30, 2010. This increase is entirely attributable to seven new properties acquired or consolidated since June 30, 2010.

Compensation expense. Compensation expense decreased $2.6 million, or 17.4%, to $12.3 million for the six-month period ended June 30, 2011 from $14.9 million for the six-month period ended June 30, 2010. This decrease was due to a reduction of $0.7 million in salary expense, payroll tax and benefits expense. Additionally, there was a reduction in stock based compensation expense of $2.0 million as several awards were fully vested in 2010 and no corresponding awards were made in 2011.

General and administrative expense. General and administrative expense decreased $0.9 million, or 8.7%, to $9.4 million for the six-month period ended June 30, 2011 from $10.3 million for the six-month period ended June 30, 2010. Expenses for professional fees related to legal, tax, and audit services declined $1.1 million, insurance expenses decreased by $0.2 million, and other G&A expenses including IT services, rent, and travel and entertainment decreased by $0.3 million. These decreases were offset by $0.7 million of acquisition expenses related to the acquisition and development of our non-traded public REIT, Independence Realty Trust, Inc.

Provision for losses. The provision for losses relates to our investments in our commercial mortgage loan portfolios. The provision for losses decreased by $22.1 million for the six-month period ended June 30, 2011 to $2.9 million as compared to $25.0 million for the six-month period ended June 30, 2010. The decrease is attributable to the improved performance of our investment in loans portfolio during 2011 as compared to 2010. At June 30, 2011 we had $113.6 million of investment in loans on non-accrual, down from $162.9 million of investment in loans on non-accrual as of June 30, 2010. While we believe we have properly reserved for the probable losses in our portfolio, we continually monitor our portfolio for evidence of loss and accrue additional provisions for loan losses as circumstances or conditions change.

Depreciation and amortization expense. Depreciation expense increased $1.2 million to $14.4 million for the six-month period ended June 30, 2011 from $13.2 million for the six-month period ended June 30, 2010. This increase was primarily attributable to seven new properties, acquired or consolidated since June 30, 2010. The increase is also driven by eight properties acquired or consolidated during the six months ended June 30, 2010 present for a full quarter during the six months ended June 30, 2011.

Interest and other income (expense)

Gains (Losses) on sale of assets. Gains on sale of assets were $2.0 million during the six-month period ended June 30, 2011. The gains principally relate to the sale of certain bonds held in our consolidated Taberna securitizations, Taberna Preferred Funding VIII, Ltd. and Taberna Preferred Funding IX, Ltd for which we recorded gains of $3.7 million. These gains were partially offset by $2.0 million of losses incurred from the disposition of four loans from our consolidated CRE securitizations.

Gains on extinguishment of debt. Gains on extinguishment of debt during the six-month period ended June 30, 2011 are attributable to the repurchase of $6.7 million principal amount of RAIT CRE CDO I debt notes from the market for $2.5 million of cash. As a result of these repurchases we recorded gains on extinguishment of debt of $4.2 million. These gains were partially offset by repurchases of $104.8 million in aggregate principal amount of our 6.875% convertible senior notes due April 2027. The notes were repurchased for $103.2 million of cash. As a result of these repurchases, we recorded losses on extinguishment of debt of $1.0 million, including the write-off of associated deferred financing costs and debt discounts.

Change in fair value of financial instruments. The change in fair value of financial instruments pertains to the majority of our assets within our investments in securities and any related CDO notes payable and derivative instruments used to finance such assets. During the six-month periods ended June 30, 2011 and 2010, the fair value adjustments we recorded were as follows (dollars in thousands):

Description	For the Six-Month Period Ended June 30, 2011			For the Six-Month Period Ended June 30, 2010
Change in fair value of trading securities and security-related receivables	$	18,635		$	82,998
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(13,862	)		(8,445	)
Change in fair value of derivatives		(24,889	)		(53,670	)
Change in fair value of financial instruments	$	(20,116	)	$	20,883

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Discontinued operations. Income from discontinued operations decreased $0.1 million to $0.8 million for the six-month period ended June 30, 2011 compared to $0.9 million for the six-month period ended June 30, 2010. The decrease is attributable to the timing of properties acquired, sold, or deconsolidated during the respective periods. Included in discontinued operations for the six months ended June 30, 2011 is $0.8 million net income from a sold property.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions and other general business needs. The disruption in the credit markets has reduced our liquidity and capital resources, limited our ability to originate new investments and has generally increased the cost of any new sources of capital over historical levels. Due to current market conditions, the cash flow to us from a number of the securitizations we sponsored has been reduced or eliminated. We are seeking to expand our use of secured lines of credit while developing other financing resources that will permit us to originate or acquire new investments to generate attractive returns while preserving our capital, such as loan participations and joint venture financing arrangements.

RAIT I and RAIT II, our consolidated securitizations collateralized by U.S. commercial real estate loans, continue to perform and make distributions on our retained interests and pay us management fees. In addition, the restricted cash in these securitizations from repayment of underlying loans and other sources can be used to make new investments held by those securitizations, including future funding commitments of existing investments. As we continue to recycle capital obtained from loan sales and loan repayments in these securitizations, we expect to reinvest the proceeds to fund commercial real estate loans. Distributions on our retained interests in RAIT I and RAIT II are our primary source of cash from our operations. We continue to explore strategies to generate liquidity from our investments in real estate and our investments in debt securities as we seek to focus on our commercial real estate lending platform.

We believe our available cash and restricted cash balances, other financing arrangements, and cash flows from operations will be sufficient to fund our liquidity requirements for the next 12 months. Should our liquidity needs exceed our available sources of liquidity, we believe that we could sell assets to raise additional cash. We may not be able to obtain additional financing when we desire to do so, or may not be able to obtain desired financing on terms and conditions acceptable to us. If we fail to obtain additional financing, our ability to maintain or grow our business will be constrained.

Our primary cash requirements are as follows:

• to make investments and fund the associated costs;

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

• to pay our expenses, including compensation to our employees;

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

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

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

• the use of our cash and cash equivalent balances of $24.6 million as of June 30, 2011;

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

• proceeds from the sales of assets;

• proceeds from future borrowings; and

• proceeds from future offerings of our common and preferred shares, including our COD sales agreement, SEDA and DRSPP Plan.

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Our two commercial real estate securitized financing arrangements, RAIT I and RAIT II, include a revolving credit option that allows us to repay the AAA rated debt tranches totaling $475.0 million as loan repayments occur, and then draw up to the available committed amounts through the fifth anniversary of each financing in November 2011 and June 2012, respectively. At June 30, 2011, these revolvers were fully utilized and had no additional capacity.

Our restricted cash balance was $188.7 million as of June 30, 2011. We have $69.4 million of restricted cash in RAIT I and RAIT II available to invest in qualifying commercial loans as of June 30, 2011, subject to $37.2 million of future funding commitments, leaving $32.2 million available to lend. This $69.4 million of restricted cash is not available to RAIT’s creditors or for other general trust purposes. As of June 30, 2011, $83.1 million of restricted cash was held by Taberna VIII and Taberna IX. This restricted cash reflects early prepayments of principal that cannot be used for any other general trust purposes.

We continue to focus on reducing our leverage and restructuring the terms of our debt. On March 21, 2011, we issued $115.0 million aggregate principal amount of 7.0% Convertible Senior Notes Due 2031, or the 7.0% convertible senior notes, in an underwritten public offering which included the full exercise of the overallotment option. During the six-month period ended June 30, 2011, we repurchased $16.8 million of our 6.875% convertible senior notes which give holders a put right in April 2012, leaving $38.8 million remaining outstanding, prepaid a $16.2 million secured credit facility that was maturing in October 2011 and refinanced a $12.5 million recourse first mortgage on an owned property with non-recourse financing. On April 26, 2011, we prepaid the remaining $15.7 million of our 10.0% senior note. To accomplish these transactions described above, RAIT primarily used the proceeds of its issuance of 7.0% convertible senior notes.

Our 6.875% convertible senior notes are redeemable for cash, at the option of the holder, in April 2012. We expect to acquire, redeem, restructure, refinance or otherwise enter into transactions to satisfy our 6.875% convertible senior notes at or prior to the redemption date through transactions which may include any combination of payments of cash, issuances of our debt and/or equity securities, sales or exchanges of our assets or other methods. These transactions may have material effects on our liquidity and capital structure.

Cash Flows

As of June 30, 2011 and 2010, we maintained cash and cash equivalents of approximately $24.6 million and $28.9 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

	For the Six-Month Periods Ended June 30
	2011			2010
Cash flow from operating activities	$	(38	)	$	2,839
Cash flow from investing activities		10,300			34,024
Cash flow from financing activities		(12,853	)		(32,953	)
Net change in cash and cash equivalents		(2,591	)		3,910
Cash and cash equivalents at beginning of period		27,230			25,034
Cash and cash equivalents at end of period	$	24,639		$	28,944

Our principal source of net cash inflow historically has been our investing activities as loan repayments outpaced new investments in loans or real estate properties. The key driver of lower cash inflows from our investing activities was that our outflows for new investments were significantly higher at $82.4 million for the six-months ended June 30, 2011 as compared to $26.7 million for the same period in 2010. In the event the commercial real estate market improves, we expect that our new investments will outpace any proceeds received from loan repayments or asset sales. These increased outflows for new investments were offset by proceeds from loan repayments and proceeds from asset sales totaling $126.6 million for the six-month period ended June 30, 2011 as compared to $56.3 million for the same period in 2010. Cash flows from our investing activities may vary in the future as we continue to execute on our investment strategies.

Cash flow from operating activities for the six months ended June 30, 2011, as compared to the same period in 2010, has decreased primarily due to an increase in other assets, including prepaid assets and deposits with derivative counterparties. For the six-months ended June 30, 2011, prepaid expenses for insurance and real estate taxes are higher as the size of our portfolio of real estate properties has grown. Additionally, we have deposited $3.2 million in cash with derivative counterparties associated with interest rate hedges used in our CMBS origination initiatives.

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The cash outflow from our financing activities during the six-month period ended June 30, 2011 as compared to the cash outflow during the six-month period ended June 30, 2010 is substantially due to the issuance of $115.0 million of 7.0% convertible senior notes, the repurchase of $104.8 million principal amount 6.875% convertible senior notes and the prepayment of the remaining $15.7 million principal amount of our 10.0% senior note. Other events that impacted our cash flows from financing activities were the repayment of our $16.2 million secured credit facility that was maturing in October 2011, an increase in the proceeds received of $37.4 million from non-recourse loans payable on real estate, increased principal repayments on our CDO notes payable, an increase in the dividends paid in 2011 on our common shares, as we did not pay dividends on our common shares in 2010, and increased common share issuance during the six-month period ended June 30, 2011 as compared to the six-month period ended June 30, 2010.

Capitalization

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2011:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	107,064		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		38,813		38,943		6.9	%	Apr. 2027
Secured credit facilities		19,745		19,745		4.5	%	Dec. 2011
Senior secured notes		43,000		43,000		12.5	%	Apr. 2014
Loans payable on real estate		7,183		7,183		5.0	%	Sept. 2013
Junior subordinated notes, at fair value (3)		38,052		4,422		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
Total recourse indebtedness		286,893		245,457		7.4	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		1,337,987		1,337,987		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(4)(6)		1,134,643		140,619		0.9	%	2037 to 2038
Loans payable on real estate		92,144		92,162		5.9	%	Sept. 2011 to Mar. 2018
Total non-recourse indebtedness		2,564,774		1,570,768		0.9	%
Total indebtedness	$	2,851,667	$	1,816,225		1.6	%

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

(2) Our 6.875% convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.

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

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

(5) Collateralized by $1.8 billion principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6) Collateralized by $1.3 billion principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of June 30, 2011 was $875.5 million. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

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

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The current status or activity in our financing arrangements occurring as of or during the six-month period ended June 30, 2011 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. During the six-month period ended June 30, 2011, we repurchased $104.8 million in aggregate principal amount of our 6.875% Convertible Senior Notes due 2027, or the 6.875% convertible senior notes, for an aggregate purchase price of $103.2 million. As a result of these transactions, we recorded losses on extinguishment of debt of $1.0 million, net of deferred financing costs and unamortized discounts that were written off.

Our 6.875% convertible senior notes are redeemable, at the option of the holder, in April 2012. We expect to acquire, redeem, refinance or otherwise enter into transactions to satisfy our 6.875% convertible senior notes which may include any combination of payments of cash, issuances of our debt and/or equity securities, sales or exchanges of our assets or other methods.

7.0% convertible senior notes. On March 21, 2011, we issued and sold in a public offering $115.0 million aggregate principal amount of our 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $109.0 million of net proceeds. Interest on the 7.0% convertible senior notes is paid semi-annually and the 7.0% convertible senior notes mature on April 1, 2031.

Prior to April 5, 2016, the 7.0% convertible senior notes are not redeemable at RAIT’s option, except to preserve RAIT’s status as a REIT. On or after April 5, 2016, RAIT may redeem all or a portion of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. Holders of 7.0% convertible senior notes may require RAIT to repurchase all or a portion of the 7.0% convertible senior notes at a purchase price equal to the principal amount plus accrued and unpaid interest on April 1, 2016, April 1, 2021, and April 1, 2026, or upon the occurrence of certain defined fundamental changes.

The 7.0% convertible senior notes are convertible at the option of the holder at an initial conversion rate of 130.0559 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to an initial conversion price of $7.69 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. The initial conversion rate is subject to adjustment in certain circumstances. We include the 7.0% convertible senior notes in earnings per share using the treasury stock method if the conversion value in excess of the par amount is considered in the money during the respective periods.

According to FASB ASC Topic 470, “Debt”, we recorded a discount on our issued and outstanding 7.0% convertible senior notes of $8.2 million. This discount reflects the fair value of the embedded conversion option within the 7.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 7.0% convertible senior notes agreement by a discount rate that represents management’s estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 7.0% convertible senior notes were issued. The discount will be amortized to interest expense through April 1, 2016, the date at which holders of our 7.0% convertible senior notes could require repayment.

Secured credit facility. During the six-month period ending June 30, 2011, we prepaid a $16.2 million secured credit facility that was maturing in October 2011.

As of June 30, 2011, we have $19.7 million outstanding under our remaining secured credit facility, which is payable in December 2011 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

Senior secured notes. During the six-month period ended June 30, 2011, the holder of the 10.0% senior secured convertible note, or the 10.0% senior note, converted $5.3 million principal amount of the 10.0% senior note into 1.5 million common shares. On April 26, 2011, we prepaid the remaining $15.7 million principal amount of the 10.0% senior note.

Loans payable on real estate. During the six-month period ended June 30, 2011 we refinanced recourse financing consisting of a first mortgage of $12.5 million principal amount with a fixed rate of 5.8%, due in April 2012, that was associated with one of our owned real estate properties with non-recourse financing provided by a consolidated securitization.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their overcollateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2011.

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During the six-month period ended June 30, 2011, we repurchased, from the market, a total of $6.7 million in aggregate principal amount of CDO notes payable issued by our RAIT II CDO securitization. The aggregate purchase price was $2.5 million and we recorded a gain on extinguishment of debt of $4.2 million, net of deferred financing costs that were written off.

CDO notes payable, at fair value. Both of our Taberna consolidated CDOs are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, to be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC tests failures are due to defaulted collateral assets and credit risk securities. During the six-month period ended June 30, 2011, $21.3 million of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO notes payable.

Loans payable on real estate. During the six-month period ended June 30, 2011, we obtained a first mortgage on an investment in real estate from the Federal National Mortgage Association that has a principal balance of $13.4 million, 7 year term, and a 5.12% interest rate and a first mortgage on an investment in real estate from Bank of America that has a principal balance of $24.0 million, 10 year term, and a 6.09% interest rate.

Preferred Shares

On January 25, 2011, our board of trustees declared a first quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on March 31, 2011 to holders of record on March 1, 2011 and totaled $3.4 million.

On May 17, 2011, our board of trustees declared a second quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on June 30, 2011 to holders of record on June 1, 2011 and totaled $3.4 million.

On July 26, 2011, our board of trustees declared a third quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends will be paid on September 30, 2011 to holders of record on September 1, 2011.

Common Shares

Dividends:

On January 10, 2011, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of January 21, 2011. The dividend was paid on January 31, 2011 and totaled $3.2 million.

On May 17, 2011, the board of trustees declared a $0.06 dividend on our common shares to holders of record as of July 8, 2011. The dividend was paid on July 29, 2011 and totaled $2.3 million and is included in other liabilities in the accompanying consolidated balance sheet.

Reverse Stock Split:

On May 17, 2011, the board of trustees authorized a 1-for-3 reverse stock split of our common shares of beneficial interest that became effective on June 30, 2011, or the effective time. At the effective time, every three common shares issued and outstanding were automatically combined into one issued and outstanding new common share. The par value of new common shares changed to $0.03 per share after the reverse stock split from the par value of common shares prior to the reverse stock split of $0.01 per share. The reverse stock split reduced the number of common shares outstanding but did not change the number of authorized common shares. The reverse stock split did not affect our preferred shares of beneficial interest. All references in the accompanying financial statements to the number of common shares and earnings per share data for all periods presented have been adjusted to reflect the reverse stock split.

