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 March 31, 2012

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 49,901,961 common shares of beneficial interest, par value $0.03 per share, of the registrant were outstanding as of May 8, 2012.

RAIT FINANCIAL TRUST

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		1
	Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2012 and 2011		2
	Consolidated Statements of Comprehensive Income (Loss) for the Three-Month Periods Ended March 31, 2012 and 2011		3
	Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2012 and 2011		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
Item 4.	Controls and Procedures		34
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		35
Item 1A.	Risk Factors		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 5.	Other Information		35
Item 6.	Exhibits		35
	Signatures		36

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

RAIT Financial Trust

Consolidated Balance Sheets

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

	As of March 31, 2012			As of December  31, 2011
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,032,844		$	996,363
Allowance for losses		(39,715	)		(46,082	)
Total investments in mortgages and loans		993,129			950,281
Investments in real estate, net of accumulated depreciation of $76,122 and $69,372, respectively		887,130			891,502
Investments in securities and security-related receivables, at fair value		653,589			647,461
Cash and cash equivalents		53,841			29,720
Restricted cash		153,285			278,607
Accrued interest receivable		41,059			39,455
Other assets		42,648			39,771
Deferred financing costs, net of accumulated amortization of $12,687 and $11,613, respectively		22,156			23,178
Intangible assets, net of accumulated amortization of $2,477 and $2,337, respectively		2,489			2,629
Total assets	$	2,849,326		$	2,902,604
Liabilities and Equity
Indebtedness (including $171,840 and $144,956 at fair value, respectively)	$	1,764,971		$	1,748,274
Accrued interest payable		25,525			22,541
Accounts payable and accrued expenses		18,209			20,825
Derivative liabilities		170,997			181,499
Deferred taxes, borrowers’ escrows and other liabilities		18,448			15,371
Total liabilities		1,998,150			1,988,510
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, 49,899,392 and 41,289,566 issued and outstanding		1,489			1,236
Additional paid in capital		1,777,974			1,735,969
Accumulated other comprehensive income (loss)		(112,284	)		(118,294	)
Retained earnings (deficit)		(819,802	)		(708,671	)
Total shareholders’ equity		847,444			910,307
Noncontrolling interests		3,732			3,787
Total equity		851,176			914,094
Total liabilities and equity	$	2,849,326		$	2,902,604

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

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RAIT Financial Trust

Consolidated Statements of Operations

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

	For the  Three-Month Periods Ended March 31
	2012			2011
Revenue:
Interest income	$	27,956		$	33,558
Rental income		24,831			21,290
Fee and other income		1,458			3,431
Total revenue		54,245			58,279
Expenses:
Interest expense		19,348			23,367
Real estate operating expense		13,797			12,617
Compensation expense		5,738			6,544
General and administrative expense		3,825			4,968
Provision for losses		500			1,950
Depreciation and amortization expense		7,663			7,119
Total expenses		50,871			56,565
Operating Income		3,374			1,714
Interest and other income (expense)		33			83
Gains (losses) on sale of assets		11			1,415
Gains (losses) on extinguishment of debt		1,574			(537	)
Change in fair value of financial instruments		(108,923	)		5,611
Income (loss) before taxes and discontinued operations		(103,931	)		8,286
Income tax benefit (provision)		267			54
Income (loss) from continuing operations		(103,664	)		8,340
Income (loss) from discontinued operations		0			791
Net income (loss)		(103,664	)		9,131
(Income) loss allocated to preferred shares		(3,410	)		(3,414	)
(Income) loss allocated to noncontrolling interests		55			50
Net income (loss) allocable to common shares	$	(107,019	)	$	5,767
Earnings (loss) per share—Basic:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Basic	$	(2.42	)	$	0.16
Weighted-average shares outstanding—Basic		44,150,924			36,618,910
Earnings (loss) per share—Diluted:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Diluted	$	(2.42	)	$	0.16
Weighted-average shares outstanding—Diluted		44,150,924			36,968,120
Distributions declared per common share	$	0.08		$	0.09

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 March 31
	2012			2011
Net income (loss)	$	(103,664	)	$	9,131
Other comprehensive income (loss):
Change in fair value of interest rate hedges		(2,950	)		2,052
Realized (gains) losses on interest rate hedges reclassified to earnings		8,910			10,889
Change in fair value of available-for-sale securities		50			147
Total other comprehensive income (loss)		6,010			13,088
Comprehensive income (loss) before allocation to noncontrolling interests		(97,654	)		22,219
Allocation to noncontrolling interests		55			50
Comprehensive income (loss)	$	(97,599	)	$	22,269

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

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RAIT Financial Trust

Consolidated Statements of Cash Flows

(Unaudited and dollars in thousands)

	For the  Three-Month Periods Ended March 31
	2012			2011
Operating activities:
Net income (loss)	$	(103,664	)	$	9,131
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for losses		500			1,950
Share-based compensation expense		557			259
Depreciation and amortization		7,663			7,119
Amortization of deferred financing costs and debt discounts		1,746			868
Accretion of discounts on investments		(394	)		(305	)
(Gains) losses on sales of assets		(11	)		(1,415	)
(Gains) losses on extinguishment of debt		(1,574	)		537
Change in fair value of financial instruments		108,923			(5,611	)
Changes in assets and liabilities:
Accrued interest receivable		(1,761	)		(748	)
Other assets		(2,957	)		(3,432	)
Accrued interest payable		(7,877	)		(10,810	)
Accounts payable and accrued expenses		(2,708	)		529
Deferred taxes, borrowers’ escrows and other liabilities		615			2,392
Cash flow from operating activities		(942	)		464
Investing activities:
Proceeds from sales of other securities		1			4,883
Purchase and origination of loans for investment		(72,215	)		(5,172	)
Principal repayments on loans		29,460			11,436
Investments in real estate		(3,009	)		(14,225	)
Business acquisition		0			(2,731	)
(Increase) Decrease in restricted cash		125,797			8,847
Cash flow from investing activities		80,034			3,038
Financing activities:
Repayments on secured credit facilities and loans payable on real estate		(806	)		(15,782	)
Repayments and repurchase of CDO notes payable		(93,164	)		(12,469	)
Proceeds from issuance of 7.0% convertible senior notes		0			115,000
Repayments and repurchase of 6.875% convertible senior notes		0			(86,336	)
Proceeds from repurchase agreements		3,471			0
Issuance (acquisition) of noncontrolling interests		0			3,582
Payments for deferred costs		(257	)		(6,369	)
Preferred share issuance, net of costs incurred		101			0
Common share issuance, net of costs incurred		41,601			17,738
Distributions paid to preferred shareholders		(3,414	)		(3,414	)
Distributions paid to common shareholders		(2,503	)		(3,219	)
Cash flow from financing activities		(54,971	)		8,731
Net change in cash and cash equivalents		24,121			12,233
Cash and cash equivalents at the beginning of the period		29,720			27,230
Cash and cash equivalents at the end of the period	$	53,841		$	39,463
Supplemental cash flow information:
Cash paid for interest	$	4,808		$	9,722
Cash paid (refunds received) for taxes		45			85
Non-cash increase in investments in real estate from the conversion of loans		0			20,300
Non-cash decrease in indebtedness from conversion to shares or debt extinguishments		(1,574	)		(6,914	)

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

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RAIT Financial Trust

Notes to Consolidated Financial Statements

As of March 31, 2012

(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, 2011 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.

b. Principles of Consolidation

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

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.” A loan is impaired when it is probable that we may not collect all principal and interest payments according to the contractual terms. As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower’s financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, “Contingencies.” Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off loans when the investment is no longer realizable and legally discharged.

f. Investments in Real Estate

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

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 fair value. Our investments in security-related receivables represent securities that were transferred to issuers of collateralized debt obligations, or CDOs, in which the transferors maintained some level of continuing involvement. We use 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 securitizations while such securitizations are consolidated. During the three-month periods ended March 31, 2012 and 2011, we received $1,285 and $1,298, respectively, of earned asset management fees associated with consolidated securitizations, of which we eliminated $969 and $959, respectively, of management fee income with consolidated securitizations.

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

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

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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 dividends 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 dividends 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 securitizations. Some of these fees paid to the TRS entities are capitalized as deferred financing costs by the securitizations. Certain securitizations may be consolidated in our financial statements pursuant to FASB ASC Topic 810, “Consolidation.” In consolidation, these fees are eliminated when the securitization 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 dividend 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, 2012, we adopted ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This accounting standard changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. These disclosures are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2011, The FASB issued an accounting standard classified under FASB ASC Topic 360, “Property, Plant, and Equipment”. This accounting standard amends existing guidance to resolve the diversity in practice about whether the guidance for real estate sales applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This accounting standard is effective for fiscal years, and interim periods with those years, beginning on or after June 15, 2012. Management is currently evaluating the impact that these standards may have on our consolidated financial statements.