Share Repurchases:

On January 25, 2011, the compensation committee of our board of trustees approved a cash payment to the board’s eight non-management trustees intended to constitute a portion of their respective 2011 annual non-management trustee compensation. The cash payment was subject to terms and conditions set forth in a letter agreement, or the letter agreement, between each of the non-management trustees and RAIT. The terms and conditions included a requirement that each trustee use a portion of the cash payment to purchase RAIT’s common shares in purchases that, individually and in the aggregate with all purchases made by all the other non-management trustees pursuant to their respective letter agreements, complied with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The aggregate amount required to be used by all of the non-management trustees to purchase common shares was $0.2 million and was used to purchase 18,898 common shares, in the aggregate, in February 2011.

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Equity Compensation:

During the six-months ended June 30, 2011, 340,649 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We implemented an amended and restated dividend reinvestment and share purchase plan, or DRSPP, effective as of March 13, 2008, pursuant to which we registered and reserved for issuance 6,262,545 common shares. During the six-month period ended June 30, 2011, we issued a total of 15,111 common shares pursuant to the DRSPP at a weighted-average price of $7.45 per share and we received $0.1 million of net proceeds. As of June 30, 2011, 3,884,102 common shares, in aggregate, remain available for issuance under the DRSPP.

Capital on Demand™ Sales Agreement:

On August 6, 2010, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 5,833,333 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. For the six-month period ended June 30, 2011, 2,079,210 common shares were issued pursuant to this arrangement at a weighted average price of $9.43 and we received $19.3 million of proceeds. From July 1, 2011 through August 3, 2011, 266,234 common shares were issued pursuant to this arrangement at a weighted average price of $6.73 and we received $1.8 million of proceeds. After reflecting the common shares issued through August 3, 2011, 470,084 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

Off-Balance Sheet Arrangements and Commitments

Not applicable.

Critical Accounting Estimates and Policies

Our Annual Report on Form 10-K for the year ended December 31, 2010 contains a discussion of our critical accounting policies. On January 1, 2011 we adopted several new accounting pronouncements and revised our accounting policies as described below. See Note 2 in our unaudited consolidated financial statements as set forth herein. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.

Recent Accounting Pronouncements

On January 1, 2010, we adopted Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” This accounting standard requires new disclosures for significant transfers in and out of Level 1 and 2 fair value measurements and a description of the reasons for the transfer. This accounting standard also updates existing disclosures by providing fair value measurement disclosures for each class of assets and liabilities and provides disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. For Level 3 fair value measurements, new disclosures will require entities to present information separately for purchases, sales, issuances, and settlements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not have a material effect on our consolidated financial.

On January 1, 2011, we adopted ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” This accounting standard requires that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This accounting standard also expands the supplemental pro forma disclosures under FASB ASU Topic 805, “Business Combinations” to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The adoption of this standard did not have a material effect on our consolidated financial statements.

In April 2011, the FASB issued accounting standards classified under FASB ASC Topic 310, “Receivables”. This accounting standard amends existing guidance to provide additional guidance on the determination of whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. This standard is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, commodity prices and equity prices. In pursuing our business plan, the primary market risks to which we are exposed are interest rate risk and credit risk. Changes in the general level of interest rates prevailing in the financial markets may affect the spread between our yield on invested assets and cost of funds and, in turn, our ability to make distributions or payments to our shareholders. In the event of a significant rising interest rate environment, defaults could increase and result in losses to us which adversely affect our operating results and liquidity. In the current global recession, defaults have increased and resulted in losses to us which have adversely affected, and we expect will continue to adversely affect, our operating results and liquidity.

There have been no material changes in quantitative and qualitative market risks during the six months ended June 30, 2011 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2010. Reference is made to Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three-month period ended June 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Riverside National Bank of Florida Litigation

On August 6, 2009, Riverside National Bank of Florida commenced a lawsuit which named as defendants the three major credit rating agencies, various CDO sellers and collateral managers, including our subsidiary, Taberna Capital Management, LLC. The suit was filed in the Supreme Court of the State of New York, Kings County, and subsequently discontinued without prejudice and refiled in New York County on November 13, 2009. On April 16, 2010, the Office of the Comptroller of the Currency closed Riverside and named the Federal Deposit Insurance Corporation as receiver and thus as successor-in-interest to Riverside as plaintiff in the action, and the defendants subsequently removed the case to the United States District Court for the Southern District of New York. On April 22, 2011, following a series of stays requested by the FDIC, the FDIC voluntarily dismissed the action without prejudice. The claims asserted in this action were described in RAIT’s annual report on Form 10-K for the year ended December 31, 2010. RAIT believes that the FDIC plans to file a new lawsuit pursuing the same or substantially similar claims against an expanded list of defendants. If the FDIC files such a lawsuit, an adverse resolution of the litigation could have a material adverse effect on our financial condition and results of operations.

Routine Litigation

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

Item 1A. Risk Factors

There have not been any material changes from the risk factors previously disclosed in Item 1A— “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 5. Other Information

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

As of August 4, 2011, the compensation committee of our board of trustees, or the compensation committee, approved the third amended and restated employment agreement between RAIT Financial Trust and Scott F. Schaeffer, RAIT’s chairman of the board of trustees, or the chairman, chief executive officer and president, or the Schaeffer agreement, and Mr. Schaeffer and we entered into the Schaeffer agreement. The Schaeffer agreement amends Mr. Schaeffer’s employment agreement to, among other things, remove the tax gross-up provision relating to “parachute payments,” as defined in Section 280G of the Internal Revenue Code of 1986, as amended, or parachute payments, revise the definition of “good reason,” reflect his prior appointment as chairman, increase his base salary to an annual rate of $650,000, modify the calculation of termination payments to be made to Mr. Schaeffer in specified circumstances, change the employment term from an automatic daily renewal of a three year term to a three year term renewing for successive three year terms unless timely notice of non-renewal is given, expand the definition of a “competing business” subject to the non-compete covenant and reduce the term thereof and make changes necessary or advisable to comply with Section 409A of the Internal Revenue Code of 1986, or Section 409A.

As of August 4, 2011, the compensation committee approved the first amended and restated employment agreement between RAIT Financial Trust and Ken R. Frappier, RAIT’s executive vice president-portfolio and risk management, or the Frappier agreement, and Mr. Frappier and we entered into the Frappier agreement. The Frappier agreement amends Mr. Frappier’s employment agreement to, among other things, remove the tax gross-up provision relating to parachute payments, reflect his current title, increase his base salary to an annual rate of $385,000, modify the calculation of termination payments to be made to Mr. Frappier in specified circumstances, change the employment term from an automatic daily renewal of a three year term to a one year term renewing for successive one year terms unless timely notice of non-renewal is given, expand the definition of a “competing business” subject to the non-compete covenant and reduce the term thereof and make changes necessary or advisable to comply with Section 409A.

The foregoing descriptions of the Schaeffer agreement and the Frappier agreement do not purport to be complete and are qualified in their entirety by reference to the full text of these agreements filed as Exhibits 10.3 and 10.4 hereto, respectively, and incorporated herein by reference.

Item 6. Exhibits

(a) Exhibits

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

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SIGNATURES

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

	RAIT FINANCIAL TRUST (Registrant)
Date: August 5, 2011	By:	/s/ Scott F. Schaeffer
		Scott F. Schaeffer, Chairman of the Board, Chief Executive Officer and President
		(On behalf of the registrant and as its Principal Executive Officer)
Date: August 5, 2011	By:	/s/ Jack E. Salmon
		Jack E. Salmon, Chief Financial Officer and Treasurer
		(On behalf of the registrant and as its Principal Financial Officer)
Date: August 5, 2011	By:	/s/ James J. Sebra
		James J. Sebra, Senior Vice President and Chief Accounting Officer
		(On behalf of the registrant and as its Principal Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Description of Documents
3.1	Amended and Restated Declaration of Trust. (1)
3.1.1	Articles of Amendment to Amended and Restated Declaration of Trust. (2)
3.1.2	Articles of Amendment to Amended and Restated Declaration of Trust. (3)
3.1.3	Certificate of Correction to the Amended and Restated Declaration of Trust. (4)
3.1.4	Articles of Amendment to Amended and Restated Declaration of Trust. (5)
3.1.5	Articles of Amendment to Amended and Restated Declaration of Trust. (6)
3.1.6	Articles Supplementary relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Articles Supplementary”). (7)
3.1.7	Certificate of Correction to the Series A Articles Supplementary. (7)
3.1.8	Articles Supplementary relating to the 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (8)
3.1.9	Articles Supplementary relating to the 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest. (9)
3.2	By-laws. (10)
4.1	Form of Certificate for Common Shares of Beneficial Interest. (6)
4.2	Form of Certificate for 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest. (11)
4.3	Form of Certificate for 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (8)
4.4	Form of Certificate for 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest. (9)
4.5	Indenture dated as of April 18, 2007 among RAIT Financial Trust, as issuer, or RAIT, RAIT Partnership, L.P. and RAIT Asset Holdings, LLC, as guarantors, and Wells Fargo Bank, N.A., as trustee. (12)
4.6	Registration Rights Agreement dated as of April 18, 2007 between RAIT and Bear, Stearns & Co. Inc. (12)
4.7	Base Indenture dated as of March 21, 2011 between RAIT Financial Trust, as issuer, and Wells Fargo Bank, National Association., as trustee. (13)
4.8	Supplemental Indenture dated as of March 21, 2011 between RAIT Financial Trust, as issuer, and Wells Fargo Bank, National Association., as trustee. (13)
10.1	Form of Letter Agreement between RAIT and each of its Non-Management Trustees dated as of January 25, 2011. (14)
10.2	Separation Agreement dated as of July 15, 2011 between RAIT Financial Trust and Plamen Mitrikov.
10.3	Third Amended and Restated Employment Agreement dated as of August 4, 2011 between RAIT and Scott F. Schaeffer.
10.4	First Amended and Restated Employment Agreement dated as of August 4, 2011 between RAIT and Ken R. Frappier.
15.1	Awareness Letter from Independent Accountants.
31.1	Certification Pursuant to 13a-14 (a) under the Securities Exchange Act of 1934.
31.2	Certification Pursuant to 13a-14 (a) under the Securities Exchange Act of 1934.
32.1	Certification Pursuant to 18 U.S.C. Section 1350.
32.2	Certification Pursuant to 18 U.S.C. Section 1350.
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from RAIT’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2011 and 2010; (ii) Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three-month and six-month periods ended June 30, 2011 and 2010; (iv) Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2011 and 2010; and (v) Notes to Unaudited Consolidated Financial Statements. The information in this exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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

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

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

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

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

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

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

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

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

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

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

(12) Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on April 18, 2007 (File No. 1-14760).

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

(14) Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on January 28, 2011 (File No. 1-14760).

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EX-10.2

Exhibit 10.2

SEPARATION AGREEMENT

WHEREAS, Plamen Mitrikov (“Mr. Mitrikov”) has been employed by RAIT Financial Trust (“RAIT”); and

WHEREAS, RAIT and Mr. Mitrikov are party to that certain Employment Agreement dated as of June 8, 2006, as amended December 15, 2008 (as amended, the “Employment Agreement”) and to that certain Letter Agreement dated as of August 7, 2008 (together with the Employment Agreement, the “Employment Agreements”); and

WHEREAS, RAIT and Mr. Mitrikov have mutually agreed that Mr. Mitrikov’s employment with RAIT will terminate on July 15, 2011;

WHEREAS, this Separation Agreement (this “Agreement”) is intended to set forth the terms and conditions of that termination; and

NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:

1. Termination of Employment. (a) RAIT and Mr. Mitrikov have mutually agreed that Mr. Mitrikov’s employment with RAIT and its affiliates pursuant to his Employment Agreement will terminate (the “Termination”) on July 15, 2011 (the “Termination Date”). On July 29, 2011, RAIT will pay Mr. Mitrikov $825,000 (the “Amount”). The parties hereto agree that payment of the Amount satisfies all obligations of RAIT and its affiliates to Mr. Mitrikov in connection with the Termination and that RAIT and its affiliates have no further obligations to Mr. Mitrikov under the Employment Agreements or otherwise, except that: (a) Mr. Mitrikov may submit a final expense report for reimbursement by RAIT in accordance with Section 3.6 of the Employment Agreement, (b) any rights of Mr. Mitrikov under RAIT’s or its subsidiaries’ 401(k) and profit sharing plans will be governed by the terms of the applicable plan document and any rights of Mr. Mitrikov pursuant to COBRA under RAIT’s or its subsidiaries’ medical benefit plans shall continue in accordance with the requirements of applicable law, (c) Mr. Mitrikov’s rights pursuant to the Unit Award Agreement delivered by RAIT to Mr. Mitrikov dated as of January 26, 2010 relating to the remaining 26,666 vested Unit Awards (as adjusted to reflect the reverse stock split of RAIT’s common shares effective June 30, 2011) (the “Remaining Phantom Units”) shall continue in accordance with the terms thereof and (d) Mr. Mitrikov’s rights under the Indemnification Agreements (the “Indemnification Agreements”) entered into by Mr. Mitrikov and RAIT and its subsidiary, Taberna Realty Finance Trust (“Taberna”) shall continue in accordance with the terms thereof. Mr. Mitrikov agrees and acknowledges that, other than any obligations of RAIT under the Remaining Phantom Units, RAIT and its affiliates have no remaining obligations to him pursuant to any other equity compensation awarded to Mr. Mitrikov by RAIT or its affiliates. As of the Termination Date, Mr. Mitrikov will cease to be a director, officer or employee of RAIT or its affiliates and shall have no authority to bind RAIT or its affiliates. RAIT agrees to waive the Restrictive Covenant (as defined in the Employment Agreement) in Section 6.1(a) of the Employment Agreement as of the Termination Date.

2. Release. (a) For the consideration described herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Mr. Mitrikov and his heirs, executors and administrators, intending to be legally bound, hereby release and discharge RAIT, and its subsidiaries, affiliates, and its and their officers, trustees, directors, shareholders, employees, agents, other representatives, successors, assigns, heirs, executors, and administrators (hereinafter referred to collectively as “Releasees”), from any and all causes of actions, suits, debts, claims and demands whatsoever, arising out of Mr. Mitrikov’s employment with RAIT or any of the Releasees and the termination of that employment relationship, which he ever had, now has, or may have against RAIT or any other Releasee. Particularly, but without limitation, Mr. Mitrikov releases any claims relating in any way to his employment or the termination of his employment relationship with RAIT or any other Releasee, including any claims arising out of the Employment Agreements or under any federal, foreign, state or local laws, including without limitation, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., as amended, the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq., as amended, the Family & Medical Leave Act, 29 U.S.C. § 2601 et seq., Worker Adjustment and Retraining Notification, 29 U.S.C. § 2101 et seq., the New York State Human Rights Law, § 296 et seq., the New York City Human Rights Law, § 8-107 et seq., any regulations promulgated thereunder and any common law claims, as well as all claims for counsel fees and costs. Notwithstanding the foregoing, this Release shall not (i) limit Mr. Mitrikov’s ability to assert a defense or set-off against any claims asserted by any Releasee in any forum or (ii) limit Mr. Mitrikov’s rights under the Indemnification Agreements.

(b) Mr. Mitrikov agrees that neither he, nor any person, organization, or other entity on his behalf, will share in any remedy against any of the Releasees, involving any matter occurring at any time in the past up to and including the date of this Agreement, or involving any continuing effects of any actions or practices which may have arisen or occurred on or prior to the date of this Agreement, including any charge of discrimination or complaint under any and all federal, state, or local laws, and any common law claims now or hereafter recognized, as well as all claims for counsel fees and costs.

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3. Agreements and Acknowledgements. Mr. Mitrikov agrees and acknowledges as follows:

(a) Mr. Mitrikov will not disparage or defame in any way any of the Releasees or any of RAIT’s or its affiliates products or services, and RAIT will not disparage or defame in any way Mr. Mitrikov.

(b) Mr. Mitrikov agrees that he remains subject to the Restrictive Covenants in Section 6.1(b) and Section 6.1(c) of the Employment Agreement and that RAIT may, without limitation, exercise the rights and remedies referenced in Section 6.2 of the Employment Agreement in connection with any breach thereof. The duration of any such Restrictive Covenant, where applicable, shall begin on the Termination Date.

(c) Mr. Mitrikov remains subject to RAIT’s Insider Trading Policy until such time as he is not aware of any material nonpublic information concerning RAIT, which will not be before two trading days following the date of RAIT’s earnings release for quarter ending June 30, 2011.

(d) Mr. Mitrikov shall deliver all property of RAIT to the person designated by RAIT to receive same, including keys, identification cards, cellphones, blackberries, computers, records and information belonging to RAIT (including any documents, memoranda or files, stored in whatever media).

(e) For so long as the Indemnification Agreements remain in effect and Mr. Mitrikov is indemnified thereunder, Mr. Mitrikov promises to assist RAIT with the transition of his job responsibilities to other employees of RAIT and its affiliates for six months following the Termination Date and to provide reasonable cooperation to RAIT and its attorneys in connection with any investigations, lawsuits, or other proceedings in which RAIT or its employees may become involved, in each case with respect to work performed for RAIT by Mr. Mitrikov prior to the Termination Date.

(f) Mr. Mitrikov acknowledges and agrees that he will be fully responsible for the payment of any and all taxes (including, but not limited to, any and all applicable federal, state, and local income, excise, penalty or other taxes, plus interest) due and owing by him as a result of RAIT’s payment to him of the Amount and RAIT’s payment of any amounts or delivery of RAIT common shares to him pursuant to the Remaining Phantom Units.