NOTE 3: INVESTMENTS IN LOANS

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

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of March 31, 2012:

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	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	$	642,349		$	(3,874	)	$	638,475			42		6.4	%	May 2012 to Apr. 2022
Mezzanine loans		286,037			(5,282	)		280,755			88		9.3	%	May 2012 to Nov. 2038
Preferred equity interests		61,935			(1,092	)		60,843			21		9.5	%	May 2012 to Aug. 2025
Total CRE Loans		990,321			(10,248	)		980,073			151		7.4	%
Other loans		53,615			118			53,733			4		4.4	%	May 2012 to Oct. 2016
Total Loans	$	1,043,936		$	(10,130	)	$	1,033,806			155		7.3	%
Deferred fees		(962	)		0			(962	)
Total investments in loans	$	1,042,974		$	(10,130	)	$	1,032,844

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

During the three-month period ended March 31, 2011, we completed the conversion of one commercial real estate loan with a carrying value of $22,078 to real estate owned property. We did not convert any commercial real estate loans to real estate owned property during the three-month period ended March 31, 2012. During the three-month periods ended March 31, 2011, we charged off $1,778 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 March 31, 2012 and December 31, 2011:

Delinquency Status	As of March 31, 2012		As of December 31, 2011
30 to 59 days	$	18,500	$	3,500
60 to 89 days		0		0
90 days or more		22,257		16,857
In foreclosure or bankruptcy proceedings		10,952		10,320
Total	$	51,709	$	30,677

As of March 31, 2012 and December 31, 2011, approximately $56,113 and $54,334, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 9.8%. As of March 31, 2012 and December 31, 2011, approximately $18,273 and $19,501 of one Other loan was on non-accrual status and had a weighted-average interest rate of 7.2%.

Allowance For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the three-month periods ended March 31, 2012 and 2011:

	For the Three-Month Period Ended March 31, 2012			For the Three-Month Period Ended March 31, 2011
Beginning balance	$	46,082		$	69,691
Provision		500			1,950
Charge-offs, net of recoveries		(6,867	)		(4,872	)
Ending balance	$	39,715		$	66,769

As of March 31, 2012 and December 31, 2011, we identified 17 and 19 commercial mortgages, mezzanine loans and other loans with unpaid principal balances of $81,411 and $87,977 as impaired.

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The average unpaid principal balance of total impaired loans was $84,694 and $151,006 during the three-month periods ended March 31, 2012 and 2011. We recorded interest income from impaired loans of $63 and $506 for the three-month periods ended March 31, 2012 and 2011.

We have evaluated modifications to our commercial real estate loans to determine if the modification constitutes a troubled debt restructuring (TDR) under FASB ASC Topic 310, “Receivables”. During the three-month period ended March 31, 2012, we have determined that there were no modifications to any commercial real estate loans that constituted a TDR. As of March 31, 2012, there were no TDRs that subsequently defaulted.

NOTE 4: INVESTMENTS IN SECURITIES

Our investments in securities and security-related receivables are accounted for at fair value. The following table summarizes our investments in securities as of March 31, 2012:

Investment Description	Amortized Cost		Net Fair Value Adjustments			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS	$	637,376	$	(154,632	)	$	482,744		4.2	%		22.3
Other securities		11,162		(11,162	)		0		5.0	%		40.6
Total trading securities		648,538		(165,794	)		482,744		4.3	%		22.6
Available-for-sale securities		3,600		(3,598	)		2		2.3	%		30.6
Security-related receivables
TruPS receivables		111,199		(26,479	)		84,720		6.5	%		10.7
Unsecured REIT note receivables		30,000		1,333			31,333		6.7	%		4.9
CMBS receivables (2)		86,443		(49,262	)		37,181		5.6	%		31.5
Other securities		53,238		(35,629	)		17,609		4.1	%		28.6
Total security-related receivables		280,880		(110,037	)		170,843		5.8	%		19.9
Total investments in securities	$	933,018	$	(279,429	)	$	653,589		4.7	%		22.0

(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 $7,828 that are rated between “AAA” and “A-” by Standard & Poor’s, securities with a fair value totaling $23,325 that are rated “BBB+” and “B-” by Standard & Poor’s, securities with a fair value totaling $5,470 that are rated “CCC” by Standard & Poor’s and securities with a fair value totaling $558 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 March 31, 2012							As of December 31, 2011
	Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value		Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value
TruPS and TruPS receivables	$	83,557		1.9	%	$	5,705	$	83,557		1.9	%	$	5,766
Other securities		34,320		3.3	%		2		34,240		3.3	%		2
CMBS receivables		33,291		5.9	%		558		32,462		5.9	%		915

The assets of our consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of March 31, 2012 and December 31, 2011, investment in securities of $748,575 in principal amount of TruPS and subordinated debentures, and $103,674 and $104,122, 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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NOTE 5: INVESTMENTS IN REAL ESTATE

The table below summarizes our investments in real estate:

	As of March 31, 2012					As of December 31, 2011
	Book Value			Number of Properties		Book Value			Number of Properties
Multi-family real estate properties	$	592,937			33	$	591,915			33
Office real estate properties		251,663			10		251,303			10
Retail real estate properties		71,994			3		71,405			3
Parcels of land		46,658			10		46,251			10
Subtotal		963,252			56		960,874			56
Less: Accumulated depreciation and amortization		(76,122	)				(69,372	)
Investments in real estate	$	887,130				$	891,502

As of March 31, 2012, our investments in real estate of $887,130 are financed through $135,376 of mortgages held by third parties and $799,457 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.

During the three-month period ended March 31, 2012, we did not acquire or dispose of any real estate properties.

NOTE 6: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of March 31, 2012:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	108,264		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		3,582		3,741		6.9	%	Apr. 2027
Secured credit facilities		9,497		9,497		3.0	%	Dec. 2016
Junior subordinated notes, at fair value (3)		38,052		22,450		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
CMBS facilities		3,471		3,471		2.7	%	Nov. 2012 to Oct. 2013
Total recourse indebtedness (4)		194,702		172,523		6.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,309,528		1,307,648		0.7	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		1,022,664		149,390		1.2	%	2037 to 2038
Loans payable on real estate		135,410		135,410		5.6	%	Sept. 2015 to May 2021
Total non-recourse indebtedness		2,467,602		1,592,448		1.1	%
Total indebtedness	$	2,662,304	$	1,764,971		1.5	%

(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) In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

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

(4) Excludes senior secured notes issued by us with an aggregate principal amount equal to $100,000 with a weighted average coupon of 7.0%, which are eliminated in consolidation.

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

(6) Collateralized by $1,695,976 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(7) Collateralized by $1,157,562 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of March 31, 2012 was $862,406. These obligations were issued by

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separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

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

The current status or activity in our financing arrangements occurring as of or during the three-month period ended March 31, 2012 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

7.0% convertible senior notes. The 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 132.9506 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $7.52 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 7.0% convertible senior notes in 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.

Secured credit facilities. As of March 31, 2012, we have $9,497 outstanding under our secured credit facility, which is payable in December 2016 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

CMBS Facilities. During the three-month period ended March 31, 2012, we financed $3,471 in aggregate principal amount of commercial mortgage loans pursuant to the $150,000 CMBS facility. As of March 31, 2012, $246,529 in aggregate principal amount remained available under the our CMBS facilities.

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 March 31, 2012.

During the three-month period ended March 31, 2012, we repurchased, from the market, a total of $2,500 in aggregate principal amount of CDO notes payable issued by our RAIT I CDO securitization. The aggregate purchase price was $926 and we recorded a gain on extinguishment of debt of $1,574.

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 three-month period ended March 31, 2012, $81,420 of restricted cash, including cash flow that was re-directed from our retained interests in these CDOs, was used to repay the most senior holders of our CDO notes payable.

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

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effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of March 31, 2012, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of March 31, 2012 and December 31, 2011:

	As of March 31, 2012					As of December 31, 2011
	Notional		Fair Value			Notional		Fair Value
Cash flow hedges:
Interest rate swaps	$	1,560,845	$	(170,947	)	$	1,570,787	$	(181,499	)
Interest rate caps		36,000		1,207			36,000		1,360
Net fair value	$	1,596,845	$	(169,740	)	$	1,606,787	$	(180,139	)

During 2012, interest rate swap agreements with a notional amount of $185,625 and a weighted average strike rate of 4.15% as of March 31, 2012, will terminate in accordance with their terms.

For interest rate swaps that are considered effective hedges, we reclassified realized losses of $8,910 and $10,889 to earnings for the three-month periods ended March 31, 2012 and 2011.

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 March 31, 2012, 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 $88,709. See Note 8: “Fair Value of Financial Instruments” for the changes in value of these hedges during the three-month periods ended March 31, 2012 and 2011. 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, CMBS facilities and loans payable on real estate 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 March 31, 2012:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans and other loans	$	1,032,844	$	989,078
Investments in securities and security-related receivables		653,589		653,589
Cash and cash equivalents		53,841		53,841
Restricted cash		153,285		153,285
Derivative assets		1,257		1,257
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		108,264		107,525
6.875% convertible senior notes		3,741		3,604
Secured credit facilities		9,497		9,497
Junior subordinated notes, at fair value		22,450		22,450
Junior subordinated notes, at amortized cost		25,100		14,809
CMBS facilities		3,471		3,471
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,307,648		800,627
CDO notes payable, at fair value		149,390		149,390
Loans payable on real estate		135,410		135,410
Derivative liabilities		170,997		170,997

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Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2012, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2012
Trading securities
TruPS	$	0	$	0	$	482,744	$	482,744
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		84,720		84,720
Unsecured REIT note receivables		0		31,333		0		31,333
CMBS receivables		0		37,181		0		37,181
Other securities		0		17,609		0		17,609
Derivative assets		0		1,257		0		1,257
Total assets	$	0	$	87,382	$	567,464	$	654,846

Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2012
Junior subordinated notes, at fair value	$	0	$	0	$	22,450	$	22,450
CDO notes payable, at fair value		0		0		149,390		149,390
Derivative liabilities		0		86,382		84,615		170,997
Total liabilities	$	0	$	86,382	$	256,455	$	342,837

(a) During the three-month period ended March 31, 2012, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

When estimating the fair value of our Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include yields, credit spreads, effective dollar prices and overall market conditions on not only the exact financial instrument for which management is estimating the fair value but also financial instruments that are similar or issued by the same issuer when such inputs are unavailable. Management uses these inputs to estimate the effective dollar price for our specific Level 3 financial instrument. Changes in these inputs over time cause changes in the fair value of our financial instruments. The weighted average effective dollar price of our TruPS and TruPS receivables as of March 31, 2012 is $75.81.

The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the three-month period ended March 31, 2012:

Assets	Trading Securities—TruPS and Subordinated Debentures		Security-Related Receivables—TruPS and Subordinated Debenture Receivables		Total Level 3 Assets
Balance, as of December 31, 2011	$	481,736	$	82,863	$	564,599
Change in fair value of financial instruments		1,008		1,857		2,865
Purchases		0		0		0
Sales		0		0		0
Balance, as of March 31, 2012	$	482,744	$	84,720	$	567,464

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Liabilities	Derivative Liabilities			CDO Notes Payable, at Fair Value			Junior Subordinated Notes, at Fair Value		Total Level 3 Liabilities
Balance, as of December 31, 2011	$	90,080		$	122,506		$	22,450	$	235,036
Change in fair value of financial instruments		(5,465	)		108,304			0		102,839
Purchases		0			0			0		0
Sales		0			0			0		0
Principal repayments		0			(81,420	)		0		(81,420	)
Balance, as of March 31, 2012	$	84,615		$	149,390		$	22,450	$	256,455

The following table summarizes the valuation technique and the level of the fair value hierarchy for financial instruments that are not fair valued in the accompanying balance sheets but for which fair value is required to be disclosed. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities and loans payable on real estate approximates cost due to the nature of these instruments and are not included in the table below.

						Fair Value Measurement
	Carrying Amount as of March 31, 2012		Estimated Fair Value as of March 31, 2012		Valuation Technique	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial mortgages, mezzanine loans and other loans	$	1,032,844	$	989,078	Discounted cash flows	$	0	$	0	$	989,078
7.0% convertible senior notes		108,264		107,525	Trading price		107,525		0		0
6.875% convertible senior notes		3,741		3,604	Trading price		3,604		0		0
Junior subordinated notes, at amortized cost		25,100		14,809	Discounted cash flows		0		0		14,809
CDO notes payable, at amortized cost		1,307,648		800,627	Discounted cash flows		0		0		800,627

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 March 31
Description	2012			2011
Change in fair value of trading securities and security-related receivables	$	6,132		$	16,554
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(108,304	)		(7,031	)
Change in fair value of derivatives		(6,751	)		(3,912	)
Change in fair value of financial instruments	$	(108,923	)	$	5,611

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 periods ended March 31, 2012 and 2011 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of the CDO notes payable for which the fair value option was elected was due to repayments at par because of OC failures when the CDO notes have a fair value of less than par. The changes in the fair value of derivatives for which the fair value option was elected for the three-month periods ended March 31, 2012 and 2011 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 March 31, 2012 and December 31, 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 March 31, 2012			As of December 31, 2011
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,878,442		$	1,856,106
Allowance for losses		(30,557	)		(36,210	)
Total investments in mortgages and loans		1,847,885			1,819,896
Investments in real estate		20,800			20,910
Investments in securities and security-related receivables, at fair value		652,724			645,915
Cash and cash equivalents		244			201
Restricted cash		123,077			235,682
Accrued interest receivable		59,850			57,560
Deferred financing costs, net of accumulated amortization of $11,640 and $10,995, respectively		14,733			15,378
Total assets	$	2,719,313		$	2,795,542
Liabilities and Equity
Indebtedness (including $149,390 and $122,506 at fair value, respectively)	$	1,698,594		$	1,682,487
Accrued interest payable		51,914			48,417
Accounts payable and accrued expenses		3,215			1,537
Derivative liabilities		170,997			181,499
Deferred taxes, borrowers’ escrows and other liabilities		2,654			4,570
Total liabilities		1,927,374			1,918,510
Equity:
Shareholders’ equity:
Accumulated other comprehensive income (loss)		(108,226	)		(114,186	)
RAIT Investment		20,008			31,004
Retained earnings		880,157			960,214
Total shareholders’ equity		791,939			877,032
Total liabilities and equity	$	2,719,313		$	2,795,542

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with our other subsidiaries that maintain investments in the debt or equity securities issued by these entities. We do not have any contractual obligation to provide the VIEs listed above with any financial support. We have not and as 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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NOTE 10: EQUITY

Preferred Shares

On January 24, 2012, our board of trustees declared a first quarter 2012 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 April 2, 2012 to holders of record on March 1, 2012 and totaled $3,407.

On May 1, 2012, our board of trustees declared a second quarter 2012 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 July 2, 2012 to holders of record on June 1, 2012.

Common Shares

Dividends:

On February 29, 2012, the board of trustees declared a $0.08 dividend on our common shares to holders of record as of March 28, 2012. The dividend was paid on April 27, 2012 and totaled $3,992.

Share Repurchases:

On January 24, 2012, the compensation committee of our board of trustees approved a cash payment to the board’s seven non-management trustees intended to constitute a portion of their respective 2012 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 letter agreement documented the election of each trustee to 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 used by all of the non-management trustees to purchase common shares was $210 and was used to purchase 36,750 common shares, in the aggregate, in February 2012.

Equity Compensation:

During the three-month period ended March 31, 2012, 220,823 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

On January 24, 2012, the compensation committee awarded 2,172,000 stock appreciation rights, or SARs, valued at $6,091 based on a Black-Scholes option pricing model at the date of grant, to our executive officers and non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and January 24, 2017, the expiration date of the SARs.

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, in the aggregate, 10,500,000 common shares. During the three-month period ended March 31, 2012, we issued a total of 1,491,160 common shares pursuant to the DRSPP at a weighted-average price of $5.10 per share and we received $7,570 of net proceeds. As of March 31, 2012, 7,796,422 common shares, in aggregate, remain available for issuance under the DRSPP.

Common Share Public Offering:

During the three-month period ended March 31, 2012, we issued 6,950,000 common shares in an underwritten public offering. The public offering price was $5.30 per share and we received $34,750 of net proceeds.

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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 periods ended March 31, 2012 and 2011:

	For the Three-Month Periods Ended March 31
	2012			2011
Income (loss) from continuing operations	$	(103,664	)	$	8,340
(Income) loss allocated to preferred shares		(3,410	)		(3,414	)
(Income) loss allocated to noncontrolling interests		55			50
Income (loss) from continuing operations allocable to common shares		(107,019	)		4,976
Income (loss) from discontinued operations		0			791
Net income (loss) allocable to common shares	$	(107,019	)	$	5,767
Weighted-average shares outstanding—Basic		44,150,924			36,618,910
Dilutive securities under the treasury stock method		0			349,210

	For the Three-Month Periods Ended March 31
	2012			2011
Weighted-average shares outstanding—Diluted		44,150,924			36,968,120
Earnings (loss) per share—Basic:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Basic	$	(2.42	)	$	0.16
Earnings (loss) per share—Diluted:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Diluted	$	(2.42	)	$	0.16

For the three-month periods ended March 31, 2012 and 2011, securities convertible into 15,431,009 and 2,079,869 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 March 31, 2012 and December 31, 2011, we had $5,479 and $515, respectively, of cash and cash equivalents and $497 and $447, respectively, of restricted cash on deposit at Bancorp. We did not receive any interest income from the Bancorp during the three-month periods ended March 31, 2012 and 2011. 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 a sublease agreement with a third party for the remaining term of our sublease. Rent paid to Bancorp was $79 and $84 for the three-month periods ended March 31, 2012 and 2011, respectively. Rent received for our sublease was $43 and $42 for the three-month periods ended March 31, 2012 and 2011.