(g) Mr. Mitrikov agrees and acknowledges that this Agreement is not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation, or of any duty owed to Mr. Mitrikov by RAIT.

(h) Mr. Mitrikov agrees, covenants and promises that he will not communicate or disclose the terms of this Agreement to any persons with the exception of members of Mr. Mitrikov’s immediate family, legal counsel, and personal tax and financial advisors, and such representatives of Mr. Mitrikov whose knowledge of the terms of this Agreement is necessary for business purposes.

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(i) Mr. Mitrikov certifies that RAIT has not made any representations to Mr. Mitrikov concerning this Agreement other than those contained herein.

(j) Mr. Mitrikov acknowledges and agrees as follows:

(i) That he has read the terms of this Agreement, that he had a reasonable period to review it and that he understands its terms and effects, including the fact that he has agreed to RELEASE AND FOREVER DISCHARGE RAIT and the other Releasees from any legal action arising out of his employment relationship with RAIT or any of the Releasees or the Employment Agreements, the terms and conditions of that employment relationship, and the termination of that employment relationship;

(ii) That he has signed this Agreement voluntarily and knowingly in exchange for the consideration described herein, which he acknowledges is adequate and satisfactory to him; and

(iii) That he has been advised and is hereby advised in writing to consult with his attorney prior to signing this Agreement.

5. Indemnification, Litigation and Related Matters. The Indemnification Agreements and the provisions of RAIT’s Directors and Officers liability insurance policies (“D&O Policies”), Declaration of Trust and Bylaws relating to indemnification and advancement of expenses to officers of RAIT shall continue to apply to Mr. Mitrikov with respect to work performed for RAIT by Mr. Mitrikov prior to the Termination Date. In addition, any changes to such provisions subsequent to the Termination Date that are generally applicable to conduct of officers of RAIT occurring prior to the Termination Date shall apply to Mr. Mitrikov. RAIT shall continue to maintain liability insurance covering Mr. Mitrikov with respect to work performed for RAIT by Mr. Mitrikov prior to the Termination Date on the same or substantially similar terms as for any other officer. RAIT agrees to keep Mr. Mitrikov reasonably apprised of the status of any Proceedings (as defined in the Indemnification Agreement with Taberna) that may implicate him or his conduct and/or might give rise to a right to indemnification under the Indemnification Agreements or otherwise, including promptly providing relevant publically available documents such as pleadings and material filings.

6. Miscellaneous. Mr. Mitrikov and RAIT hereby certify that each has read the terms of this Agreement, and that each understands this Agreement’s terms and effects. The parties acknowledge that the performance of the promises of each are expressly contingent upon the fulfillment and satisfaction of the obligations of the other party as set forth in this Agreement. This Agreement contains the entire agreement and understanding between Mr. Mitrikov and RAIT with respect to any and all disputes or

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claims that Mr. Mitrikov has, or could have had, against RAIT as of the date this Agreement is executed, and supersedes all other agreements between Mr. Mitrikov and RAIT with regard to such disputes or claims. This Agreement shall not be changed unless in writing and signed by both Mr. Mitrikov and RAIT. This Agreement will be construed in accordance with the laws of the state of New York, which, together with the laws of the United States of America, will control any and all disputes or questions of interpretation arising hereunder.

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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have executed the foregoing Agreement as of this 15th day of July, 2011.

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

/s/ Plamen Mitrikov
Plamen Mitrikov
RAIT Financial Trust
By:	/s/ Raphael Licht
Name: Raphael Licht
Title: Chief Operating Officer & Secretary

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EX-10.3

Exhibit 10.3

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), entered into as of August 4, 2011, by and between RAIT Financial Trust, a Maryland real estate investment trust (the “Company”), with a principal office in Philadelphia, Pennsylvania, and Scott F. Schaeffer (“Executive”).

WHEREAS , the Company and Executive previously entered into a Second Amended and Restated Employment Agreement dated as of December 11, 2006, as previously amended by an Amendment thereto dated as of December 15, 2008 and an Amendment thereto dated as of February 22, 2009; and

WHEREAS, the Company and Executive desire to amend the Agreement to reflect the Executive’s current positions with the Company, to increase the base salary of the Executive and the multiplier included in the change of control provision and to remove the tax gross-up provision relating to parachute payments (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”);

NOW, THEREFORE , the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company continues to employ Executive, and Executive hereby accepts such continued employment and agrees to perform Executive’s duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth.

1.1 Employment Term . This Agreement shall be effective as of the date hereof (the “Effective Date”), and shall continue until the third anniversary of the Effective Date, unless the Agreement is terminated sooner in accordance with Section 2 or 3 below; and shall be effective for successive three-year periods in accordance with the terms of this Agreement (subject to termination as aforesaid) unless either party notifies the other party of non-renewal in writing prior to three months before the expiration of each renewal. The period commencing on the Effective Date and ending on the date on which the term of Executive’s employment under the Agreement shall terminate is hereinafter referred to as the “Employment Term.”

1.2 Duties and Responsibilities . Executive shall continue to serve as the Chief Executive Officer and President of the Company during the Employment Term. Executive also agrees to continue to serve as the Chairman (the “Chairman”) of the Board of Trustees of the Company (the “Board”), subject to the Board’s right to elect a different person to serve as Chairman. Executive shall perform all duties and accept all responsibilities incident to such positions as may be reasonably assigned to him by the Board. Executive shall serve as a member of the Board during the Employment Term, subject to the shareholders’ election of the Executive to the Board. During the Employment Term, the Company agrees to nominate the Executive for election to the Board at any meeting of the shareholders of the Company where the election of the members of the Board is included in the purposes of such meeting.

1.3 Extent of Service . Executive agrees to use Executive’s best efforts to carry out Executive’s duties and responsibilities under Section 1.2 hereof and, consistent with the other provisions of this Agreement, to devote such business time, attention and energy thereto as is reasonably necessary to carry out those duties and responsibilities. The foregoing shall not be construed as preventing Executive from providing service to, or making investments in, other businesses or enterprises provided there is no conflict with Executive’s ability to satisfy his obligations to the Company.

1.4 Base Salary . For all of the services rendered by Executive hereunder, the Company shall continue to pay Executive a base salary (“ Base Salary”), at the annual rate of $650,000 beginning as of April 1, 2011, payable in installments at such times as the Company customarily pays its other senior level executives. Executive’s Base Salary shall be reviewed annually for appropriate increases by the Board pursuant to the Board’s normal performance review policies for senior level executives but shall not be decreased.

1.5 Bonus . Executive shall continue to be eligible to receive annual bonuses in such amounts as the Board may approve in its sole discretion or under the terms of any annual incentive plan of the Company maintained for other senior level executives.

1.6 Retirement and Welfare Plans and Perquisites . Executive shall continue to be entitled to participate in all employee retirement and welfare benefit plans and programs or executive perquisites made available to the Company’s senior level executives as a group or to its employees generally, as such retirement and welfare plans or perquisites may be in effect from time to time and subject to the eligibility requirements of the plans. Nothing in this Agreement shall prevent the Company from amending or terminating any retirement, welfare or other employee benefit plans or programs from time to time as the Company deems appropriate.

1.7 Reimbursement of Expenses; Vacation . Executive shall continue to be provided with reimbursement of reasonable expenses related to Executive’s employment by the Company on a basis no less favorable than that which may be authorized from time to time for senior level executives as a group, and shall be entitled to vacation and sick leave in accordance with the Company’s vacation, holiday and other pay for time not worked policies.

1.8 Incentive Compensation. Executive shall continue to be entitled to participate in any short-term and long-term incentive programs (including without limitation any stock option plans) established by the Company for its senior level executives generally, at levels commensurate with the benefits provided to other senior executives and with adjustments appropriate for his positions as Chairman, Chief Executive Officer and President.

1.9 Car Allowance . The Company shall continue to provide Executive with a car allowance of not less than $500 per month.

2. Termination. Executive’s employment shall terminate upon the occurrence of any of the following events:

2.1 Termination Without Cause; Resignation for Good Reason; Non-Renewal by the Company.

(a) The Company may remove Executive at any time without Cause (as defined in Section 4) from the position in which Executive is employed hereunder upon not less than sixty (60) days’ prior written notice to Executive. In addition, Executive may initiate a termination of employment by resigning under this Section 2.1 for Good Reason (as defined in Section 4). Executive shall give the Company not less than sixty (60) days’ prior written notice of such resignation. In addition, the Company may initiate a termination of employment by sending a notice of non-renewal of this Agreement to the Executive, as described in Section 1.1.

(b) Upon any removal or resignation described in Section 2.1(a) above, Executive shall be entitled to receive only the amount due to Executive under the Company’s then current severance pay plan for employees, if any. No other payments or benefits shall be due under this Agreement to Executive, but Executive shall be entitled to any benefits accrued and earned in accordance with the terms of any applicable benefit plans and programs of the Company.

(c) Notwithstanding the provisions of Section 2.1(b), in the event that Executive executes and does not revoke a written mutual release upon such removal or resignation, in a form acceptable to the Company (the “ Release ”), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive’s employment by the Company, or the termination thereof (other than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Company under which Executive has accrued and is due a benefit), and any claims against Executive for actions within the scope of his employment by the Company, Executive shall be entitled to receive, in lieu of the payment described in Section 2.1(b), the following:

(i) Executive shall receive a lump sum cash payment equal to two and one quarter times the sum of (x) Executive’s Base Salary, as in effect immediately prior to his termination of employment and (y) the average annual cash bonus Executive received for the three year period immediately prior to his termination of employment. One-half of the amount described in the preceding sentence shall be

consideration for Executive’s entering into the restrictive covenants described in Section 5 below. Unless the payment is required to be delayed pursuant to Section 18.2 below, the payment described above shall be made on the sixtieth (60th) day following Executive’s last day of employment with the Company, provided Executive executes the Release during the forty-five (45) day period following Executive’s last day of employment and the revocation period for the Release has expired without revocation by Executive before the lapse of such sixty (60) day period, and provided further that if such sixty (60) day period begins in one calendar year and ends in the next succeeding calendar year, the payment will be made in the next succeeding calendar year.

(ii) For a period of 18 months following the date of termination, Executive shall continue to receive the medical coverage in effect at the date of his termination (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, at the same premium rates as may be charged from time to time for employees of the Company generally, as if Executive had continued in employment with the Company during such period. The COBRA health care continuation coverage period under Section 4980B of the Code shall run concurrently with the foregoing 18-month benefit period.

(iii) Executive shall also receive any other amounts earned, accrued and owing but not yet paid under Section 1 above, including a pro rata portion of Executive’s target annual cash bonus for the fiscal year of his termination (or, in the absence of a target bonus opportunity for the fiscal year, a pro rata portion of the average annual cash bonus Executive received for the three year period immediately prior to his termination of employment) (the “Cash Bonus”). The pro rated Cash Bonus shall be determined by multiplying the Cash Bonus by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the fiscal year of his termination and the denominator of which is three hundred and sixty-five (365). Unless the payment is required to be delayed pursuant to Section 18.2 below, the payment described above shall be made on the sixtieth (60th) day following Executive’s last day of employment with the Company, provided Executive executes the Release during the forty-five (45) day period following Executive’s last day of employment and the revocation period for the Release has expired without revocation by Executive.

2.2 Voluntary Termination . Executive may voluntarily terminate his employment for any reason upon sixty (60) days’ prior written notice or by sending a notice of non-renewal of this Agreement to the Company, as described in Section 1.1. In any such event, after the effective date of such termination, except as provided in Section 2.1 with respect to a resignation for Good Reason, no further payments shall be due under this Agreement, except that Executive shall be entitled to any benefits accrued and due in accordance with the terms of any applicable benefit plans and programs of the Company.

2.3 Disability. The Company may terminate Executive’s employment if Executive has been unable to perform the material duties of his employment and has been formally determined to be eligible for disability benefits under the Company’s long-term disability plan (“Disability”); provided, however, that the Company shall continue to pay Executive’s Base Salary until the Company acts to terminate Executive’s employment. Executive agrees, in the event of a dispute under this Section 2.3 relating to Executive’s Disability, to submit to a physical examination by a licensed physician jointly selected by the Board and Executive. If the Company terminates Executive’s employment for Disability, Executive shall be entitled to receive the following:

(a) The Company shall pay to Executive any amounts earned, accrued and owing but not yet paid under Section 1 above and a pro rata Cash Bonus for the fiscal year in which Executive’s Disability occurs. The pro rated Cash Bonus shall be determined as provided in Section 2.1(c)(iii) above and, unless the payment is required to be delayed pursuant to Section 18.2 below, shall be paid in a lump sum cash payment to Executive on the sixtieth (60th) day following Executive’s last day of employment with the Company on account of Disability.

(b) Executive shall receive any other benefits accrued and earned in accordance with the terms of any applicable benefit plans and programs of the Company.

2.4 Death . If Executive dies while employed by the Company, the Company shall pay to Executive’s executor, legal representative, administrator or designated beneficiary, as applicable, (i) any amounts earned, accrued and owing but not yet paid under Section 1 above and any benefits accrued and earned under the Company’s benefit plans and programs and (ii) a pro rated Cash Bonus for the fiscal year in

which Executive’s death occurs, which pro rated Cash Bonus shall be determined as provided in Section 2.1(c)(iii) above and, unless the payment is required to be delayed pursuant to Section 18.2 below, shall be paid in a lump sum cash payment on the sixtieth (60th) day following Executive’s death. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through Executive.

2.5 Cause . The Company may terminate Executive’s employment at any time for Cause upon written notice to Executive, in which event all payments under this Agreement shall cease, except for Base Salary to the extent already accrued. Executive shall be entitled to any benefits accrued and earned before his termination in accordance with the terms of any applicable benefit plans and programs of the Company.

2.6 Notice of Termination . Any termination of Executive’s employment shall be communicated by a written notice of termination to the other party hereto given in accordance with Section 10. The notice of termination shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) briefly summarize the facts and circumstances deemed to provide a basis for a termination of employment and the applicable provision hereof, and (iii) specify the termination date in accordance with the requirements of this Agreement.

3. Change of Control.

3.1 Effect of Change of Control . If a Change of Control occurs and Executive’s employment terminates under the circumstances described below, the provisions of Section 2.1 shall apply.

3.2 Termination Without Cause Upon or After a Change of Control . Upon or after a Change of Control, the Company (by action of the Board) may remove Executive at any time without Cause from the position in which Executive is employed hereunder or Executive may initiate termination of employment by resigning under this Section 3 for Good Reason (as defined in Section 4) (in either case the Employment Term shall be deemed to have ended) upon not less than sixty (60) days’ prior written notice to Executive (or in the case of resignation for Good Reason, Executive shall give the Company not less than sixty (60) days’ prior written notice of such resignation). In any such event, the provisions of Section 2.1(b) or (c), as applicable, shall then apply.

3.3 Code Section 280G.

(a) Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respect to any amount payable to or other benefit receivable by Executive hereunder, including, without limitation, any excise tax imposed by Section 4999 of the Code; provided, however, that any such amount or benefit deemed to be a Parachute Payment (as defined below) alone or when added to any other amount payable or paid to or other benefit receivable or received by Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on Executive of an excise tax under Section 4999 of the Code, (all such amounts and benefits being hereinafter called “Total Payments”) shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of such reduction, the net after-tax benefit received by the Executive shall exceed the net after-tax benefit received by the Executive if no such reduction was made. For purposes of this Section 3.3, “net after-tax benefit” shall mean (i) the total of all payments and the value of all benefits which the Executive receives or is then entitled to receive from the Company that would constitute Parachute Payments, less (ii) the amount of all federal, state and local income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing) and the amount of applicable employment taxes, less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. For purposes of this Section 3.3, “Parachute Payment” shall mean a “parachute payment” as defined in Section 280G of the Code.

(b) The foregoing determination shall be made by tax counsel appointed by the Executive (the “Tax Counsel”). The Tax Counsel shall submit its determination and detailed supporting calculations to both the Executive and the Company within 15 days after receipt of a notice from either the Company or the Executive that the Executive may receive payments which may be Parachute Payments. If the Tax Counsel determines that such reduction is required by this Section 3.3, the Total Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to the Participant. The manner in which the Total Payments are reduced shall be mutually agreed to by the Company and the Executive and approved by Tax Counsel; provided, however, that if the Company and the Executive do not agree within 15 days of the receipt of the Tax Counsel’s determination, the reduction shall be accomplished by, first, reducing any lump sum cash payments included in the Total Payments and, if further reductions are necessary, by such other reductions as shall be recommended by Tax Counsel. If the Tax Counsel determines that no reduction is necessary under this Section 3.3, it will, at the same time as it makes such determination, furnish the Executive and the Company an opinion that the Executive shall not be liable for any excise tax under Section 4999 of the Code. The Executive and the Company shall each provide the Tax Counsel access to and copies of any books, records, and documents in the possession of the Executive or the Company, as the case may be, reasonably requested by the Tax Counsel, and otherwise cooperate with the Tax Counsel in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 3.3. The fees and expenses of the Tax Counsel for its services in connection with the determinations and calculations contemplated by this Section 3.3 shall be borne by the Company.

4. Definitions.

4.1 “Cause” shall mean any of the following grounds for termination of Executive’s employment:

(a) Executive shall have been convicted of a felony;

(b) Executive intentionally and continually fails substantially to perform his reasonably assigned material duties to the Company (other than a failure resulting from Executive’s incapacity due to physical or mental illness), which failure has been materially and demonstrably detrimental to the Company and has continued for a period of at least 30 days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to Executive specifying the manner in which Executive has failed substantially to perform; or

(c) Executive breaches Section 5 of this Agreement.