NOTE 13: DISCONTINUED OPERATIONS

For the three-month periods ended March 31, 2011, income (loss) from discontinued operations relates to one real estate property sold since January 1, 2011. There was no income (loss) from discontinued operations during the three-month period ended March 31, 2012. The following table summarizes revenue and expense information for real estate properties classified as discontinued operations:

	For the Three-Month Period Ended March 31, 2011
Revenue:
Rental income	$	1,777
Expenses:
Real estate operating expense		985
General and administrative expense		1
Total expenses		986
Total income (loss) from discontinued operations	$	791

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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

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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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, 2011, 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 with a commercial real estate focused platform capable of originating commercial real estate loans, CMBS eligible loans, acquiring commercial real estate properties and investing in, managing, servicing, trading and advising on commercial real estate-related assets. We offer a comprehensive set of debt financing options to the commercial real estate industry along with asset and property management services. We have recently expanded our platform to include sponsoring non-traded REITs. We also own and manage a portfolio of commercial real estate properties and manage real estate-related assets for third parties. We are positioning RAIT for future growth in the area of its historical core competency, commercial real estate lending and direct ownership of real estate, while diversifying the revenue generated from our commercial real estate loans and properties and reducing or removing other non-core assets and activities.

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

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

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

• raising capital by accessing capital through the independent broker-dealer networks for the offerings of the sponsored REITs and other sponsored companies and generating fee income by advising the sponsored companies and broker-dealer activities;

• reducing our leverage while developing new financing sources; and

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

We generated net loss allocable to common shares of $107.0 million, or $2.42 per common share-diluted, during the three-month period ended March 31, 2012. The primary items affecting our performance were the following:

• Change in fair value of financial instruments. For the three-month period ended March 31, 2012, the net change in fair value of financial instruments decreased net income by $108.9 million. The primary driver of this change in fair value of financial instruments was $115.1 million associated with an increase in the fair value of of non-recourse debt, CDO Notes payable, issued by Taberna VIII and Taberna IX and the associated interest rate hedges. This non-cash mark-to-market reduction to earnings was offset by $6.2 million of non-cash mark-to-market increases in the fair value of trading securities and security related receivables. We have had these non-cash mark-to-market adjustments in the past and expect to experience changes in the fair value of our financial instruments as market conditions change.

• Gains (losses) on debt extinguishments. During the three-month period ended March 31, 2012, we repurchased, from the market, a total of $2.5 million in aggregate principal amount of CDO notes payable issued by our RAIT I CDO securitization. The aggregate purchase price was $0.9 million and we recorded a gain on extinguishment of debt of $1.6 million. 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. 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.

We are expanding our ability to benefit from positive developments in the commercial mortgage-backed securities, or CMBS markets. We believe there is growing demand from unaffiliated commercial mortgage-backed securitizations for commercial real

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estate loans which meet market standards for inclusion in securitizations. During the three-month period ended March 31, 2012, we originated $4.6 million of CMBS eligible loans and have financed them on our CMBS warehouse facilities.

We continue to explore opportunities arising from sponsoring non-traded REITs and similar vehicles due to our capacity to originate and manage commercial real estate-related assets.

Key Statistics

Set forth below are key statistics relating to our business through March 31, 2012 (dollars in thousands, except per share data):

	As of or For the Three-Month Periods Ended
	March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011			March 31, 2011
Financial Statistics:
Assets under management	$	3,549,029		$	3,517,684		$	3,633,133		$	3,753,290		$	3,814,791
Debt to equity		2.3	x		2.2	x		2.3	x		2.2	x		2.1	x
Total revenue	$	54,245		$	56,923		$	60,089		$	58,863		$	58,279
Earnings per share, diluted	$	(2.42	)	$	(0.39	)	$	(0.55	)	$	(0.53	)	$	0.16
Common dividend declared	$	0.08		$	0.06		$	0.06		$	0.06		$	0.09	(a)
Commercial Real Estate (“CRE”) Loan Portfolio (b):
Reported CRE Loans—unpaid principal	$	990,321		$	952,997		$	1,064,946		$	1,122,898		$	1,149,169
Non-accrual loans—unpaid principal	$	56,113		$	54,334		$	91,833		$	94,117		$	121,054
Non-accrual loans as a % of reported loans		5.7	%		5.7	%		8.6	%		8.4	%		10.5	%
Reserve for losses	$	35,527		$	40,565		$	50,609		$	49,906		$	58,809
Reserves as a % of non-accrual loans		63.3	%		74.7	%		55.1	%		53.0	%		48.6	%
Provision for losses	$	500		$	500		$	500		$	950		$	1,950
CRE Property Portfolio:
Reported investments in real estate	$	887,130		$	891,502		$	849,232		$	851,916		$	859,983
Number of properties owned		56			56			48			48			48
Multifamily units owned		8,014			8,014			8,014			8,014			8,311
Office square feet owned		1,786,860			1,786,860			1,786,860			1,786,908			1,786,908
Retail square feet owned		1,358,257			1,358,257			1,114,250			1,116,171			1,116,063
Average physical occupancy data:
Multifamily properties		90.4	%		88.5	%		89.8	%		88.6	%		88.0	%
Office properties		70.7	%		69.2	%		68.5	%		68.8	%		70.7	%
Retail properties		66.9	%		68.0	%		68.9	%		62.0	%		56.3	%
Total		85.0	%		83.6	%		84.5	%		83.1	%		82.4	%

(a) On January 10, 2011, we declared a 2010 annual cash dividend on our common shares of $0.09 per common share, split adjusted. The dividends were paid on January 31, 2011 to holders of record on January 21, 2011.

(b) 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, 2011, 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 improved performance.

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Our Investment Portfolio

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

Commercial mortgages, mezzanine loans, other loans and preferred equity interests. We originate and own senior long-term mortgage loans, 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.

The tables below describe certain characteristics of our commercial mortgages, mezzanine loans, other loans and preferred equity interests as of March 31, 2012 (dollars in thousands):

	Book Value		Weighted- Average Coupon			Range of Maturities	Number of Loans
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	638,475		6.4	%	May 2012 to Apr. 2022		42
Mezzanine loans		280,755		9.3	%	May 2012 to Nov. 2038		88
Preferred equity interests		60,843		9.5	%	May 2012 to Aug. 2025		21
Total CRE Loans		980,073		7.4	%			151
Other loans		53,733		4.4	%	May 2012 to Oct. 2016		4
Total investments in loans	$	1,033,806		7.3	%			155

During the three-month period ended March 31, 2012, our portfolio of commercial real estate loans increased as $72.2 million of new loan originations exceeded the amount of loan repayments.

The charts below describe the property types and the geographic breakdown of our commercial mortgages, mezzanine loans, other loans, and preferred equity interests as of March 31, 2012:

(a) Based on book value.

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Investments in real estate. We invest in real estate properties, primarily multi-family properties, throughout the United States. The table below describes certain characteristics of our investments in real estate as of March 31, 2012 (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)	$	549,346		90.4	%		8,014		33	$	691
Office real estate properties (c)		223,372		70.7	%		1,786,860		10		21.53
Retail real estate properties (c)		67,753		66.9	%		1,358,257		3		10.59
Parcels of land		46,659		0	%		19.9		10		N/A
Total	$	887,130		85.0	%				56

(a) Based on properties owned as of March 31, 2012.

(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 March 31, 2012:

(a) Based on book value.

Investment in debt securities—TruPS and Subordinated Debentures. Historically, we provided REITs and real estate operating companies the ability to raise subordinated debt capital through TruPS and subordinated debentures. TruPS are long-term instruments, with maturities ranging from 5 to 30 years, which are priced based on short-term variable rates, such as the three-month London Inter-Bank Offered Rate, or LIBOR. TruPS are unsecured and generally contain minimal financial and operating covenants. We financed most of our debt securities portfolio in a series of non-recourse securitizations which provided long-dated, interest-only, match funded financing to the TruPS and subordinated debenture investments. As of March 31, 2012, we retained a controlling interest in two such securitizations—Taberna VIII and Taberna IX, which are consolidated entities. We present all of the collateral assets for the debt securities and the related non-recourse securitization financing obligations at fair value in our consolidated financial statements. During 2012, due to the credit performance of the underlying collateral, we received only our senior collateral management fees from these two securitizations. We do not expect to add investments in this asset category for the foreseeable future due to market conditions.