4.2 “Good Reason” shall mean:

(a) A reduction in Executive’s annual rate of base salary;

(b) A failure of the Company to make the payments required by Section 1.4 hereof;

(c) A significant adverse alteration in the nature or status of Executive’s responsibilities (and non-election of Executive to the Board, the removal of Executive from the position of Chief Executive Officer or President or requiring the Executive to report to any employee of the Company shall be deemed to be a significant adverse alteration in the nature or status of Executive’s responsibilities); provided, however, that the election by the Board of a different person to serve as Chairman shall not be deemed to be such an alteration so long as (i) the Executive continues to have his duties assigned to him by the Board and (ii) no executive officers or other employees of the Company have their duties assigned to them by the Chairman;

(d) Any other material breach by the Company of this Agreement; or

(e) Relocation (without the written consent of Executive) of the Company’s executive offices to a location more than thirty (30) miles from its current location.

Notwithstanding the foregoing, (i) Good Reason shall not be deemed to exist unless notice of termination on account thereof (specifying a termination date of at least 60 days but no more than 90 days from the date of such notice) is given no later than 90 days after the time at which the event or condition purportedly giving rise to Good Reason first occurs or arises and (ii) if there exists (without regard to this clause (ii)) an event or condition that constitutes Good Reason, the Company shall have 30 days from the date notice of such a termination is given to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder.

4.3 “Change of Control” shall mean the occurrence of any of the following:

(a) The acquisition of the beneficial ownership, as defined under the Securities Exchange Act of 1934, of twenty-five percent (25%) or more of the Company’s voting securities or all or substantially all of the assets of the Company by a single person or entity or group of affiliated persons or entities other than by a Related Entity (as defined below); or

(b) The merger, consolidation or combination of the Company with an unaffiliated entity, other than a Related Entity (as defined below) in which the directors of the Company as applicable immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity unless one-half of the board of directors of the surviving, new or combined entity, were directors of the Company immediately prior to such transaction and the Company’s chief executive officer immediately prior to such transaction continues as the chief executive officer of the surviving, new or combined entity; or

(c) During any period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least two-thirds thereof, unless the election or nomination for the election by the Company’s stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or

(d) The transfer of all or substantially all of the Company’s assets or all or substantially all of the assets of its primary subsidiaries to an unaffiliated entity, other than to a Related Entity (as defined below).

For purposes of the definition of “Change of Control” as set forth herein, the term “Related Entity” shall mean an entity that is an “affiliate” of the Executive or any member of the Executive’s immediate family, as determined in accordance with Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

5. Non-Competition, Non-Solicitation, Intellectual Property and Confidentiality. Executive hereby acknowledges that, during and solely as a result of his employment by the Company, Executive will receive special training and education with respect to the operation of the Company’s business and other related matters, and access to confidential information and business and professional contacts. In consideration of Executive’s employment and in consideration of the special and unique opportunities afforded by the Company to Executive as a result of Executive’s employment, Executive hereby agrees to abide by the terms of the non-competition, non-solicitation, intellectual property and confidentiality provisions below. Executive agrees and acknowledges that his employment is full, adequate and sufficient consideration for the restrictions and obligations set forth in those provisions.

5.1 Non-Competition and Non-Solicitation. In consideration of the Company’s entering into this Agreement, Executive agrees that during the Employment Term and, with respect to Section 5.1(a) below, for a period of eight (8) months after the termination of the Employment Term and, with respect to Section 5.1(b) and (c) below, for a period of twelve (12) months after the termination of the Employment Term, without regard to its termination for any reason which does not constitute a breach of this Agreement by the Company or a resignation for Good Reason by the Executive, Executive shall not, unless acting pursuant hereto or with the prior written consent of the Board:

(a) directly or indirectly, own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive’s name to be used in connection with any Competing Business (defined below) within any state in which the Company currently engages in any substantial business activity or any state in which the Company engaged in any substantial business activity during the thirty-six month period preceding the date the Executive’s employment terminates; provided, however, that notwithstanding the foregoing, this provision shall not be construed to prohibit the passive ownership by Executive of not more than five percent (5%) of the capital stock of any corporation which is engaged in any Competing Business having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended;

(b) solicit or divert to any Competing Business any individual or entity which is an active or prospective customer of Company or was such an active or prospective customer at any time during the preceding 12 months; or

(c) employ, attempt to employ, solicit or assist any Competing Business in employing any employee of the Company whether as an employee or consultant.

The term “Competing Business” shall mean: any entity or enterprise actively engaged in any business the Company is actively engaged in (or is expected to be actively engaged in within 12 months) at the time of termination.

In the event that the provisions of this Section 5.1 should ever be adjudicated to exceed the time, geographic, product or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or other limitations permitted by applicable law.

5.2 Developments . Executive shall disclose fully, promptly and in writing to the Company any and all inventions, discoveries, improvements, modifications and other intellectual property rights, whether patentable or not, which Executive has conceived, made or developed, solely or jointly with others, while employed by the Company and which (i) relate to the business, work or activities of the Company or (ii) result from or are suggested by the carrying out of Executive’s duties hereunder or from or by any information that Executive may receive as an employee of the Company. Executive hereby assigns, transfers and conveys to the Company all of Executive’s right, title and interest in and to any and all such inventions, discoveries, improvements, modifications and other intellectual property rights and agrees to take all such actions as may be requested by the Company at any time and with respect to any such invention, discovery, improvement, modification or other intellectual property rights to confirm or evidence such assignment, transfer and conveyance. Furthermore, at any time and from time to time, upon the request of the Company, Executive shall execute and deliver to the Company, any and all instruments, documents and papers, give evidence and do any and all other acts that, in the opinion of counsel for the Company, are or may be necessary or desirable to document such assignment, transfer and conveyance or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such inventions, discoveries, improvements, modifications or other intellectual property rights or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company shall be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and shall reimburse Executive for all reasonable expenses incurred by Executive in compliance with the provisions of this Section 5.2.

5.3 Confidentiality .

(a) Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information of the Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs, ideas, trade secrets, proprietary information, manufacturing, packaging, advertising, distribution and sales methods, sales and profit figures, customer and client lists and relationships between the

Company and dealers, distributors, sales representatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“ Confidential Information ” ). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Employment Term, Executive will not disclose any Confidential Information to any person (except as Executive’s duties as an officer of the Company may require or as required by law or in a judicial or administrative proceeding) without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 5.3 shall not apply to information that becomes generally known to the public through no act of Executive in breach of this Agreement.

(b) Executive acknowledges that all documents, files and other materials received from the Company during the Employment Term (with the exception of documents relating to Executive’s compensation or benefits to which Executive is entitled following the Employment Term) are for use of Executive solely in discharging Executive’s duties and responsibilities hereunder and that Executive has no claim or right to the continued use or possession of such documents, files or other materials following termination of Executive’s employment by the Company. Executive agrees that, upon termination of employment, Executive will not retain any such documents, files or other materials and will promptly return to the Company any documents, files or other materials in Executive’s possession or custody.

5.4 Equitable Relief. Executive acknowledges that the restrictions contained in Sections 5.1, 5.2 and 5.3 hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that any violation of any provision of those Sections will result in irreparable injury to the Company. Executive also acknowledges that in the event of any such violation, the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, and to an equitable accounting of all earnings, profits and other benefits arising from any such violation, which rights shall be cumulative and in addition to any other rights or remedies to which the Company may be entitled. Executive agrees that in the event of any such violation, an action may be commenced for any such preliminary and permanent injunctive relief and other equitable relief in any federal or state court of competent jurisdiction sitting in Pennsylvania or in any other court of competent jurisdiction. Executive hereby waives, to the fullest extent permitted by law, any objection that Executive may now or hereafter have to such jurisdiction or to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. Executive agrees that effective service of process may be made upon Executive by mail under the notice provisions contained in Section 10 hereof.

6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company and for which Executive may qualify; provided, however, that if Executive becomes entitled to and receives the payments provided for in Section 2.1(c) of this Agreement, Executive hereby waives Executive’s right to receive payments under any severance plan or similar program applicable to all employees of the Company.

7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of such rights and obligations.

8. Mitigation. Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain.

9. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement, other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in Philadelphia, Pennsylvania in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be

entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. Each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys’ fees and expenses) and shall share the fees of the American Arbitration Association.

10. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received):

If to the Company, to:

RAIT Financial Trust

2929 Arch Street, 17^th Floor

Philadelphia, PA 19104

If to Executive, to:

Scott F. Schaeffer at his most recent home address set forth in the records of the Company.

or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.

11. Contents of Agreement; Amendment and Assignment.

11.1 This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. This Agreement supersedes the provisions of any employment or other agreement between Executive and the Company that relate to any matter that is also the subject of this Agreement, including, but not limited to, the Amended and Restated Employment Agreement, entered into as of January 23, 2002, and such provisions in such other agreements will be null and void.

11.2 All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, within fifteen (15) days of such succession, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place.

12. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

13. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be

exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion.

14. Beneficiaries/References. Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive’s death by giving the Company written notice thereof. In the event of Executive’s death or a judicial determination of Executive’s incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive’s beneficiary, estate or other legal representative.

15. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.

16. Withholding. All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Except as specifically provided otherwise in this Agreement, Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

17. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.

18. Section 409A.

18.1 Interpretation. Notwithstanding the other provisions hereof, this Agreement is intended to comply with the requirements of section 409A of the Code, to the extent applicable, and this Agreement shall be interpreted to avoid any penalty sanctions under section 409A of the Code. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with section 409A and, if necessary, any such provision shall be deemed amended to comply with section 409A of the Code and regulations thereunder. If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment. In no event may the Executive, directly or indirectly, designate the calendar year of payment.

18.2 Payment Delay. Notwithstanding any provision to the contrary in this Agreement, if on the date of the Executive’s termination of employment, the Executive is a “specified employee” (as such term is defined in section 409A(a)(2)(B)(i) of the Code and its corresponding regulations) as determined by the Board (or its delegate) in its sole discretion in accordance with its “specified employee” determination policy, then all cash severance payments payable to the Executive under this Agreement that are deemed as deferred compensation subject to the requirements of section 409A of the Code shall be postponed for a period of six months following the Executive’s “separation from service” with the Company (or any successor thereto). The postponed amounts shall be paid to the Executive in a lump sum on the date that is six (6) months and one(1) day following the Executive’s “separation from service” with the Company (or any successor thereto). If the Executive dies during such six-month period and prior to payment of the postponed cash amounts hereunder, the amounts delayed on account of section 409A of the Code shall be paid to the personal representative of the Executive’s estate on the sixtieth (60th) day after Executive’s death. If any of the cash payments payable pursuant to this Agreement are delayed due to the requirements of section 409A of the Code, there shall be added to such payments interest during the deferral period at an annualized rate of interest equal to the prime rate as reported in the Wall Street Journal (or, if unavailable, a comparable source) at the relevant time.

18.3 Reimbursements. All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the taxable year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit. .

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.

RAIT FINANCIAL TRUST
By:	/s/ Raphael Licht
Name:	Raphael Licht
Title:	Chief Operating Officer and Secretary

EXECUTIVE

/s/ Scott F. Schaeffer

Scott F. Schaeffer

EX-10.4

Exhibit 10.4

FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), entered into as of August 4, 2011, by and between RAIT Financial Trust, a Maryland real estate investment trust (the “Company”), with a principal office in Philadelphia, Pennsylvania, and Kenneth R. Frappier (“Executive”).

WHEREAS , the Company and Executive previously entered into an Employment Agreement dated as of February 5, 2008 as amended December 15, 2008 (as amended, the “ Prior Agreement ” );

WHEREAS , the Company and Executive desire to amend the terms and conditions of Executive’s employment with the Company set forth in the Prior Agreement to reflect the terms and conditions set forth herein;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company continues to employ Executive, and Executive hereby accepts such continued employment and agrees to perform Executive’s duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth.

1.1 Employment Term. This Agreement shall be effective as of the date of this Agreement and shall continue until the first anniversary of the date of this Agreement, unless the Agreement is terminated sooner in accordance with Section 2 or 3 below; and shall be effective for successive one-year periods in accordance with the terms of this Agreement (subject to termination as aforesaid) unless either party notifies the other party of non-renewal in writing prior to three months before the expiration of each annual renewal. The period commencing on the date of this Agreement and ending on the date on which the term of Executive’s employment under the Agreement shall terminate is hereinafter referred to as the “Employment Term.”

1.2 Duties and Responsibilities. Executive shall serve as the Executive Vice President – Portfolio and Risk Management of the Company. Executive shall perform all duties and accept all responsibilities incident to such positions as may be reasonably assigned to him by the Board of Trustees of the Company (the “Board”) or the Chief Executive Officer of the Company.

1.3 Extent of Service. Executive agrees to use Executive’s best efforts to carry out Executive’s duties and responsibilities under Section 1.2 hereof and, consistent with the other provisions of this Agreement, to devote such business time, attention and energy thereto as is reasonably necessary to carry out those duties and responsibilities. The foregoing shall not be construed as preventing Executive from providing service to, or making investments in, other businesses or enterprises provided there is no conflict with Executive’s ability to satisfy his obligations to the Company.

1.4 Base Salary. For all of the services rendered by Executive hereunder, the Company shall continue to pay Executive a base salary (“Base Salary”), which shall be at the annual rate of $385,000 beginning as of April 1, 2011, payable in installments at such times as the Company customarily pays its other senior level executives. Executive’s Base Salary shall be reviewed annually for appropriate increases by the Board pursuant to the Board’s normal performance review policies for senior level executives but shall not be decreased.

1.5 Bonus. Executive shall continue to be eligible to receive annual bonuses in such amounts as the Board may approve in its sole discretion or under the terms of any annual incentive plan of the Company maintained for other senior level executives.

1.6 Retirement and Welfare Plans and Perquisites. Executive shall continue to be entitled to participate in all employee retirement and welfare benefit plans and programs or executive perquisites made available to the Company’s senior level executives as a group or to its employees generally, as such retirement and welfare plans or perquisites may be in effect from time to time and subject to the eligibility requirements of the plans. Nothing in this Agreement shall prevent the Company from amending or terminating any retirement, welfare or other employee benefit plans or programs from time to time as the Company deems appropriate.

1.7 Reimbursement of Expenses; Vacation. Executive shall continue to be provided with reimbursement of reasonable expenses related to Executive’s employment by the Company on a basis no less favorable than that which may be authorized from time to time for senior level executives as a group, and shall be entitled to vacation and sick leave in accordance with the Company’s vacation, holiday and other pay for time not worked policies.

1.8 Incentive Compensation. Executive shall continue to be entitled to participate in any short-term and long-term incentive programs (including without limitation any equity compensation plans) established by the Company for its senior level executives generally, at levels commensurate with the benefits provided to other senior executives and with adjustments appropriate for his position as Executive Vice President – Portfolio and Risk Management.

2. Termination. Executive’s employment shall terminate upon the occurrence of any of the following events:

2.1 Termination Without Cause; Resignation for Good Reason; Non-Renewal by the Company.

(a) The Company may remove Executive at any time without Cause (as defined in Section 4) from the position in which Executive is employed hereunder upon not less than sixty (60) days’ prior written notice to Executive. In addition, Executive may initiate a termination of employment by resigning under this Section 2.1 for Good Reason (as defined in Section 4). Executive shall give the Company not less than sixty (60) days’ prior written notice of such resignation. In addition, the Company may initiate a termination of employment by sending a notice of non-renewal of this Agreement to the Executive, as described in Section 1.1.

(b) Upon any removal or resignation described in Section 2.1(a) above, Executive shall be entitled to receive only the amount due to Executive under the Company’s then current severance pay plan for employees, if any. No other payments or benefits shall be due under this Agreement to Executive, but Executive shall be entitled to any benefits accrued and earned in accordance with the terms and conditions of any applicable benefit plans and programs of the Company in which Executive participated prior to his termination of employment.

(c) Notwithstanding the provisions of Section 2.1(b), in the event that Executive executes and does not revoke a written mutual release upon such removal or resignation, in a form acceptable to the Company (the “Release”), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive’s employment by the Company, or the termination thereof (other than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Company under which Executive has accrued and is due a benefit), and any claims against Executive for actions within the scope of his employment by the Company, Executive shall be entitled to receive, in lieu of the payment described in Section 2.1(b), the following:

(i) Executive shall receive a lump sum cash payment equal to one and a half times the sum of (x) Executive’s Base Salary, as in effect immediately prior to his termination of employment and (y) the average annual cash bonus Executive received for the three year period immediately prior to his termination of employment. One-half of the amount described in the preceding sentence shall be consideration for Executive’s entering into the restrictive covenants described in Section 5 below. Unless the payment is required to be delayed pursuant to Section 18.2 below, the payment shall be made on the sixtieth (60th) day following Executive’s last day of employment with the Company, provided Executive executes the Release during the forty-five (45) day period following Executive’s last day of employment and the revocation period for the Release has expired without revocation by Executive.

(ii) Executive shall receive a lump sum cash payment equal to a pro rata portion of Executive’s target annual cash bonus for the fiscal year of his termination (or, in the absence of a target bonus opportunity for the fiscal year, a pro rata portion of the average annual cash bonus Executive received for the three year period immediately prior to his termination of employment) (the “Cash Bonus”). The pro rated Cash Bonus shall be determined by multiplying the Cash Bonus by a fraction, the numerator of which is the number of days during which Executive was employed by the Company in the fiscal year prior to his termination of employment and the denominator of which is three hundred sixty-five (365). Unless the payment is required to be delayed pursuant to Section 18.2 below, the payment shall be made on

the sixtieth (60th) day following Executive’s last day of employment with the Company, provided Executive executes the Release during the forty-five (45) day period following Executive’s last day of employment and the revocation period for the Release has expired without revocation by Executive.

(iii) For a period of eighteen (18) months following the date of termination, Executive shall continue to receive the medical coverage in effect at the date of his termination (or generally comparable coverage) for himself and, where applicable, his spouse and dependents, at the same premium rate as may be charged from time to time for employees generally, as if Executive had continued in employment with the Company during such period. The COBRA health care continuation coverage period under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”), shall run concurrently with the foregoing eighteen (18) month benefit period.

(iv) Executive shall also receive any other amounts earned, accrued and owing but not yet paid under Section 1 above and under any applicable benefit plans and programs of the Company (other than severance plans or programs) in which Executive participated prior to his termination of employment, subject to the terms and conditions of any such plans and programs.

2.2 Voluntary Termination. Executive may voluntarily terminate his employment for any reason upon sixty (60) days’ prior written notice or by sending a notice of non-renewal of this Agreement to the Company, as described in Section 1.1. In any such event, after the effective date of such termination, except as provided in Section 2.1 with respect to a resignation for Good Reason, no further payments shall be due under this Agreement, except that Executive shall be entitled to any benefits accrued and due in accordance with the terms and conditions of any applicable benefit plans and programs of the Company in which Executive participated prior to his termination of employment.

2.3 Disability. The Company may terminate Executive’s employment, to the extent permitted by applicable law, if Executive has been unable to perform the material duties of his employment for a period of ninety (90) consecutive days in any twelve (12) month period because of physical or mental injury or illness (“Disability”); provided, however, that the Company shall continue to pay Executive’s Base Salary until the Company acts to terminate Executive’s employment. Executive agrees, in the event of a dispute under this Section 2.3 relating to Executive’s Disability, to submit to a physical examination by a licensed physician jointly selected by the Board and Executive. If the Company terminates Executive’s employment for Disability, Executive shall be entitled to receive the following:

(a) Executive shall receive a lump sum cash payment equal to a pro rata portion of Executive’s Cash Bonus. The pro rated Cash Bonus shall be determined as provided in Section 2.1(c)(ii) above. Except as otherwise required to comply with the requirements of Section 18 below, payment shall be made on the sixtieth (60th) day following Executive’s last day of employment with the Company.

(b) The Company shall pay to Executive any amounts earned, accrued and owing but not yet paid under Section 1 above and any other benefits accrued and earned in accordance with the terms and conditions of any applicable benefit plans and programs of the Company in which Executive participated prior to his termination of employment.

2.4 Death. If Executive dies while employed by the Company, the Company shall pay to Executive’s executor, legal representative, administrator or designated beneficiary, as applicable, (i) any amounts earned, accrued and owing but not yet paid under Section 1 above and any benefits accrued and earned under the Company’s benefit plans and programs in which Executive participated prior to his termination of employment, in accordance with the terms and conditions of such plans and programs, and (ii) a pro rated Cash Bonus for the fiscal year in which Executive’s death occurs, which pro rated Cash Bonus shall be determined according to Section 2.1(c)(iii) above and, except as otherwise required to comply with the requirements of Section 18 below, shall be paid on the sixtieth (60th) day following the date of Executive’s death. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through Executive.

2.5 Cause. The Company may terminate Executive’s employment at any time for Cause upon written notice to Executive, in which event all payments under this Agreement shall cease, except for Base Salary

to the extent already accrued. Executive shall be entitled to any benefits accrued and earned before his termination in accordance with the terms and conditions of any applicable benefit plans and programs of the Company in which Executive participated prior to his termination of employment.

2.6 Notice of Termination. Any termination of Executive’s employment shall be communicated by a written notice of termination to the other party hereto given in accordance with Section 10. The notice of termination shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) briefly summarize the facts and circumstances deemed to provide a basis for a termination of employment and the applicable provision hereof, and (iii) specify the termination date in accordance with the requirements of this Agreement.

3. Change of Control.

3.1 Change of Control. Upon a “Change of Control” (as defined below) while Executive is employed by the Company, all outstanding unvested equity-based awards held by Executive shall fully vest and shall become immediately exercisable, as applicable.

3.2 Termination for Good Reason Following a Change of Control. If, within the six (6) month period following a Change of Control, Executive terminates his employment with the Company for any reason or no reason, such termination shall be deemed a termination by Executive for Good Reason covered by Section 2.1; provided, however, that Executive shall give the Company not less than thirty (30) days’ prior written notice of such resignation.

3.3 Code Section 280G.

(a) Executive shall bear all expense of, and be solely responsible for, all federal, state, local or foreign taxes due with respect to any amount payable to or other benefit receivable by Executive hereunder, including, without limitation, any excise tax imposed by Section 4999 of the Code; provided, however, that any such amount or benefit deemed to be a Parachute Payment (as defined below) alone or when added to any other amount payable or paid to or other benefit receivable or received by Executive which is deemed to constitute a Parachute Payment (whether or not under an existing plan, arrangement or other agreement), and would result in the imposition on Executive of an excise tax under Section 4999 of the Code, (all such amounts and benefits being hereinafter called “Total Payments”) shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code but only if, by reason of such reduction, the net after-tax benefit received by the Executive shall exceed the net after-tax benefit received by the Executive if no such reduction was made. For purposes of this Section 3.3, “net after-tax benefit” shall mean (i) the total of all payments and the value of all benefits which the Executive receives or is then entitled to receive from the Company that would constitute Parachute Payments, less (ii) the amount of all federal, state and local income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to the Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing) and the amount of applicable employment taxes, less (iii) the amount of excise taxes imposed with respect to the payments and benefits described in (i) above by Section 4999 of the Code. For purposes of this Section 3.3, “Parachute Payment” shall mean a “parachute payment” as defined in Section 280G of the Code.

(b) The foregoing determination shall be made by tax counsel appointed by the Executive (the “Tax Counsel”). The Tax Counsel shall submit its determination and detailed supporting calculations to both the Executive and the Company within 15 days after receipt of a notice from either the Company or the Executive that the Executive may receive payments which may be Parachute Payments. If the Tax Counsel determines that such reduction is required by this Section 3.3, the Total Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to the Participant. The manner in which the Total Payments are reduced shall be mutually agreed to by the Company and the Executive and approved by Tax Counsel; provided, however, that if the Company and the Executive do not agree within 15 days of the receipt of the Tax Counsel’s determination, the reduction shall be accomplished by,

first, reducing any lump sum cash payments included in the Total Payments and, if further reductions are necessary, by such other reductions as shall be recommended by Tax Counsel. If the Tax Counsel determines that no reduction is necessary under this Section 3.3, it will, at the same time as it makes such determination, furnish the Executive and the Company an opinion that the Executive shall not be liable for any excise tax under Section 4999 of the Code. The Executive and the Company shall each provide the Tax Counsel access to and copies of any books, records, and documents in the possession of the Executive or the Company, as the case may be, reasonably requested by the Tax Counsel, and otherwise cooperate with the Tax Counsel in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 3.3. The fees and expenses of the Tax Counsel for its services in connection with the determinations and calculations contemplated by this Section 3.3 shall be borne by the Company.

4. Definitions.

4.1 “Cause” shall mean any of the following grounds for termination of Executive’s employment:

(a) Executive shall have been convicted of a felony;

(b) Executive intentionally and continually fails substantially to perform his reasonably assigned material duties to the Company (other than a failure resulting from Executive’s incapacity due to physical or mental illness), which failure has been materially and demonstrably detrimental to the Company and has continued for a period of at least 30 days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Company, has been delivered to Executive specifying the manner in which Executive has failed substantially to perform; or

(c) Executive breaches Section 5 of this Agreement.

4.2 “Good Reason” shall mean, without Executive’s consent,:

(a) the material reduction of Executive’s title, authority, duties and responsibilities or the assignment to Executive of duties materially inconsistent with Executive’s position or positions with the Company;

(b) a reduction in Base Salary of the Executive; or

(c) the Company’s material and willful breach of this Agreement.

Notwithstanding the foregoing, (i) Good Reason shall not be deemed to exist unless notice of termination on account thereof (specifying a termination date of at least 45 days but no more than 60 days from the date of such notice) is given no later than 30 days after the time at which the event or condition purportedly giving rise to Good Reason first occurs or arises and (ii) if there exists (without regard to this clause (ii)) an event or condition that constitutes Good Reason, the Company shall have 30 days from the date notice of such a termination is given to cure such event or condition and, if the Company does so, such event or condition shall not constitute Good Reason hereunder.

4.3 “Change of Control” shall mean the occurrence of any of the following:

(a) The acquisition of the beneficial ownership, as defined under the Securities Exchange Act of 1934, of twenty-five percent (25%) or more of the Company’s voting securities or all or substantially all of the assets of the Company by a single person or entity or group of affiliated persons or entities other than by a Related Entity (as defined below); or

(b) The merger, consolidation or combination of the Company with an unaffiliated entity, other than a Related Entity (as defined below) in which the directors of the Company as applicable immediately prior to such merger, consolidation or combination constitute less than a majority of the board of directors of the surviving, new or combined entity unless one-half of the board of directors of the surviving, new or combined entity, were directors of the Company immediately prior to such transaction and the Company’s chief executive officer immediately prior to such transaction continues as the chief executive officer of the surviving, new or combined entity; or

(c) During any period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least two-thirds thereof, unless the election or nomination for the election by the Company’s stockholders of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; or

(d) The transfer of all or substantially all of the Company’s assets or all or substantially all of the assets of its primary subsidiaries to an unaffiliated entity, other than to a Related Entity (as defined below).

For purposes of the definition of “Change of Control” as set forth herein, the term “Related Entity” shall mean an entity that is an “affiliate” of Mr. Scott F. Schaeffer, or any member of Mr. Schaeffer’s immediate family, as determined in accordance with Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended.

5. Non-Competition, Non-Solicitation, Intellectual Property and Confidentiality. Executive hereby acknowledges that, during and solely as a result of his employment by the Company, Executive will receive special training and education with respect to the operation of the Company’s business and other related matters, and access to confidential information and business and professional contacts. In consideration of Executive’s employment and in consideration of the special and unique opportunities afforded by the Company to Executive as a result of Executive’s employment, Executive hereby agrees to abide by the terms of the non-competition, non-solicitation, intellectual property and confidentiality provisions below. Executive agrees and acknowledges that his employment is full, adequate and sufficient consideration for the restrictions and obligations set forth in those provisions.

5.1 Non-Competition and Non-Solicitation. In consideration of the Company’s entering into this Agreement, Executive agrees that during the Employment Term and, with respect to Section 5.1(a) below, for a period of eight (8) months after the termination of the Employment Term and, with respect to Section 5.1(b) and (c) below, for a period of twelve (12) months after the termination of the Employment Term, without regard to its termination for any reason which does not constitute a breach of this Agreement by the Company or a resignation for Good Reason by the Executive, Executive shall not, unless acting pursuant hereto or with the prior written consent of the Board:

(a) directly or indirectly, own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive’s name to be used in connection with any Competing Business (defined below) within any state in which the Company currently engages in any substantial business activity or any state in which the Company engaged in any substantial business activity during the thirty-six month period preceding the date the Executive’s employment terminates; provided, however, that notwithstanding the foregoing, this provision shall not be construed to prohibit the passive ownership by Executive of not more than five percent (5%) of the capital stock of any corporation which is engaged in any Competing Business having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended;

(b) solicit or divert to any Competing Business any individual or entity which is an active or prospective customer of Company or was such an active or prospective customer at any time during the preceding 12 months; or

(c) employ, attempt to employ, solicit or assist any Competing Business in employing any employee of the Company whether as an employee or consultant.

The term “Competing Business” shall mean: any entity or enterprise actively engaged in any business the Company is actively engaged in (or is expected to be actively engaged in within 12 months) at the time of termination.

In the event that the provisions of this Section 5.1 should ever be adjudicated to exceed the time, geographic, product or other limitations permitted by applicable law in any jurisdiction, then such

provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product or other limitations permitted by applicable law.

5.2 Developments. Executive shall disclose fully, promptly and in writing to the Company any and all inventions, discoveries, improvements, modifications and other intellectual property rights, whether patentable or not, which Executive has conceived, made or developed, solely or jointly with others, while employed by the Company and which (i) relate to the business, work or activities of the Company or (ii) result from or are suggested by the carrying out of Executive’s duties hereunder or from or by any information that Executive may receive as an employee of the Company. Executive hereby assigns, transfers and conveys to the Company all of Executive’s right, title and interest in and to any and all such inventions, discoveries, improvements, modifications and other intellectual property rights and agrees to take all such actions as may be requested by the Company at any time and with respect to any such invention, discovery, improvement, modification or other intellectual property rights to confirm or evidence such assignment, transfer and conveyance. Furthermore, at any time and from time to time, upon the request of the Company, Executive shall execute and deliver to the Company, any and all instruments, documents and papers, give evidence and do any and all other acts that, in the opinion of counsel for the Company, are or may be necessary or desirable to document such assignment, transfer and conveyance or to enable the Company to file and prosecute applications for and to acquire, maintain and enforce any and all patents, trademark registrations or copyrights under United States or foreign law with respect to any such inventions, discoveries, improvements, modifications or other intellectual property rights or to obtain any extension, validation, reissue, continuance or renewal of any such patent, trademark or copyright. The Company shall be responsible for the preparation of any such instruments, documents and papers and for the prosecution of any such proceedings and shall reimburse Executive for all reasonable expenses incurred by Executive in compliance with the provisions of this Section 5.2.

5.3 Confidentiality.

(a) Executive acknowledges that, by reason of Executive’s employment by the Company, Executive will have access to confidential information of the Company, including, without limitation, information and knowledge pertaining to products, inventions, discoveries, improvements, innovations, designs, ideas, trade secrets, proprietary information, manufacturing, packaging, advertising, distribution and sales methods, sales and profit figures, customer and client lists and relationships between the Company and dealers, distributors, sales representatives, wholesalers, customers, clients, suppliers and others who have business dealings with them (“Confidential Information”). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and covenants that, both during and after the Employment Term, Executive will not disclose any Confidential Information to any person (except as Executive’s duties as an officer of the Company may require or as required by law or in a judicial or administrative proceeding) without the prior written authorization of the Board. The obligation of confidentiality imposed by this Section 5.3 shall not apply to information that becomes generally known to the public through no act of Executive in breach of this Agreement.

(b) Executive acknowledges that all documents, files and other materials received from the Company during the Employment Term (with the exception of documents relating to Executive’s compensation or benefits to which Executive is entitled following the Employment Term) are for use of Executive solely in discharging Executive’s duties and responsibilities hereunder and that Executive has no claim or right to the continued use or possession of such documents, files or other materials following termination of Executive’s employment by the Company. Executive agrees that, upon termination of employment, Executive will not retain any such documents, files or other materials and will promptly return to the Company any documents, files or other materials in Executive’s possession or custody.

5.4 Equitable Relief. Executive acknowledges that the restrictions contained in Sections 5.1, 5.2 and 5.3 hereof are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that any violation of any provision of those Sections will result in irreparable injury to the Company. Executive also acknowledges that in the event of any such violation, the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, and to an equitable accounting of all earnings, profits and other benefits arising from any such violation, which rights shall be cumulative and in addition to any other rights or remedies to

which the Company may be entitled. Executive agrees that in the event of any such violation, an action may be commenced for any such preliminary and permanent injunctive relief and other equitable relief in any federal or state court of competent jurisdiction sitting in Pennsylvania or in any other court of competent jurisdiction. Executive hereby waives, to the fullest extent permitted by law, any objection that Executive may now or hereafter have to such jurisdiction or to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that such suit, action or proceeding has been brought in an inconvenient forum. Executive agrees that effective service of process may be made upon Executive by mail under the notice provisions contained in Section 10 hereof.

6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in or rights under any benefit, bonus, incentive or other plan or program provided by the Company and for which Executive may qualify; provided, however, that if Executive becomes entitled to and receives the payments provided for in Section 2.1(c) of this Agreement, Executive hereby waives Executive’s right to receive payments under any severance plan or similar program applicable to all employees of the Company.

7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive’s employment to the extent necessary to the intended preservation of such rights and obligations.

8. Mitigation. Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise and there shall be no offset against amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain.

9. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement, other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in Philadelphia, Pennsylvania in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. Each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys’ fees and expenses) and shall share the fees of the American Arbitration Association.

10. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received):

If to the Company, to:

RAIT Financial Trust

Cira Centre

2929 Arch Street, 17^th Floor

Philadelphia, PA 19104

Attention: Chief Executive Officer

If to Executive, to:

Kenneth R. Frappier at his most recent home address set forth in the records of the Company.

or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.

11. Contents of Agreement; Amendment and Assignment.

11.1 This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. This Agreement supersedes the provisions of any employment or other agreement between Executive and the Company that relate to any matter that is also the subject of this Agreement and such provisions in such other agreements will be null and void.