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The table below describes our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of March 31, 2012 (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	$	103,693		1.5	%		83.2	%		2.4	x
Office		136,856		7.5	%		62.5	%		1.8	x
Residential Mortgage		45,662		2.7	%		84.1	%		1.8	x
Specialty Finance		87,424		5.1	%		85.9	%		5.4	x
Homebuilders		63,576		7.8	%		63.5	%		0.5	x
Retail		74,716		4.1	%		62.6	%		1.4	x
Hospitality		30,264		6.3	%		96.5	%		2.5	x
Storage		25,273		8.0	%		66.3	%		4.4	x
Total	$	567,464		4.6	%		73.7	%		2.4	x

The chart below describes the equity capitalization of our investment in TruPS and subordinated debentures as included in our consolidated financial statements as of March 31, 2012:

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

(b) Based on estimated fair value.

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

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

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

The table and the chart below describe certain characteristics of our real estate-related debt securities as of March 31, 2012 (dollars in thousands):

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Investment Description	Estimated Fair Value		Weighted- Average Coupon			Weighted- Average Years to Maturity		Book Value
Unsecured REIT note receivables	$	31,133		6.7	%		4.9	$	30,000
CMBS receivables		37,181		5.6	%		31.5		86,443
Other securities		17,611		3.8	%		30.7		68,000
Total	$	86,125		5.0	%		27.1	$	184,443

(a) S&P Ratings as of March 31, 2012.

Securitization Summary

Overview. We have used securitizations to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our portfolios for the long-term. A securitization is a structure in which multiple classes of debt and equity are issued by a special purpose entity to finance a portfolio of assets. Cash flow from the portfolio of assets is used to repay the securitization liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB–” and therefore can be issued at yields that are lower than the average yield of the securities backing the securitization. The debt tranches are typically rated based on portfolio quality, diversification and structural subordination. The equity securities issued by the securitization are the “first loss” piece of the capital structure, but they are entitled to all residual amounts available for payment after the obligations to the debt holders have been satisfied. Unlike typical securitization structures, the underlying assets in our securitization pool may be sold or repaid, subject to certain limitations, without a corresponding pay-down of the securitization debt, provided the proceeds are reinvested in qualifying assets.

We manage five securitizations with varying amounts of retained or residual interests held by us. Four of these securitizations are consolidated in our financial statements as follows: RAIT I, RAIT II, Taberna VIII and Taberna IX. The assets and liabilities of RAIT I and RAIT II are presented at amortized cost in our consolidated financial statements. The assets and liabilities of Taberna VIII and Taberna IX are presented at fair value in our consolidated financial statements pursuant to the fair value option. We manage the fifth securitization, Taberna I, but do not consolidate it in our financial statements because we are not the primary beneficiary of the securitization.

Securitization Performance. Our securitizations 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 securitization indenture.

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As of the most recent payment information, the Taberna I, Taberna VIII and Taberna IX securitizations that we manage were not passing all of their required interest coverage or OC triggers and we received only senior asset management fees. While events of default do not currently exist in the securitizations that we manage, we are unable to predict with certainty which securitizations, 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 securitizations, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these securitizations.

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

• RAIT I—RAIT I has $1.0 billion of total collateral, of which $29.9 million is defaulted. The current overcollateralization (O/C) test is passing at 126.3% with an O/C trigger of 116.2%. We currently own $43.7 million of the securities that were originally rated investment grade and $200.0 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $43.7 million of the securities we own of RAIT I as collateral for a senior secured note we issued.

• RAIT II—RAIT II has $816.8 million of total collateral, of which $18.9 million is defaulted. The current O/C test is passing at 116.1% with an O/C trigger of 111.7%. We currently own $108.5 million of the securities that were originally rated investment grade and $140.7 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $104.0 million of the securities we own of RAIT II as collateral for a senior secured note we issued.

• Taberna VIII—Taberna VIII has $548.0 million of total collateral, of which $53.8 million is defaulted. The current overcollateralization (O/C) test is failing at 81.8% with an O/C trigger of 103.5%. We currently own $40.0 million of the securities that were originally rated investment grade and $93.0 million of the non-investment grade securities issued by this securitization. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

• Taberna IX—Taberna IX has $595.1 million of total collateral, of which $127.2 million is defaulted. The current O/C test is failing at 71.7% with an O/C trigger of 105.4%. We currently own $89.0 million of the securities that were originally rated investment grade and $97.5 million of the non-investment grade securities issued by this securitization. We do not expect to receive any distributions from this securitization other than our senior management fees for the foreseeable future.

As of March 31, 2012, we have repurchased, in aggregate, a total of $111.7 million of RAIT I and RAIT II CDO notes payable for a cumulative cost of $23.7 million and have a total investment in RAIT I and RAIT II of $492.9 million.

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

Assets Under Management

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

The table below summarizes our AUM as of March 31, 2012 and December 31, 2011 (dollars in thousands):

	AUM as of March 31, 2012		AUM as of December 31, 2011
Commercial real estate portfolio (1)	$	1,883,763	$	1,850,390
U.S. TruPS portfolio (2)		1,665,266		1,667,294
Total	$	3,549,029	$	3,517,684

(1) As of March 31, 2012 and December 31, 2011, our commercial real estate portfolio was comprised of $1.0 billion and $0.9 billion of assets collateralizing RAIT I and RAIT II, $887.1 million and $891.5 million, respectively, of investments in real estate and $38.3 million and $23.9 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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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.

Set forth below is a reconciliation of FFO and AFFO to net income (loss) allocable to common shares for the three-month periods ended March 31, 2012 and 2011 (in thousands, except share information):

	For the  Three-Month Periods Ended March 31
	2012			2011
Funds From Operations:
Net income (loss) allocable to common shares	$	(107,019	)	$	5,767
Adjustments:
Real estate depreciation and amortization		7,459			6,570
Funds From Operations	$	(99,560	)	$	12,337
Weighted-average shares—diluted		44,150,924			36,968,120
Adjusted Funds From Operations:
Funds From Operations	$	(99,560	)	$	12,337
Adjustments:
Change in fair value of financial instruments		108,923			(5,611	)
(Gains) losses on debt extinguishment		(1,574	)		537
Capital expenditures, net of direct financing		(248	)		(362	)
Straight-line rental adjustments		(306	)		(919	)
Amortization of deferred items and intangible assets		1,526			673
Share-based compensation		557			259
Adjusted Funds From Operations	$	9,318		$	6,914
Weighted-average shares—diluted		44,150,924			36,968,120

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Results of Operations

Three-Month Period Ended March 31, 2012 Compared to the Three-Month Period Ended March 31, 2011

Interest income. Interest income decreased $5.6 million, or 16.7%, to $28.0 million for the three-month period ended March 31, 2012 from $33.6 million for the three-month period ended March 31, 2011. Generally, our interest income has declined, when compared to the three-month period ended March 31, 2011, as a result of a decrease in our average investments in loans and securities. Our average investments in loans and securities declined from $1.6 billion for the three-month period ended March 31, 2011 to $1.4 billion during the three-month period ended March 31, 2012. This decline was primarily caused by:

• principal repayments of $225.1 million on our investments in loans and $74.2 million from our investments in securities since March 31, 2011 and

• conversion of $93.1 million of loans to owned real estate since March 31, 2011.

This decline in our investments was offset by new investments totaling $171.2 million since March 31, 2011.

Furthermore, the reduction in interest income is also due to a decrease in the weighted-average interest rates on our investments in loans from 7.7% as of March 31, 2011 to 7.3% as of March 31, 2012. This is due to a broad decrease in interest rates since March 31, 2011 as well as prepayments from loans with higher interest rates since March 31, 2011.

Rental income. Rental income increased $3.5 million to $24.8 million for the three-month period ended March 31, 2012 from $21.3 million for the three-month period ended March 31, 2011. The increase is attributable to $2.1 million of rental income from 10 new properties acquired or consolidated since March 31, 2011, $0.1 million from one property acquired during the three-months ended March 31, 2011 present for a full quarter of operations, and $1.3 million from improved occupancy and rental rates in 2012 as compared to 2011.

Fee and other income. Fee and other income decreased $1.9 million, or 55.9%, to $1.5 million for the three-month period ended March 31, 2012 from $3.4 million for the three-month period ended March 31, 2011. This reduction is attributable to decreases of $1.1 million in consulting fee income due to reduced exchange activity in our consolidated Taberna CDOs, and $0.7 million in property reimbursement income due to lower expenses at managed properties.