11.2 All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, within fifteen (15) days of such succession, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place.

12. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

13. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion.

14. Beneficiaries/References. Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive’s death by giving the Company written notice thereof. In the event of Executive’s death or a judicial determination of Executive’s incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive’s beneficiary, estate or other legal representative.

15. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts.

16. Withholding. All payments under this Agreement shall be made subject to applicable tax withholding, and the Company shall withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Except as specifically provided otherwise in this Agreement, Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

17. Governing Law. This Agreement shall be governed by and interpreted under the laws of the Commonwealth of Pennsylvania without giving effect to any conflict of laws provisions.

18. Section 409A.

18.1 Interpretation. Notwithstanding the other provisions hereof, this Agreement is intended to comply with the requirements of Section 409A of the Code, to the extent applicable, and this Agreement shall be interpreted to avoid any penalty sanctions under Section 409A of the Code. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with Section 409A and, if necessary, any such provision shall be deemed amended to comply with section 409A of the Code and regulations thereunder. If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. For purposes of section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment. In no event may the Executive, directly or indirectly, designate the calendar year of payment.

18.2 Payment Delay. Notwithstanding any provision to the contrary in this Agreement, if on the date of the Executive’s termination of employment, the Executive is a “specified employee” (as such term is defined in section 409A(a)(2)(B)(i) of the Code and its corresponding regulations) as determined by the Board (or its delegate) in its sole discretion in accordance with its “specified employee” determination policy, then all cash severance payments payable to the Executive under this Agreement that are deemed as deferred compensation subject to the requirements of section 409A of the Code shall be postponed for a period of six months following the Executive’s “separation from service” with the Company (or any successor thereto). The postponed amounts shall be paid to the Executive in a lump sum on the date that is six (6) months and one (1) day following the Executive’s “separation from service” with the Company (or any successor thereto). If the Executive dies during such six-month period and prior to payment of the postponed cash amounts hereunder, the amounts delayed on account of section 409A of the Code shall be paid to the personal representative of the Executive’s estate on the sixtieth (60th) day after Executive’s death. If any of the cash payments payable pursuant to this Agreement are delayed due to the requirements of section 409A of the Code, there shall be added to such payments interest during the deferral period at an annualized rate of interest equal to the prime rate as reported in the Wall Street Journal (or, if unavailable, a comparable source) at the relevant time.

18.3 Reimbursements. All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the taxable year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written.

RAIT FINANCIAL TRUST
By:	/s/ Scott F. Schaeffer
Name:	Scott F. Schaeffer
Title:	Chairman, Chief Executive Officer and President
EXECUTIVE
By:	/s/ Kenneth R. Frappier
	Kenneth R. Frappier

EX-15.1

Exhibit 15.1

RAIT Financial Trust

Cira Centre

2929 Arch Street, 17th Floor

Philadelphia, Pennsylvania 19104

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim consolidated financial information of RAIT Financial Trust and subsidiaries for the periods ended June 30, 2011 and 2010, as indicated in our report dated August 5, 2011; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 is incorporated by reference in Registration Statements of RAIT Financial Trust on Form S-3 (File No. 333-166065, effective on May 7, 2010; File No. 333-152351, effective on August 6, 2008, File No. 333-149340, effective on March 13, 2008; File No. 333-144603, effective on July 16, 2007 and post effective amendment effective April 25, 2008) and Form S-8 (File No. 333-151627, effective June 13, 2008; File No. 333-125480, effective on June 3, 2005; File No. 333-100766, effective on October 25, 2002; and File No. 333-67452, effective on August 14, 2001).

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of a Registration Statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania

August 5, 2011

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, Scott F. Schaeffer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of RAIT Financial Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011		/s/ Scott F. Schaeffer
	Name:	Scott F. Schaeffer
	Title:	Chairman of the Board, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED

I, Jack E. Salmon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of RAIT Financial Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2011		/s/ Jack E. Salmon
	Name:	Jack E. Salmon
	Title:	Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RAIT Financial Trust (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott F. Schaeffer, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Scott F. Schaeffer

Scott F. Schaeffer

Chairman of the Board, Chief Executive Officer and President

Date: August 5, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RAIT Financial Trust (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack E. Salmon, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jack E. Salmon

Jack E. Salmon

Chief Financial Officer and Treasurer

Date: August 5, 2011

XML



Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Deferred financing costs, accumulated amortization	$ 11,154	$ 9,943
Intangible assets, accumulated amortization	2,057	1,777
Indebtedness, fair value	$ 145,041	$ 152,494
Common shares, par value	$ 0.03	$ 0.03
Common shares, shares authorized	200,000,000	200,000,000
Common shares, shares issued	38,197,648	35,300,190
Common shares, shares outstanding	38,197,648	35,300,190
7.75% Series A Cumulative Redeemable Preferred Shares [Member]
Preferred shares, par value	$ 0.01	$ 0.01
Preferred shares, shares authorized	25,000,000	25,000,000
Cumulative redeemable preferred shares, liquidation preference	$ 25	$ 25
Cumulative redeemable preferred shares, shares issued	2,760,000	2,760,000
Cumulative redeemable preferred shares, shares outstanding	2,760,000	2,760,000
8.375% Series B Cumulative Redeemable Preferred Shares [Member]
Preferred shares, par value	$ 0.01	$ 0.01
Preferred shares, shares authorized	25,000,000	25,000,000
Cumulative redeemable preferred shares, liquidation preference	$ 25	$ 25
Cumulative redeemable preferred shares, shares issued	2,258,300	2,258,300
Cumulative redeemable preferred shares, shares outstanding	2,258,300	2,258,300
8.875% Series C Cumulative Redeemable Preferred Shares [Member]
Preferred shares, par value	$ 0.01	$ 0.01
Preferred shares, shares authorized	25,000,000	25,000,000
Cumulative redeemable preferred shares, liquidation preference	$ 25	$ 25
Cumulative redeemable preferred shares, shares issued	1,600,000	1,600,000
Cumulative redeemable preferred shares, shares outstanding	1,600,000	1,600,000

XML



Consolidated Statements Of Operations (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue:
Interest income	$ 34,483	$ 39,173	$ 68,041	$ 80,503
Rental income	22,138	17,685	43,428	33,760
Fee and other income	2,242	3,512	5,673	12,351
Total revenue	58,863	60,370	117,142	126,614
Expenses:
Interest expense	22,328	24,662	45,695	50,132
Real estate operating expense	13,791	13,399	26,408	23,921
Compensation expense	5,737	6,886	12,281	14,938
General and administrative expense	4,431	5,367	9,399	10,257
Provision for losses	950	7,644	2,900	24,994
Depreciation and amortization expense	7,249	7,013	14,368	13,196
Total expenses	54,486	64,971	111,051	137,438
Operating Income	4,377	(4,601)	6,091	(10,824)
Interest and other income (expense)	67	277	150	359
Gains (losses) on sale of assets	564	7,692	1,979	11,616
Gains (losses) on extinguishment of debt	3,706	17,202	3,169	37,012
Change in fair value of financial instruments	(25,727)	4,446	(20,116)	20,883
Income (loss) before taxes and discontinued operations	(17,013)	25,016	(8,727)	59,046
Income tax benefit (provision)	256	(96)	310	(143)
Income (loss) from continuing operations	(16,757)	24,920	(8,417)	58,903
Income (loss) from discontinued operations	6	456	797	926
Net income (loss)	(16,751)	25,376	(7,620)	59,829
(Income) loss allocated to preferred shares	(3,414)	(3,415)	(6,828)	(6,821)
(Income) loss allocated to noncontrolling interests	67	358	117	593
Net income (loss) allocable to common shares	$ (20,098)	$ 22,319	$ (14,331)	$ 53,601
Earnings (loss) per share-Basic:
Continuing operations	$ (0.53)	$ 0.81	$ (0.40)	$ 2.03
Discontinued operations	$ 0.00	$ 0.02	$ 0.02	$ 0.04
Total earnings (loss) per share-Basic	$ (0.53)	$ 0.83	$ (0.38)	$ 2.07
Weighted-average shares outstanding-Basic	38,055,234	26,780,234	37,340,755	25,887,140
Earnings (loss) per share-Diluted:
Continuing operations	$ (0.53)	$ 0.79	$ (0.40)	$ 2.00
Discontinued operations	$ 0.00	$ 0.02	$ 0.02	$ 0.04
Total earnings (loss) per share-Diluted	$ (0.53)	$ 0.81	$ (0.38)	$ 2.04
Weighted-average shares outstanding-Diluted	38,055,234	27,420,302	37,340,755	26,261,594
Distributions declared per common share	$ 0.06	$ 0.00	$ 0.15	$ 0.00

XML



Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 03, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	RAIT Financial Trust
Entity Central Index Key	0001045425
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		38,425,188

XML



Indebtedness

6 Months Ended

Jun. 30, 2011

Indebtedness

Indebtedness

NOTE 6: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2011:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	107,064		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		38,813		38,943		6.9	%	Apr. 2027
Secured credit facilities		19,745		19,745		4.5	%	Dec. 2011
Senior secured notes		43,000		43,000		12.5	%	Apr. 2014
Loans payable on real estate		7,183		7,183		5.0	%	Sept. 2013
Junior subordinated notes, at fair value (3)		38,052		4,422		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
Total recourse indebtedness		286,893		245,457		7.4	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		1,337,987		1,337,987		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(4)(6)		1,134,643		140,619		0.9	%	2037 to 2038
Loans payable on real estate		92,144		92,162		5.9	%	Sept. 2011 to Mar. 2018
Total non-recourse indebtedness		2,564,774		1,570,768		0.9	%
Total indebtedness	$	2,851,667	$	1,816,225		1.6	%

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

(2) Our 6.875% convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.

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

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

(5) Collateralized by $1,774,581 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6) Collateralized by $1,279,735 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of June 30, 2011 was $875,526. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

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

The current status or activity in our financing arrangements occurring as of or during the six-month period ended June 30, 2011 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. During the six-month period ended June 30, 2011, we repurchased $104,800 in aggregate principal amount of our 6.875% Convertible Senior Notes due 2027, or the 6.875% convertible senior notes, for an aggregate purchase price of $103,213. As a result of these transactions, we recorded losses on extinguishment of debt of $1,033, net of deferred financing costs and unamortized discounts that were written off.

Our 6.875% convertible senior notes are redeemable, at the option of the holder, in April 2012. We expect to acquire, redeem, refinance or otherwise enter into transactions to satisfy our 6.875% convertible senior notes which may include any combination of payments of cash, issuances of our debt and/or equity securities, sales or exchanges of our assets or other methods.

7.0% convertible senior notes. On March 21, 2011, we issued and sold in a public offering $115,000 aggregate principal amount of our 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $109,000 of net proceeds. Interest on the 7.0% convertible senior notes is paid semi-annually and the 7.0% convertible senior notes mature on April 1, 2031.

Prior to April 5, 2016, the 7.0% convertible senior notes are not redeemable at RAIT's option, except to preserve RAIT's status as a REIT. On or after April 5, 2016, RAIT may redeem all or a portion of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. Holders of 7.0% convertible senior notes may require RAIT to repurchase all or a portion of the 7.0% convertible senior notes at a purchase price equal to the principal amount plus accrued and unpaid interest on April 1, 2016, April 1, 2021, and April 1, 2026, or upon the occurrence of certain defined fundamental changes.

The 7.0% convertible senior notes are convertible at the option of the holder at an initial conversion rate of 130.0559 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to an initial conversion price of $7.69 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. The initial conversion rate is subject to adjustment in certain circumstances. We include the 7.0% convertible senior notes in earnings per share using the treasury stock method if the conversion value in excess of the par amount is considered in the money during the respective periods.

According to FASB ASC Topic 470, "Debt", we recorded a discount on our issued and outstanding 7.0% convertible senior notes of $8,228. This discount reflects the fair value of the embedded conversion option within the 7.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 7.0% convertible senior notes agreement by a discount rate that represents management's estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 7.0% convertible senior notes were issued. The discount will be amortized to interest expense through April 1, 2016, the date at which holders of our 7.0% convertible senior notes could require repayment.

Secured credit facility. During the six-month period ending June 30, 2011, we prepaid a $16,160 secured credit facility due to mature in October 2011.

As of June 30, 2011, we have $19,745 outstanding under our remaining secured credit facility, which is payable in December 2011 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

Senior secured notes. During the six-month period ended June 30, 2011, the holder of the 10.0% senior secured convertible note, or the 10.0% senior note, converted $5,250 principal amount of the 10.0% senior note into 1,500,000 common shares. On April 26, 2011, we prepaid the remaining $15,700 principal amount of the 10.0% senior note.

Loans payable on real estate. During the six-month period ended June 30, 2011 we refinanced recourse financing consisting of a first mortgage of $12,500 principal amount with a fixed rate of 5.8%, due in April 2012, that was associated with one of our owned real estate properties with non-recourse financing provided by a consolidated securitization.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their overcollateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2011.

During the six-month period ended June 30, 2011, we repurchased, from the market, a total of $6,700 in aggregate principal amount of CDO notes payable issued by our RAIT II CDO securitization. The aggregate purchase price was $2,499 and we recorded a gain on extinguishment of debt of $4,202, net of deferred financing costs that were written off.

CDO notes payable, at fair value. Both of our Taberna consolidated CDOs are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC tests failures are due to defaulted collateral assets and credit risk securities. During the six-month period ended June 30, 2011, $21,315 of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO notes payable.

Loans payable on real estate. During the six-month period ended June 30, 2011, we obtained a first mortgage on an investment in real estate from the Federal National Mortgage Association that has a principal balance of $13,400, 7 year term, and a 5.12% interest rate and a first mortgage on an investment in real estate from Bank of America that has a principal balance of $24,000, 10 year term, and a 6.09% interest rate.

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Earnings (Loss) Per Share

6 Months Ended

Jun. 30, 2011

Earnings (Loss) Per Share

Earnings (Loss) Per Share

NOTE 11: EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three-month and six-month periods ended June 30, 2011 and 2010:

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
	2011			2010			2011			2010
Income (loss) from continuing operations	$	(16,757	)	$	24,920		$	(8,417	)	$	58,903
(Income) loss allocated to preferred shares		(3,414	)		(3,415	)		(6,828	)		(6,821	)
(Income) loss allocated to noncontrolling interests		67			358			117			593
Income (loss) from continuing operations allocable to common shares		(20,104	)		21,863			(15,128	)		52,675
Income (loss) from discontinued operations		6			456			797			926
Net income (loss) allocable to common shares	$	(20,098	)	$	22,319		$	(14,331	)	$	53,601
Weighted-average shares outstanding—Basic		38,055,234			26,780,234			37,340,755			25,887,140
Dilutive securities under the treasury stock method		0			640,068			0			374,454
Weighted-average shares outstanding—Diluted		38,055,234			27,420,302			37,340,755			26,261,594
Earnings (loss) per share—Basic:
Continuing operations	$	(0.53	)	$	0.81		$	(0.40	)	$	2.03
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Basic	$	(0.53	)	$	0.83		$	(0.38	)	$	2.07
Earnings (loss) per share—Diluted:
Continuing operations	$	(0.53	)	$	0.79		$	(0.40	)	$	2.00
Discontinued operations		0.00			0.02			0.02			0.04
Total earnings (loss) per share—Diluted	$	(0.53	)	$	0.81		$	(0.38	)	$	2.04

For the three-month and six-month periods ended June 30, 2011, securities convertible into 1,275,244 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive. For the three-month and six-month periods ended June 30, 2010, securities convertible into 2,231,114 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

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Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Summary Of Significant Accounting Policies

Summary Of Significant Accounting Policies

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2010 included in our Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

Certain prior period amounts have been reclassified to conform with the current period presentation. Previously, interest expense was included as part of net interest margin within total revenue. We have now classified interest expense as a component of expenses. Additionally, interest expense associated with third party financing provided on our owned real estate is included in interest expense whereas previously it was reflected within property operating expenses.

b. Principles of Consolidation

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

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

c. Use of Estimates

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

d. Investments in Loans

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

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

We maintain an allowance for losses on our investments in commercial mortgages, mezzanine loans and other loans. Management's periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. Management reviews loans for impairment and establishes specific reserves when a loss is probable and reasonably estimable under the provisions of FASB ASC Topic 310, "Receivables." As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower's financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, "Contingencies." Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off impaired loans when the investment is no longer realizable and legally discharged.

f. Investments in Real Estate

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

We acquire real estate assets either directly or through the conversion of our investments in loans into owned real estate. Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, "Business Combinations." Fair value is determined by management based on market conditions and inputs at the time the asset is acquired. All expenses incurred to acquire a real estate asset are expensed as incurred.

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

g. Investments in Securities

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

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

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

h. Revenue Recognition

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

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

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

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

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

3) Fee and other income—We generate fee and other income through our various subsidiaries by (a) providing ongoing asset management services to investment portfolios under cancelable management agreements, (b) providing or arranging to provide financing to our borrowers, (c) providing property management services to third parties, and (d) providing fixed income trading and advisory services to our customers. We recognize revenue for these activities when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably assured and the services under the arrangement have been provided. While we may receive asset management fees when they are earned, we eliminate earned asset management fee income from CDOs while such CDOs are consolidated.

During the three-month periods ended June 30, 2011 and 2010, we received $1,302 and $1,432, respectively, of earned asset management fees associated with consolidated CDOs, of which we eliminated $924 and $967, respectively, of management fee income.