Expenses

Interest expense. Interest expense decreased $4.1 million, or 17.5%, to $19.3 million for the three-month period ended March 31, 2012 from $23.4 million for the three-month period ended March 31, 2011. The decrease is primarily attributable to repurchases of $52.0 million of our 6.875% convertible senior notes, $26.2 million of our CDO notes payable, and repayment of our $43.0 million senior secured convertible note, offset by additional interest and discount amortization expenses incurred for the issuance of new debt instruments since March 31, 2011.

Real estate operating expense. Real estate operating expense increased $1.2 million to $13.8 million for the three-month period ended March 31, 2012 from $12.6 million for the three-month period ended March 31, 2011. The increase is attributable to $1.1 million of operating expenses from 10 new properties acquired or consolidated since March 31, 2011 and $0.1 million of operating expenses from our owned properties acquired prior to January 1, 2011.

Compensation expense. Compensation expense decreased $0.8 million, or 12.3%, to $5.7 million for the three-month period ended March 31, 2012 from $6.5 million for the three-month period ended March 31, 2011. This decrease was due to a reduction of salary and benefits of $1.1 million which was partially offset by increased stock compensation expense of $0.3 million.

General and administrative expense. General and administrative expense decreased $1.2 million, or 24.0%, to $3.8 million for the three-month period ended March 31, 2012 from $5.0 million for the three-month period ended March 31, 2011. This decrease was due to a reduction of professional fees for legal, tax, and audit services of $0.6 million, a decrease of $0.2 million in acquisition expenses, $0.3 million in insurance, office, and IT expenses, and $0.1 million in lower other expenses.

Provision for losses. The provision for losses relates to our investments in our commercial mortgage loan portfolios. The provision for losses decreased by $1.5 million for the three-month period ended March 31, 2012 to $0.5 million as compared to $2.0 million for the three-month period ended March 31, 2011. The decrease is attributable to the improved performance of our investment in loans portfolio during 2012 as compared to 2011. As of March 31, 2012 we had $74.4 million of investment in loans on non-accrual,

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down from $140.6 million of investment in loans on non-accrual as of March 31, 2011. 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 and amortization expense increased $0.6 million to $7.7 million for the three-month period ended March 31, 2012 from $7.1 million for the three-month period ended March 31, 2011. The increase is primarily attributable to 10 properties acquired or consolidated since March 31, 2011.

Interest and other income (expense)

Gains on extinguishment of debt. Gains on extinguishment of debt during the three-month period ended March 31, 2012 are attributable to the repurchase of $2.5 million principal amount of RAIT CRE CDO I debt notes from the market for $0.9 million of cash, resulting in gains on extinguishment of debt of $1.6 million.

Change in fair value of financial instruments. During the three-months ended March 31, 2012, the change in fair value of financial instruments reduced our net income by $108.9 million. The fair value adjustments we recorded were as follows (dollars in thousands):

Description	For the Three-Month Period  Ended March 31, 2012			For the Three-Month Period Ended March 31, 2011
Change in fair value of trading securities and security-related receivables	$	6,132		$	16,554
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(108,304	)		(7,031	)
Change in fair value of derivatives		(6,751	)		(3,912	)
Change in fair value of financial instruments	$	(108,923	)	$	5,611

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

Liquidity and Capital Resources

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

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 RAIT II from repayment of underlying loans and other sources can be used until June 2012 to make new investments held by RAIT II, including future funding commitments of existing investments. 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

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• 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 $53.8 million as of March 31, 2012;

• 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, and Dividend Reinvestment and Share Purchase Plan, or DRSPP.

Our restricted cash balance was $153.3 million as of March 31, 2012. We have $93.8 million of restricted cash in RAIT II available to invest in qualifying commercial loans as of March 31, 2012, subject to $11.5 million of future funding commitments, leaving $82.3 million available to lend. This $93.8 million of restricted cash is not available to RAIT’s creditors. As of March 31, 2012, $2.7 million of restricted cash was held by Taberna VIII and Taberna IX. The remaining balance of our restricted cash relates to escrows associated with loans to our borrowers for real estate taxes and insurance.

Cash Flows

As of March 31, 2012 and 2011, we maintained cash and cash equivalents of approximately $53.8 million and $39.5 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

	For the Three-Month Periods Ended March 31
	2012			2011
Cash flow from operating activities	$	(942	)	$	464
Cash flow from investing activities		80,034			3,038
Cash flow from financing activities		(54,971	)		8,731
Net change in cash and cash equivalents		24,121			12,233
Cash and cash equivalents at beginning of period		29,720			27,230
Cash and cash equivalents at end of period	$	53,841		$	39,463

Our principal source of net cash inflow historically has been our investing activities. The increase in cash inflows during the three-month period ended March 31, 2012 as compared to the same period in 2011 was substantially due to the decrease in our restricted cash to repay the most senior note holders of a consolidated securitization. This was offset by cash outflows as new investments in loans of $72.2 million exceeded loan repayments of $29.5 million for the three-month period ended March 31, 2012. During the three-month period ended March 31, 2011, proceeds from loan repayments of $11.4 million outpaced new investment in loans of $5.2 million.

Cash flow from operating activities for the three-month period ended March 31, 2012, as compared to the same period in 2011, has decreased primarily due to an increase in other assets, including prepaid expenses for insurance and real estate taxes, as the size of our portfolio of real estate properties has grown.

The cash outflow from our financing activities during the three-month period ended March 31, 2012 is primarily due to the repayments and repurchases of our CDO notes payable. The cash outflows were partially offset by the inflows from the underwritten public offering of our common shares during the three-month period ended March 31, 2012.

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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 March 31, 2012:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	108,264		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		3,582		3,741		6.9	%	Apr. 2027
Secured credit facilities		9,497		9,497		3.0	%	Dec. 2016
Junior subordinated notes, at fair value (3)		38,052		22,450		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
CMBS facilities		3,471		3,471		2.7	%	Nov. 2012 to Oct. 2013
Total recourse indebtedness (4)		194,702		172,523		6.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,309,528		1,307,648		0.7	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		1,022,664		149,390		1.2	%	2037 to 2038
Loans payable on real estate		135,410		135,410		5.6	%	Sept. 2015 to May 2021
Total non-recourse indebtedness		2,467,602		1,592,448		1.1	%
Total indebtedness	$	2,662,304	$	1,764,971		1.5	%

(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) In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

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

(4) Excludes senior secured notes issued by us with an aggregate principal amount equal to $100,000 with a weighted average coupon of 7.0%, which are eliminated in consolidation.

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

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

(7) Collateralized by $1.2 billion principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of March 31, 2012 was $862.4 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. securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or during the three-month period ended March 31, 2012 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

7.0% convertible senior notes. The 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 132.9506 common shares per $1.0 million principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $7.52 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 7.0% convertible senior notes in 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.

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Secured credit facilities. As of March 31, 2012, we have $9.5 million outstanding under our secured credit facility, which is payable in December 2016 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

CMBS Facilities. During the three-month period ended March 31, 2012, we financed $3.5 million in aggregate principal amount of commercial mortgage loans pursuant to the $150.0 million CMBS facility. As of March 31, 2012, $246.5 million in aggregate principal amount remained available under our CMBS facilities.

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 March 31, 2012.

During the three-month period ended March 31, 2012, we repurchased, from the market, a total of $2.5 million in aggregate principal amount of CDO notes payable issued by our RAIT I CDO securitization. The aggregate purchase price was $0.9 million and we recorded a gain on extinguishment of debt of $1.6 million.

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 three-month period ended March 31, 2012, $81.4 million of restricted cash, including cash flow that was re-directed from our retained interests in these CDOs, were used to repay the most senior holders of our CDO notes payable.

Preferred Shares

On January 24, 2012, our board of trustees declared a first quarter 2012 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 April 2, 2012 to holders of record on March 1, 2012 and totaled $3.4 million.

On May 1, 2012, our board of trustees declared a second quarter 2012 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 July 2, 2012 to holders of record on June 1, 2012.

Common Shares

Dividends:

On February 29, 2012, the board of trustees declared a $0.08 dividend on our common shares to holders of record as of March 28, 2012. The dividend was paid on April 27, 2012 and totaled $4.0 million.

Share Repurchases:

On January 24, 2012, the compensation committee of our board of trustees approved a cash payment to the board’s seven non-management trustees intended to constitute a portion of their respective 2012 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 letter agreement documented the election of each trustee to 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 used by all of the non-management trustees to purchase common shares was $0.2 million and was used to purchase 36,750 common shares, in the aggregate, in February 2012.

Equity Compensation:

During the three-month period ended March 31, 2012, 220,823 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

On January 24, 2012, the compensation committee awarded 2,172,000 stock appreciation rights, or SARs, valued at $6.1 million based on a Black-Scholes option pricing model at the date of grant, to our executive officers and non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and January 24, 2017, the expiration date of the SARs.