During the six-month periods ended June 30, 2011 and 2010, we received $2,600 and $5,104, respectively, of earned asset management fees associated with consolidated CDOs, of which we eliminated $1,883 and $1,983, respectively, of management fee income.

i. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, "Fair Value Measurements and Disclosures", fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, "Fair Value Measurements and Disclosures" and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

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

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

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

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

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

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

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

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

j. Income Taxes

RAIT and Taberna have each elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Accordingly, we generally will not be subject to U.S. federal income tax to the extent of our distributions to shareholders and as long as certain asset, income and share ownership tests are met. If we were to fail to meet these requirements, we would be subject to U.S. federal income tax, which could have a material adverse impact on our results of operations and amounts available for distributions to our shareholders. Management believes that all of the criteria to maintain RAIT's and Taberna's REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods.

We maintain various taxable REIT subsidiaries, or TRSs, which may be subject to U.S. federal, state and local income taxes and foreign taxes. Current and deferred taxes are provided on the portion of earnings (losses) recognized by us with respect to our interest in domestic TRSs. Deferred income tax assets and liabilities are computed based on temporary differences between our GAAP consolidated financial statements and the federal and state income tax basis of assets and liabilities as of the consolidated balance sheet date. We evaluate the realizability of our deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognize a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of our deferred tax assets will not be realized. When evaluating the realizability of our deferred tax assets, we consider estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available, and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires management to forecast our business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in income tax expense on the consolidated statements of operations.

From time to time, our TRSs generate taxable income from intercompany transactions. The TRS entities generate taxable revenue from fees for services provided to CDO entities. Some of these fees paid to the TRS entities are capitalized as deferred financing costs by the CDO entities. Certain CDO entities may be consolidated in our financial statements pursuant to FASB ASC Topic 810, "Consolidation." In consolidation, these fees are eliminated when the CDO entity is included in the consolidated group. Nonetheless, all income taxes are accrued by the TRSs in the year in which the taxable revenue is received. These income taxes are not eliminated when the related revenue is eliminated in consolidation.

Certain TRS entities are domiciled in the Cayman Islands and, accordingly, taxable income generated by these entities may not be subject to local income taxation, but generally will be included in our taxable income on a current basis, whether or not distributed. Upon distribution of any previously included income, no incremental U.S. federal, state, or local income taxes would be payable by us.

The TRS entities may be subject to tax laws that are complex and potentially subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We review the tax balances of our TRS entities quarterly and as new information becomes available, the balances are adjusted as appropriate.

k. Recent Accounting Pronouncements

On January 1, 2010, we adopted Accounting Standards Update (ASU) No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements." This accounting standard requires new disclosures for significant transfers in and out of Level 1 and 2 fair value measurements and a description of the reasons for the transfer. This accounting standard also updates existing disclosures by providing fair value measurement disclosures for each class of assets and liabilities and provides disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. For Level 3 fair value measurements, new disclosures will require entities to present information separately for purchases, sales, issuances, and settlements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not have a material effect on our consolidated financial.

On January 1, 2011, we adopted ASU No. 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations." This accounting standard requires that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This accounting standard also expands the supplemental pro forma disclosures under FASB ASU Topic 805, "Business Combinations" to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The adoption of this standard did not have a material effect on our consolidated financial statements.

In April 2011, the FASB issued accounting standards classified under FASB ASC Topic 310, "Receivables". This accounting standard amends existing guidance to provide additional guidance on the determination of whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. This standard is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

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Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value Of Financial Instruments

Fair Value Of Financial Instruments

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

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

The following table summarizes the carrying amount and the fair value of our financial instruments as of June 30, 2011:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans and other loans	$	1,165,163	$	1,101,176
Investments in securities and security-related receivables		717,975		717,975
Cash and cash equivalents		24,639		24,639
Restricted cash		188,688		188,688
Derivative assets		1,189		1,189
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		107,088		118,828
6.875% convertible senior notes		38,943		38,896
Secured credit facilities		19,745		19,745
Senior secured notes		43,000		43,000
Junior subordinated notes, at fair value		4,422		4,422
Junior subordinated notes, at amortized cost		25,100		2,917
Loans payable on real estate		7,155		7,155
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,337,987		791,375
CDO notes payable, at fair value		140,619		140,619
Loans payable on real estate		92,166		92,166
Derivative liabilities		177,353		177,353

Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) ) (a)		Balance as of June 30, 2011
Trading securities
TruPS	$	0	$	0	$	468,372	$	468,372
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		82,889		82,889
Unsecured REIT note receivables		0		65,323		0		65,323
CMBS receivables		0		77,977		0		77,977
Other securities		0		23,412		0		23,412
Derivative assets		0		1,189		0		1,189
Total assets	$	0	$	167,903	$	551,261	$	719,164
Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) ) (a)		Balance as of June 30, 2011
Junior subordinated notes, at fair value	$	0	$	0	$	4,422	$	4,422
CDO notes payable, at fair value		0		0		140,619		140,619
Derivative liabilities		0		87,251		90,102		177,353
Total liabilities	$	0	$	87,251	$	235,143	$	322,394

(a) During the six-month period ended June 30, 2011, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the six-month period ended June 30, 2011:

Assets	Trading Securities—TruPS and Subordinated Debentures			Security-Related Receivables—TruPS and Subordinated Debenture Receivables			Total Level 3 Assets
Balance, as of December 31, 2010	$	454,473		$	83,087		$	537,560
Change in fair value of financial instruments		18,899			(198	)		18,701
Purchases		0			0			0
Sales		(5,000	)		0			(5,000	)
Balance, as of June 30, 2011	$	468,372		$	82,889		$	551,261

Liabilities	Derivative Liabilities		CDO Notes Payable, at Fair Value			Junior Subordinated Notes, at Fair Value		Total Level 3 Liabilities
Balance, as of December 31, 2010	$	87,632	$	148,072		$	4,422	$	240,126
Change in fair value of financial instruments		2,470		13,862			0		16,332
Purchases		0		0			0		0
Sales		0		0			0		0
Principal repayments		0		(21,315	)		0		(21,315	)
Balance, as of June 30, 2011	$	90,102	$	140,619		$	4,422	$	235,143

Change in Fair Value of Financial Instruments

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

	For the Three-Month Periods Ended June 30						For the Six-Month Periods Ended June 30
Description	2011			2010			2011			2010
Change in fair value of trading securities and security-related receivables	$	2,081		$	35,256		$	18,635		$	82,998
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(6,831	)		5,046			(13,862	)		(8,445	)
Change in fair value of derivatives		(20,977	)		(35,856	)		(24,889	)		(53,670	)
Change in fair value of financial instruments	$	(25,727	)	$	4,446		$	(20,116	)	$	20,883

The changes in the fair value for the investment in securities, CDO notes payable and other liabilities for which the fair value option was elected for the three-month and six-month periods ended June 30, 2011 and 2010 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for which the fair value option was elected for the three-month and six-month periods ended June 30, 2011 and 2010 was mainly due to changes in interest rates.

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Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations

Discontinued Operations

NOTE 13: DISCONTINUED OPERATIONS

For the three-month and six-month periods ended June 30, 2011, income (loss) from discontinued operations relates to one real estate property sold since January 1, 2011. For the three-month and six-month periods ended June 30, 2010, income (loss) from discontinued operations relates to four real estate properties designated as held for sale and three real estate properties that we sold or deconsolidated since January 1, 2010. The following table summarizes revenue and expense information for real estate properties classified as discontinued operations:

	For the Three-Month Periods Ended June 30					For the Six-Month Periods Ended June 30
	2011			2010		2011			2010
Revenue:
Rental income	$	295		$	2,569	$	2,072		$	5,099
Expenses:
Real estate operating expense		223			1,509		1,208			3,215
General and administrative expense		0			0		1			0
Depreciation expense		0			605		0			1,225
Total expenses		223			2,114		1,209			4,440
Income (loss) before interest and other income		72			455		863			659
Interest and other income		0			1		0			1
Income (loss) from discontinued operations		72			456		863			660
Gain (loss) on sale of assets		(66	)		0		(66	)		266
Total income (loss) from discontinued operations	$	6		$	456	$	797		$	926

Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective data in the consolidated statements of operations.

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Variable Interest Entities

6 Months Ended

Jun. 30, 2011

Variable Interest Entities

Variable Interest Entities

NOTE 9: VARIABLE INTEREST ENTITIES

The following table presents the assets and liabilities of our consolidated VIEs as of each respective date. As of June 30, 2011 our consolidated VIEs were: Taberna Preferred Funding VIII, Ltd., Taberna Preferred Funding IX, Ltd, RAIT CRE CDO I, Ltd., RAIT Preferred Funding II, Ltd., Willow Grove and Cherry Hill.

	As of June 30, 2011			As of December 31, 2010
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,901,133		$	1,913,089
Allowance for losses		(15,526	)		(15,526	)
Total investments in mortgages and loans		1,885,607			1,897,563
Investments in real estate		21,065			21,054
Investments in securities and security-related receivables, at fair value		717,983			705,455
Cash and cash equivalents		206			73
Restricted cash		153,157			151,045
Accrued interest receivable		53,560			55,105
Deferred financing costs, net of accumulated amortization of $0 and $8,608, respectively		16,829			17,999
Total assets	$	2,848,407		$	2,848,294
Liabilities and Equity
Indebtedness (including $140,619 and $148,072 at fair value, respectively)	$	1,699,670		$	1,707,352
Accrued interest payable		41,813			34,745
Accounts payable and accrued expenses		1,591			1,450
Derivative liabilities		174,880			184,878
Deferred taxes, borrowers' escrows and other liabilities		5,279			3,814
Total liabilities		1,923,233			1,932,239
Equity:
Shareholders' equity:
Accumulated other comprehensive income (loss)		(114,382	)		(123,316	)
RAIT Investment		70,356			103,862
Retained earnings		969,200			935,509
Total shareholders' equity		925,174			916,055
Total liabilities and equity	$	2,848,407		$	2,848,294

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with other RAIT subsidiaries that maintain investments in the debt or equity securities issued by these entities.

RAIT does not have any contractual obligation to provide the VIEs listed above with any financial support. RAIT has not provided and does not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2011

Derivative Financial Instruments

Derivative Financial Instruments

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

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

Cash Flow Hedges

We have entered into various interest rate swap contracts to hedge interest rate exposure on floating rate indebtedness. We designate interest rate hedge agreements at inception and determine whether or not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of June 30, 2011, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of June 30, 2011 and December 31, 2010:

	As of June 30, 2011					As of December 31, 2010
	Notional		Fair Value			Notional		Fair Value
Cash flow hedges:
Interest rate swaps	$	1,751,563	$	(177,353	)	$	1,786,698	$	(184,878	)
Interest rate caps		36,000		1,189			36,000		1,496
Net fair value	$	1,787,563	$	(176,164	)	$	1,822,698	$	(183,382	)

For interest rate swaps that are considered effective hedges, we reclassified realized losses of $11,247 and $11,546 to earnings for the three-month periods ended June 30, 2011 and 2010 and $22,136 and $23,271 for the six-month periods ended June 30, 2011 and 2010. For interest rate swaps that are considered ineffective hedges, we reclassified unrealized gains of $51 to earnings for the three-month period ended June 30, 2010 and $38 for the six-month period ended June 30, 2010.

On January 1, 2008, we adopted the fair value option, which has been classified under FASB ASC Topic 825, "Financial Instruments", for certain of our CDO notes payable. Upon the adoption of this standard, hedge accounting for any previously designated cash flow hedges associated with these CDO notes payable was discontinued and all changes in fair value of these cash flow hedges are recorded in earnings. As of June 30, 2011, the notional value associated with these cash flow hedges where hedge accounting was discontinued was $967,276 and had a liability balance with a fair value of $88,913. See Note 8: "Fair Value of Financial Instruments" for the changes in value of these hedges during the three-month and six-month periods ended June 30, 2011 and 2010. The change in value of these hedges was recorded as a component of the change in fair value of financial instruments in our consolidated statement of operations.

Amounts reclassified to earnings associated with effective cash flow hedges are reported in interest expense and the fair value of these hedge agreements is included in other assets or derivative liabilities.

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Consolidated Statements Of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating activities:
Net income (loss)	$ (7,620)	$ 59,829
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for losses	2,900	24,994
Share-based compensation expense	317	2,292
Depreciation and amortization	14,368	14,421
Amortization of deferred financing costs and debt discounts	2,191	1,191
Accretion of discounts on investments	(1,276)	(2,732)
(Gains) losses on sales of assets	(1,979)	(11,882)
(Gains) losses on extinguishment of debt	(3,169)	(37,012)
Change in fair value of financial instruments	20,116	(20,883)
Unrealized gains (losses) on interest rate hedges	(8)	(38)
Equity in (income) loss of equity method investments	0	(4)
Unrealized foreign currency (gains) losses on investments	0	(189)
Changes in assets and liabilities:
Accrued interest receivable	(2,736)	1,554
Other assets	(7,724)	1,947
Accrued interest payable	(20,965)	(20,363)
Accounts payable and accrued expenses	264	(4,645)
Deferred taxes, borrowers' escrows and other liabilities	5,283	(5,641)
Cash flow from operating activities	(38)	2,839
Investing activities:
Proceeds from sales of other securities	9,985	14,626
Purchase and origination of loans for investment	(57,553)	(17,574)
Principal repayments on loans	50,814	22,465
Investments in real estate	(24,808)	(9,161)
Proceeds from dispositions of real estate	65,750	5,124
Acquisition of Independence Realty Trust, Inc. and associated entities	(2,578)	0
Proceeds from sale of collateral management rights	0	14,106
(Increase) Decrease in restricted cash	(31,310)	4,438
Cash flow from investing activities	10,300	34,024
Financing activities:
Repayments on secured credit facilities and loans payable on real estate	(29,719)	(11,599)
Proceeds from loans payable on real estate	37,400	0
Repayments and repurchase of CDO notes payable	(20,913)	(8,172)
Proceeds from issuance of 7.0% convertible senior notes	115,000	0
Repayments and repurchase of 6.875% convertible senior notes	(119,320)	(10,512)
Issuance (acquisition) of noncontrolling interests	3,582	(46)
Payments for deferred costs	(6,710)	(187)
Common share issuance, net of costs incurred	17,874	4,384
Distributions paid to preferred shares	(6,828)	(6,821)
Distributions paid to common shares	(3,219)	0
Cash flow from financing activities	(12,853)	(32,953)
Net change in cash and cash equivalents	(2,591)	3,910
Cash and cash equivalents at the beginning of the period	27,230	25,034
Cash and cash equivalents at the end of the period	24,639	28,944
Supplemental cash flow information:
Cash paid for interest	18,624	23,084
Cash paid (refunds received) for taxes	51	(1,781)
Non-cash increase in investments in real estate from the conversion of loans	78,300	52,687
Non-cash decrease in indebtedness from conversion to shares or debt extinguishments	$ (5,788)	$ (24,530)

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Investments In Loans

6 Months Ended

Jun. 30, 2011

Investments In Loans

Investments In Loans

NOTE 3: INVESTMENTS IN LOANS

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

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of June 30, 2011:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	689,624		$	(4,021	)	$	685,603			42		6.7	%	Aug. 2011 to May 2021
Mezzanine loans		358,797			(5,292	)		353,505			99		9.2	%	Aug. 2011 to Nov. 2038
Preferred equity interests		74,477			(1,148	)		73,329			22		10.3	%	Nov. 2011 to Aug. 2025
Total CRE Loans		1,122,898			(10,461	)		1,112,437			163		7.7	%
Other loans		54,842			(707	)		54,135			4		6.4	%	Aug. 2011 to Oct. 2016
Total Loans	$	1,177,740		$	(11,168	)	$	1,166,572			167		7.7	%
Deferred fees		(1,409	)		0			(1,409	)
Total investments in loans	$	1,176,331		$	(11,168	)	$	1,165,163

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

In July 2011, we negotiated an agreement to sell $60.9 million in principal amount commercial mortgages to a CMBS securitization. We expect the sale to close during the three month period ended September 30, 2011.

During the six-month periods ended June 30, 2011 and 2010, we completed the conversion of three and five commercial real estate loans with a carrying value of $85,388 and $64,048 to real estate owned properties. During the six-month periods ended June 30, 2011 and 2010, we charged off $7,088 and $11,361, respectively, related to the conversion of commercial real estate loans to owned properties. See Note 5.

The following table summarizes the delinquency statistics of our commercial real estate loans as of June 30, 2011 and December 31, 2010:

Delinquency Status	As of June 30, 2011		As of December 31, 2010
30 to 59 days	$	1,230	$	27,978
60 to 89 days		0		0
90 days or more		52,434		55,450
In foreclosure or bankruptcy proceedings		41,084		46,578
Total	$	94,748	$	130,006

As of June 30, 2011 and December 31, 2010, approximately $94,117 and $122,306, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 9.7% and 8.8%, respectively. As of June 30, 2011 and December 31, 2010, approximately $19,500 and $20,908 of other loans were on non-accrual status and had a weighted-average interest rate of 7.2%.

Allowance For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the three-month periods ended June 30, 2011 and 2010:

	For the Three-Month Period Ended June 30, 2011			For the Three-Month Period Ended June 30, 2010
Beginning balance	$	66,769		$	76,823
Provision		950			7,644
Charge-offs, net of recoveries		(9,853	)		(5,795	)
Ending balance	$	57,866		$	78,672

The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the six-month periods ended June 30, 2011 and 2010:

	For the Six-Month Period Ended June 30, 2011			For the Six-Month Period Ended June 30, 2010
Beginning balance	$	69,691		$	86,609
Provision		2,900			24,994
Charge-offs, net of recoveries		(14,725	)		(32,931	)
Ending balance	$	57,866		$	78,672

As of June 30, 2011 and December 31, 2010, we identified 22 and 27 commercial mortgages, mezzanine loans and other loans with unpaid principal balances of $115,857 and $157,746 as impaired.

The average unpaid principal balance of total impaired loans was $130,062 and $184,925 during the three-month periods ended June 30, 2011 and 2010 and $139,290 and $180,654 during the six-month periods ended June 30, 2011 and 2010. We recorded interest income from impaired loans of $18 and $1,178 for the three-month periods ended June 30, 2011 and 2010 and $524 and $2,492 for the six-month periods ended June 30, 2011 and 2010.

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Investments In Securities

6 Months Ended

Jun. 30, 2011

Investments In Securities

Investments In Securities

NOTE 4: INVESTMENTS IN SECURITIES

Our investments in securities and security-related receivables are accounted for at fair value. The following table summarizes our investments in securities as of June 30, 2011:

Investment Description	Amortized Cost		Net Fair Value Adjustments			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS	$	690,501	$	(222,129	)	$	468,372		4.8	%		23.3
Other securities		10,000		(10,000	)		0		4.8	%		41.4
Total trading securities		700,501		(232,129	)		468,372		4.8	%		23.5
Available-for-sale securities		3,600		(3,598	)		2		2.1	%		31.4
Security-related receivables
TruPS receivables		111,199		(28,310	)		82,889		6.9	%		11.5
Unsecured REIT note receivables		61,000		4,323			65,323		6.6	%		6.2
CMBS receivables (2)		153,868		(75,891	)		77,977		5.7	%		32.5
Other securities		75,767		(52,355	)		23,412		3.3	%		30.7
Total security-related receivables		401,834		(152,233	)		249,601		5.7	%		22.3
Total investments in securities	$	1,105,935	$	(387,960	)	$	717,975		5.1	%		23.2

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

(2) CMBS receivables include securities with a fair value totaling $22,142 that are rated between "AAA" and "A-" by Standard & Poor's, securities with a fair value totaling $45,297 that are rated "BBB+" and "B-" by Standard & Poor's, securities with a fair value totaling $8,647 that are rated "CCC" by Standard & Poor's and securities with a fair value totaling $1,891 that are rated "D" by Standard & Poor's.

A substantial portion of our gross unrealized losses is greater than 12 months.

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

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

	As of June 30, 2011							As of December 31, 2010
	Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value		Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value
TruPS and TruPS receivables	$	128,682		3.9	%	$	2,935	$	133,682		4.1	%	$	5,581
Other securities		32,335		3.2	%		2		42,754		2.8	%		976
CMBS receivables		24,408		5.9	%		5,393		29,204		5.9	%		975

The assets of our consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of June 30, 2011 and December 31, 2010, investment in securities of $801,700 and $806,700, respectively, in principal amount of TruPS and subordinated debentures, and $214,868 and $219,868, respectively, in principal amount of unsecured REIT note receivables and CMBS receivables, collateralized the consolidated CDO notes payable of such entities.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions

Related Party Transactions

NOTE 12: RELATED PARTY TRANSACTIONS

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

Scott F. Schaeffer is our Chairman, Chief Executive Officer and President, and is a Trustee. Mr. Schaeffer's spouse is a director of The Bancorp, Inc., or Bancorp, and she and Mr. Schaeffer own, in the aggregate, less than 1% of Bancorp's outstanding common shares. Each transaction with Bancorp is described below:

a). Cash and Restricted Cash—We maintain checking and demand deposit accounts at Bancorp. As of June 30, 2011 and December 31, 2010, we had $1,016 and $72, respectively, of cash and cash equivalents and $460 and $985, respectively, of restricted cash on deposit at Bancorp. We did not receive any interest income from the Bancorp during the three-month and six-month periods ended June 30, 2011 and 2010. Restricted cash held at Bancorp relates to borrowers' escrows for taxes, insurance and capital reserves. Any interest earned on these deposits enures to the benefit of the specific borrower and not to us.

b). Office Leases—We sublease a portion of our downtown Philadelphia office space from Bancorp under a lease agreement extending through August 2014 at an annual rental expense based upon the amount of square footage occupied. We have signed a sublease agreement with a third party for the remaining term of our sublease. Rent paid to Bancorp was $78 and $79 for the three-month periods ended June 30, 2011 and 2010, respectively and $162 and $147 for the six-month periods ended June 30, 2011. Rent received for our sublease was $43 and $41 for the three-month periods ended June 30, 2011 and 2010 and was $85 and $82 for the six-month periods ended June 30, 2011 and 2010.

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Investments In Real Estate

6 Months Ended

Jun. 30, 2011

Investments In Real Estate

Investments In Real Estate

NOTE 5: INVESTMENTS IN REAL ESTATE

The table below summarizes our investments in real estate:

	As of June 30, 2011					As of December 31, 2010
	Book Value			Number of Properties		Book Value			Number of Properties
Multi-family real estate properties	$	590,280			33	$	602,183			33
Office real estate properties		247,413			10		219,567			9
Retail real estate properties		48,243			2		41,838			2
Parcels of land		22,208			3		22,208			3
Subtotal		908,144			48		885,796			47
Plus: Escrows and reserves		9,894					2,296
Less: Accumulated depreciation and amortization		(56,228	)				(46,604	)
Investments in real estate	$	861,810				$	841,488

As of June 30, 2011, our investments in real estate of $908,144 are financed through $99,305 of mortgages held by third parties and $767,598 of mortgages held by our consolidated securitizations. Together, along with commercial real estate loans held by these securitizations, these mortgages serve as collateral for the CDO notes payable issued by our consolidated securitizations. All intercompany balances and interest charges are eliminated in consolidation.

Acquisitions:

During the six-month period ended June 30, 2011, we converted three loans with a carrying value of $85,388, relating to one office property and two multi-family properties, to owned real estate. Upon conversion, we recorded the investment in real estate acquired including any related working capital at fair value of $78,167.

The following table summarizes the aggregate estimated fair value of the assets and liabilities associated with the three properties acquired during the six-month period ended June 30, 2011, on the respective date of each conversion, for the real estate accounted for under FASB ASC Topic 805.

Description	Estimated Fair Value
Assets acquired:
Investments in real estate	$	78,300
Cash and cash equivalents		402
Restricted cash		582
Other assets		137
Total assets acquired		79,421

Description	Estimated Fair Value
Liabilities assumed:
Accounts payable and accrued expenses		775
Other liabilities		479
Total liabilities assumed		1,254
Estimated fair value of net assets acquired	$	78,167

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

Description	Estimated Fair Value
Fair value of consideration transferred:
Commercial real estate loans	$	78,300
Other considerations		(133	)
Total fair value of consideration transferred	$	78,167

During the six-month period ended June 30, 2011, these investments contributed revenue of $1,620 and a net income allocable to common shares of $751. During the six-month period ended June 30, 2011, we did not incur any third-party acquisition-related costs.

Our consolidated unaudited pro forma information, after including the acquisition of real estate properties, is presented below as if the acquisition occurred on January 1, 2010. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods:

Description	For the Six-Month Period Ended June 30, 2011			For the Six-Month Period Ended June 30, 2010
Total revenue, as reported	$	117,142		$	126,614
Pro forma revenue		119,922			130,960
Net income (loss) allocable to common shares, as reported		(14,331	)		53,601
Pro forma net income (loss) allocable to common shares		(13,536	)		54,741

These amounts have been calculated after adjusting the results of the acquired businesses to reflect the additional depreciation that would have been charged assuming the fair value adjustments to our investments in real estate had been applied from January 1, 2010 together with the consequential tax effects.

We have not yet completed the process of estimating the fair value of assets acquired and liabilities assumed. Accordingly, our preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as we complete the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in our financial statements retrospectively.

Dispositions:

During the six-month period ended June 30, 2011, we sold two multi-family properties for a total purchase price of $67,550. We recorded losses on the sale of these assets of $168.

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Acquisitions

6 Months Ended

Jun. 30, 2011

Acquisitions

Acquisitions

NOTE 15: ACQUISITIONS

On January 20, 2011, we acquired a development stage, non-traded public REIT and subsequently changed its name to Independence Realty Trust, Inc., or Independence. We paid approximately $2.5 million for Independence and certain of its affiliated entities including the entity that serves as Independence's external advisor and its dealer manager. Independence is currently a subsidiary of RAIT.

We are the external manager of Independence and expect Independence to raise capital for investing in multi-family commercial real estate assets through a public offering of its common stock. The registration statement relating to Independence's public offering of its common stock was declared effective by the SEC on June 10, 2011. We are the sponsor of Independence's offering and we incurred expenses on Independence's behalf in connection with this offering. Our ability to be reimbursed for these expenses will depend on the terms and success of the offering. Any disclosure concerning Independence is neither an offer nor a solicitation to purchase securities issued by Independence.

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements Of Comprehensive Income (Loss)
Net income (loss)	$ (16,751)	$ 25,376	$ (7,620)	$ 59,829
Other comprehensive income (loss):
Change in fair value of interest rate hedges	(15,246)	(27,473)	(13,194)	(42,703)
Reclassification adjustments associated with unrealized losses (gains) from interest rate hedges included in net income (loss)	(8)	(51)	(8)	(38)
Realized (gains) losses on interest rate hedges reclassified to earnings	11,247	11,546	22,136	23,271
Change in fair value of available-for-sale securities	36	(841)	183	(4,975)
Total other comprehensive income (loss)	(3,971)	(16,819)	9,117	(24,445)
Comprehensive income (loss) before allocation to noncontrolling interests	(20,722)	8,557	1,497	35,384
Allocation to noncontrolling interests	67	358	117	593
Comprehensive income (loss)	$ (20,655)	$ 8,915	$ 1,614	$ 35,977

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The Company

6 Months Ended

Jun. 30, 2011

The Company

The Company

NOTE 1: THE COMPANY

RAIT Financial Trust invests in and manages a portfolio of real-estate related assets, including direct ownership of real estate properties, and provides a comprehensive set of debt financing options to the real estate industry. References to "RAIT", "we", "us", and "our" refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. We conduct our business through our subsidiaries, RAIT Partnership, L.P. and Taberna Realty Finance Trust, or Taberna, as well as through their respective subsidiaries. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT. Taberna is also a Maryland REIT.

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

We are subject to significant competition in all aspects of our business. Existing industry participants and potential new entrants compete with us for the available supply of investments suitable for origination or acquisition, as well as for debt and equity capital. We compete with many third parties engaged in real estate finance and investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities.

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Equity

6 Months Ended

Jun. 30, 2011

Equity

Equity

NOTE 10: EQUITY

Preferred Shares

On January 25, 2011, our board of trustees declared a first quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on March 31, 2011 to holders of record on March 1, 2011 and totaled $3,414.

On May 17, 2011, our board of trustees declared a second quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends were paid on June 30, 2011 to holders of record on June 1, 2011 and totaled $3,414.

On July 26, 2011, our board of trustees declared a third quarter 2011 cash dividend of $0.484375 per share on our 7.75% Series A Preferred Shares, $0.5234375 per share on our 8.375% Series B Preferred Shares and $0.5546875 per share on our 8.875% Series C Preferred Shares. The dividends will be paid on September 30, 2011 to holders of record on September 1, 2011.

Common Shares

Dividends:

On January 10, 2011, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of January 21, 2011. The dividend was paid on January 31, 2011 and totaled $3,204.

On May 17, 2011, the board of trustees declared a $0.06 dividend on our common shares to holders of record as of July 8, 2011. The dividend was paid on July 29, 2011 and totaled $2,293 and is included in other liabilities in the accompanying consolidated balance sheet.

Reverse Stock Split:

On May 17, 2011, the board of trustees authorized a 1-for-3 reverse stock split of our common shares of beneficial interest that became effective on June 30, 2011, or the effective time. At the effective time, every three common shares issued and outstanding were automatically combined into one issued and outstanding new common share. The par value of new common shares changed to $0.03 per share after the reverse stock split from the par value of common shares prior to the reverse stock split of $0.01 per share. The reverse stock split reduced the number of common shares outstanding but did not change the number of authorized common shares. The reverse stock split did not affect our preferred shares of beneficial interest. All references in the accompanying financial statements to the number of common shares and earnings per share data for all periods presented have been adjusted to reflect the reverse stock split.

Share Repurchases:

On January 25, 2011, the compensation committee of our board of trustees approved a cash payment to the board's eight non-management trustees intended to constitute a portion of their respective 2011 annual non-management trustee compensation. The cash payment was subject to terms and conditions set forth in a letter agreement, or the letter agreement, between each of the non-management trustees and RAIT. The terms and conditions included a requirement that each trustee use a portion of the cash payment to purchase RAIT's common shares in purchases that, individually and in the aggregate with all purchases made by all the other non-management trustees pursuant to their respective letter agreements, complied with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The aggregate amount required to be used by all of the non-management trustees to purchase common shares was $210 and was used to purchase 18,898 common shares, in the aggregate, in February 2011.

Equity Compensation:

During the six-months ended June 30, 2011, 340,649 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

Dividend Reinvestment and Share Purchase Plan (DRSPP):

We implemented an amended and restated dividend reinvestment and share purchase plan, or DRSPP, effective as of March 13, 2008, pursuant to which we registered and reserved for issuance 6,262,545 common shares. During the six-month period ended June 30, 2011, we issued a total of 15,111 common shares pursuant to the DRSPP at a weighted-average price of $7.45 per share and we received $113 of net proceeds. As of June 30, 2011, 3,884,102 common shares, in aggregate, remain available for issuance under the DRSPP.

Capital on Demand™ Sales Agreement:

On August 6, 2010, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 5,833,333 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. For the six-month period ended June 30, 2011, 2,079,210 common shares were issued pursuant to this arrangement at a weighted average price of $9.43 and we received $19,257 of proceeds. From July 1, 2011 through August 3, 2011, 266,234 common shares were issued pursuant to this arrangement at a weighted average price of $6.73 and we received $1,777 of proceeds. After reflecting the common shares issued through August 3, 2011, 470,084 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

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Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

NOTE 14: COMMITMENTS AND CONTINGENCIES

Riverside National Bank of Florida Litigation

On August 6, 2009, Riverside National Bank of Florida commenced a lawsuit which named as defendants the three major credit rating agencies, various CDO sellers and collateral managers, including our subsidiary, Taberna Capital Management, LLC. The suit was filed in the Supreme Court of the State of New York, Kings County, and subsequently discontinued without prejudice and refiled in New York County on November 13, 2009. On April 16, 2010, the Office of the Comptroller of the Currency closed Riverside and named the Federal Deposit Insurance Corporation as receiver and thus as successor-in-interest to Riverside as plaintiff in the action, and the defendants subsequently removed the case to the United States District Court for the Southern District of New York. On April 22, 2011, following a series of stays requested by the FDIC, the FDIC voluntarily dismissed the action without prejudice. The claims asserted in this action were described in RAIT's annual report on Form 10-K for the year ended December 31, 2010. RAIT believes that the FDIC plans to file a new lawsuit pursuing the same or substantially similar claims against an expanded list of defendants. If the FDIC files such a lawsuit, an adverse resolution of the litigation could have a material adverse effect on our financial condition and results of operations.

Routine Litigation

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

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$ 1,165,163	$ 1,219,110
Allowance for losses	(57,866)	(69,691)
Total investments in mortgages and loans	1,107,297	1,149,419
Investments in real estate	861,810	841,488
Investments in securities and security-related receivables, at fair value	717,975	705,451
Cash and cash equivalents	24,639	27,230
Restricted cash	188,688	176,723
Accrued interest receivable	39,582	37,138
Other assets	42,362	32,840
Deferred financing costs, net of accumulated amortization of $11,154 and $9,943, respectively	22,430	19,954
Intangible assets, net of accumulated amortization of $2,057 and $1,777, respectively	2,909	3,189
Total assets	3,007,692	2,993,432
Liabilities and Equity
Indebtedness (including $145,041 and $152,494 at fair value, respectively)	1,816,225	1,838,177
Accrued interest payable	21,715	19,925
Accounts payable and accrued expenses	24,620	25,089
Derivative liabilities	177,353	184,878
Deferred taxes, borrowers' escrows and other liabilities	25,304	6,833
Total liabilities	2,065,217	2,074,902
Equity:
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 38,197,648 and 35,300,190 issued and outstanding	1,149	1,060
Additional paid in capital	1,722,797	1,691,681
Accumulated other comprehensive income (loss)	(118,485)	(127,602)
Retained earnings (deficit)	(666,952)	(647,110)
Total shareholders' equity	938,576	918,096
Noncontrolling interests	3,899	434
Total equity	942,475	918,530
Total liabilities and equity	3,007,692	2,993,432
7.75% Series A Cumulative Redeemable Preferred Shares [Member]
Equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized	28	28
8.375% Series B Cumulative Redeemable Preferred Shares [Member]
Equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized	23	23
8.875% Series C Cumulative Redeemable Preferred Shares [Member]
Equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized	$ 16	$ 16