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, in the aggregate, 10,500,000 common shares. During the three-month period ended March 31, 2012, we issued a total of 1,491,160 common shares pursuant to the DRSPP at a weighted-average price of

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$5.10 per share and we received $7.6 million of net proceeds. As of March 31, 2012, 7,796,422 common shares, in aggregate, remain available for issuance under the DRSPP.

Common Share Public Offering:

During the three-month period ended March 31, 2012, we issued 6,950,000 common shares in an underwritten public offering. The public offering price was $5.30 per share and we received $34.8 million of net proceeds.

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, 2011 contains a discussion of our critical accounting policies. On January 1, 2012 we adopted a new accounting pronouncement and revised our accounting policies as described below. See Note 2 in our unaudited consolidated financial statements as set forth herein. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.

Recent Accounting Pronouncements

On January 1, 2012, we adopted ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This accounting standard changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. These disclosures are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2011, The FASB issued an accounting standard classified under FASB ASC Topic 360, “Property, Plant, and Equipment”. This accounting standard amends existing guidance to resolve the diversity in practice about whether the guidance for real estate sales applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. This accounting standard is effective for fiscal years, and interim periods with those years, beginning on or after June 15, 2012. Management is currently evaluating the impact that these standards may have on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in quantitative and qualitative market risks during the three-month period ended March 31, 2012 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2011. Reference is made to Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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

34

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three-month period ended March 31, 2012 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

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

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

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, 2011.

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

The following table provides information regarding purchases made by or on behalf of RAIT or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, of shares or other units of any class of RAIT’s equity securities that is registered by RAIT pursuant to section 12 of the Exchange Act.

Issuer Purchases of Equity Securities

Period	Total Number of Shares (or Units) Purchased			Average Price Paid per Share (or Unit)			Total Number of Shares (or Units) Purchased as Part  of Publicly Announced Plans or Programs			Maximum Number (or Approximate Dollar Value) of Shares (or  Units) that May Yet Be Purchased Under the Plans or Programs
01/01/2012 to 01/31/2012		0			0			0			0
02/01/2012 to 02/29/2012		36,750	(1)	$	5.67	(2)		36,750	(1)		0
03/01/2012 to 03/31/2012		0			0			0			0
Total		36,750	(1)	$	5.67	(2)		36,750	(1)(3)		(1	)(3)

(1) On January 24, 2012, the compensation committee of the board of trustees of RAIT approved a cash payment to its seven non-management trustees intended to constitute a portion of their respective 2012 annual non-management trustee compensation. RAIT’s non-management trustees are Edward S. Brown, Frank A. Farnesi, S. Kristin Kim, Arthur Makadon, John F. Quigley III, Jon C. Sarkisian and Murray Stempel, III. 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 letter agreement documented the election of each trustee to 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 used by all of the non-management trustees to purchase common shares was $210,000. RAIT filed a current report on Form 8-K with the SEC disclosing these letter agreements on January 26, 2012. This entire amount was used by the trustees to make purchases in open-market transactions of common shares on February 14, 2012, which we refer to as the trustee purchases. With respect to these purchases, the trustees may be deemed to be affiliated purchasers and so the trustee purchases are reported in this table.

(2) The price reported is the weighted average price of the trustee purchases. These shares were purchased in multiple transactions at prices ranging from $5.63 to $5.72, inclusive.

(3) On July 24, 2007, our board of trustees adopted a share repurchase plan that authorizes us to purchase up to $75.0 million of RAIT common shares. Under the plan, we may make purchases, from time to time, through open market or privately negotiated transactions. We have not repurchased any common shares under this plan as of March 31, 2012. This share purchase plan was first disclosed in our quarterly report on Form 10-Q for the period ended June 30, 2007 filed with the SEC on August 8, 2007 and does not have an expiration date.

Item 5. Other Information

The disclosure below is intended to satisfy any obligation of ours to provide disclosure pursuant to Item 8.01- “Other Events” of Form 8-K.

The Exhibit 99.1 captioned “Material U.S. Federal Income Tax Considerations” filed with this report on Form 10-Q updates and replaces the Exhibit 99.1 captioned “Material U.S. Federal Income Tax Considerations” previously filed with our report on Form 10-K for the fiscal year ended December 31, 2011. Among other updates, the Exhibit previously filed is being updated to modify disclosure relating to whether any of our income could be considered excess inclusion income that would be treated as unrelated business taxable income, or UBTI, by tax-exempt shareholders or others. We are making these modifications because we have not previously generated, do not currently generate and do not expect in the future to generate, any UBTI. We do not intend to purchase UBTI producing assets in the future and intend to maintain an investment strategy that removes the exposure of UBTI to our shareholders.

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: May 10, 2012	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: May 10, 2012	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: May 10, 2012	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)

36

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)
4.9	Indenture dated as of October 5, 2011 between RAIT and Wilmington Trust, National Association, as trustee. (14)
10.1	Form of Letter Agreement between RAIT and each of its Non-Management Trustees dated as of January 24, 2012. (15)
10.2	IAP Form of Share Appreciation Rights Award Agreement adopted January 24, 2012. (15)
12.1	Statements regarding computation of ratios as of March 31, 2012.*
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.*
99.1	Material U.S. Federal Income Tax Considerations.*
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from RAIT’s Quarterly Report on Form 10-Q for the period ended March 31, 2012 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three-month periods ended March 31, 2012 and 2011; (ii) Consolidated Balance Sheets as of March 31,

37

Exhibit Number

Description of Documents

2012 and December 31, 2011; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three-month ended March 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2012 and 2011; 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.

* Filed herewith

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

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

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

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

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

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

(7) Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 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).

(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 10-Q for the quarterly period ended September 30, 2011 (File No. 1-14760).

(15) Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on January 26, 2012 (File No. 1-14760).

38

EX-12.1

Exhibit 12.1

RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS

Our ratio of earnings to fixed charges and preferred share dividends for the periods indicated are set forth below. For purposes of calculating the ratios set forth below, earnings represent net income from continuing operations from our consolidated statements of operations, as adjusted for fixed charges; fixed charges represent interest expense and preferred share dividends represent income or loss allocated to preferred shares from our consolidated statements of operations.

The following table presents our ratio of earnings to fixed charges and preferred share dividends for the three-month period ended March 31, 2012 and for the five years ended December 31, 2011 (dollars in thousands):

	For the Three Months Ended March 31			For the Years Ended December 31
	2012			2011			2010		2009			2008			2007
Net income (loss) from continuing operations	$	(103,664	)	$	(38,457	)	$	110,590	$	(440,141	)	$	(617,130	)	$	(435,991	)
Add back fixed charges:
Interest expense		19,348			89,649			96,690		261,824			486,932			699,892
Earnings before fixed charges and preferred share dividends		(84,316	)		51,192			207,280		(178,317	)		(130,198	)		263,901
Fixed charges and preferred share dividends:
Interest expense		19,348			89,649			96,690		261,824			486,932			699,892
Preferred share dividends		3,410			13,649			13,641		13,641			13,641			11,817
Total fixed charges and preferred share dividends	$	22,758		$	103,298		$	110,331	$	275,465		$	500,573		$	711,709
Ratio of earnings to fixed charges		—	(1)		—	(1)		2.1x		—	(1)		—	(1)		—	(1)
Ratio of earnings to fixed charges and preferred share dividends		—	(2)		—	(2)		1.9x		—	(2)		—	(2)		—	(2)

(1) The dollar amount of the deficiency for the three-month period ended March 31, 2012 is $103.7 million and the dollar amount of the deficiency for the years ended December 31, 2011, 2009, 2008 and 2007 is $38.5 million, $440.1 million, $617.1 million, and $436.0 million, respectively.

(2) The dollar amount of the deficiency for the three-month period ended March 31, 2012 is $107.1 million and the dollar amount of the deficiency for the years ended December 31, 2011, 2009, 2008 and 2007 is $52.1 million, $453.8 million, $630.8 million, and $447.8 million, respectively.

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: May 10, 2012		/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: May 10, 2012		/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 March 31, 2012 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: May 10, 2012

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 March 31, 2012 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: May 10, 2012

EX-99.1

Exhibit 99.1

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the material U.S. federal income tax considerations relating to RAIT’s and the REIT affiliates’ qualification and taxation as real estate investment trusts, or REITs, and the acquisition, holding, and disposition of RAIT shares of beneficial interest. For purposes of this Exhibit, we refer to “we,” “us,” and “our” refer to “RAIT” only and not its subsidiaries or other lower-tier entities, except as otherwise indicated.

This summary is based upon the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, the Treasury regulations, current administrative interpretations and practices of the Internal Revenue Service, or the IRS, (including administrative interpretations and practices expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers who requested and received those rulings) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this summary. The summary is also based upon the assumption that the operation of the company, and of its subsidiaries and other lower-tier and affiliated entities, will, in each case, be in accordance with its applicable organizational documents. This summary is for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular shareholder in light of its investment or tax circumstances or to shareholders subject to special tax rules, such as:

• U.S. expatriates;

• persons who mark-to-market our shares of beneficial interest;

• subchapter S corporations;

• U.S. shareholders (as defined below) whose functional currency is not the U.S. dollar;

• financial institutions;

• insurance companies;

• broker-dealers;

• regulated investment companies;

• trusts and estates;

• holders who receive our shares of beneficial interest through the exercise of employee shares options or otherwise as compensation;

• persons holding our shares of beneficial interest as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

• persons subject to the alternative minimum tax provisions of the Internal Revenue Code;

• persons holding our shares of beneficial interest through a partnership or similar pass-through entity;

• persons holding a 10% or more (by vote or value) beneficial interest in RAIT; and, except to the extent discussed below:

• tax-exempt organizations; and

• non-U.S. shareholders (as defined below).

This summary assumes that shareholders will hold our shares of beneficial interest as capital assets, which generally means as property held for investment.

THE U.S. FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OUR SHARES OF BENEFICIAL INTEREST DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING OUR SHARES OF BENEFICIAL INTEREST FOR ANY PARTICULAR SHAREHOLDER WILL DEPEND ON THE SHAREHOLDER’S PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF OUR SHARES OF BENEFICIAL INTEREST.

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Taxation

We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 1998. Our subsidiary, Taberna Realty Finance Trust, or Taberna, elected to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ended December 31, 2005. We are also sponsoring the initial public offerings of two companies we currently consolidate as subsidiaries which we intend to become non-traded REITs, Independence Realty Trust, Inc., or IRT, and Independence Mortgage Trust, Inc., or IMT. IRT intends to elect to be taxed as a REIT under the Internal Revenue Code for its taxable year ended December 31, 2011. IMT intends to qualify as a REIT for federal income tax purposes beginning with the taxable year ending December 31 of the year in which it satisfies its minimum offering requirement. We refer to Taberna, IRT and IMT, together with any other REITs we sponsor, as the REIT affiliates. References to the REIT affiliates mean only each such REIT and not its subsidiaries or other lower-tier entities, except as otherwise indicated. Where any description is relevant exclusively to RAIT or one or more of our REIT affiliates, or applies differently to RAIT or one or more of our REIT affiliates, the name of the specific entity being described is used for purposes of such description.

We believe that each of RAIT and each REIT affiliate have been organized and operated in a manner that will allow each of them to qualify for taxation as a REIT under the Internal Revenue Code, and RAIT and the REIT affiliates intend to continue to be organized and operated in such a manner.

While each of RAIT and the REIT affiliates believes that it has been organized and operated so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in RAIT’s or the REIT affiliates’ circumstances, applicable law, or interpretations thereof, no assurance can be given by RAIT or any REIT affiliate that RAIT or any REIT affiliate, respectively, will qualify as a REIT for any particular year. RAIT shareholders should be aware that the foregoing is not binding on the IRS, and no assurance can be given that the IRS will not challenge the foregoing.

Each of RAIT’s and each REIT affiliate’s qualification and taxation as a REIT depends on its separate ability to meet, on a continuing basis, through actual results of operations, distribution levels and diversity of share ownership, various qualification requirements imposed upon REITs by the Internal Revenue Code. In addition, RAIT’s and each REIT affiliate’s ability to qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which RAIT and the REIT affiliates invest, which could include entities that have made elections to be taxed as REITs. RAIT’s and each REIT affiliate’s ability to qualify as a REIT also requires that RAIT and the REIT affiliates satisfy certain asset and income tests, some of which depend upon the fair market values of assets directly or indirectly owned by RAIT and the REIT affiliates or which serve as security for loans made by RAIT and the REIT affiliates. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of RAIT’s and each REIT affiliate’s operations for any taxable year will satisfy the requirements for qualification and taxation as a REIT. In addition, because of RAIT’s ownership of all of the common, but not preferred, equity of Taberna and because it is expected that RAIT will receive substantial dividend income from Taberna, if Taberna fails to qualify as a REIT, it is very likely that RAIT will also fail to qualify as a REIT. Similarly, if RAIT owns a significant amount of the equity of any REIT affiliate (other than through a taxable REIT subsidiary, or TRS), and RAIT receives substantial dividend income from such REIT affiliate, if such REIT affiliate fails to qualify as a REIT, it would adversely affect RAIT’s ability to qualify as a REIT. RAIT currently owns all of IMT’s common equity directly and owns all of IRT’s common equity through a TRS.

Taxation of REITs in General

As indicated above, qualification and taxation of each of RAIT and the REIT affiliates as a REIT depends upon RAIT’s and each REIT affiliate’s ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below, under “—Requirements for Qualification—General.” While RAIT and the REIT affiliates intend to operate so that each qualifies as a REIT, no assurance can be given that the IRS will not challenge RAIT’s or the REIT affiliates’ qualification as a REIT or that RAIT or any REIT affiliate will be able to operate in accordance with the REIT requirements in the future. See “—Failure to Qualify.” In addition, the failure of Taberna to qualify as a REIT would very likely result in RAIT’s failure to qualify as a REIT.

An entity that qualifies as a REIT will generally be entitled to a deduction for dividends paid to its shareholders and, therefore, will not be subject to U.S. federal corporate income tax on net taxable income that is currently distributed to its shareholders. This treatment substantially eliminates the “double taxation” at the corporate and shareholder levels that results generally from investment in a corporation. Rather, income generated by a REIT generally is taxed only at the shareholder level, upon a distribution of dividends by the REIT.

For tax years through 2012, U.S. shareholders (as defined below) who are taxed at individual rates are generally taxed on corporate dividends at a maximum rate of 15% (the same as long-term capital gains), thereby substantially reducing, though not completely eliminating, the double taxation that has historically applied to corporate dividends. With limited exceptions, however, dividends received by U.S. shareholders who are taxed at individual rates from us or from other entities that are taxed as REITs will continue to be taxed at rates applicable to ordinary income, which will be as high as 35% through 2012.

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Net operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to the shareholders of the REIT, subject to special rules for certain items, such as capital gains, recognized by REITs. See “—Taxation of Shareholders.”

If we and the REIT affiliates qualify as REITs, we and the REIT affiliates will nonetheless be subject to U.S. federal income tax in the following circumstances:

• Each of RAIT and the REIT affiliates will be taxed at regular corporate rates on any undistributed income, including undistributed net capital gains.

• We and the REIT affiliates may be subject to the “alternative minimum tax” on its items of tax preference, if any.

• If we or the REIT affiliates have net income from prohibited transactions, which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such income will be subject to a 100% tax. See “—Prohibited Transactions” and “—Foreclosure Property,” below.

• If we or the REIT affiliates elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or from certain leasehold terminations as “foreclosure property.” We or the REIT affiliates may thereby avoid (a) the 100% tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction) and (b) the inclusion of any income from such property not qualifying for purposes of the REIT gross income tests discussed below, but the income from the sale or operation of the property may be subject to corporate income tax at the highest applicable rate (currently 35%).

• If we or the REIT affiliates fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but our failure is due to reasonable cause and not due to willful neglect, and we or the REIT affiliates, as the case may be, nonetheless maintain our or their REIT qualification because other requirements are met, we or the REIT affiliates will be subject to a 100% tax on an amount equal to the greater of the amount by which we or the REIT affiliates fail the 75% gross income test or the 95% gross income test, as the case may be, multiplied by (b) a fraction intended to reflect our or the REIT affiliate’s profitability.

• If we or the REIT affiliates fail to satisfy any of the REIT asset tests, as described below, other than in the case of a de minimis failure of the 5% or 10% asset tests, but such failure is due to reasonable cause and not due to willful neglect and we or the REIT affiliates nonetheless maintain our or its REIT qualification because of specified cure provisions, we or the REIT affiliates will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate (currently 35%) of the net income generated by the non-qualifying assets during the period in which we or the REIT affiliates failed to satisfy the asset tests.

• If we or the REIT affiliates fail to satisfy any provision of the Internal Revenue Code that would result in our or its failure to qualify as a REIT (other than a gross income or asset test requirement) and the violation is due to reasonable cause and not due to willful neglect, we or the REIT affiliates may retain our REIT qualification but we or the REIT affiliates will be required to pay a penalty of $50,000 for each such failure.

• If we or the REIT affiliates fail to distribute during each calendar year at least the sum of (a) 85% of our or its respective REIT ordinary income for such year, (b) 95% of our or the REIT affiliates’ REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, or the “required distribution,” we or the REIT affiliates, as the case may be, will be subject to a 4% excise tax on the excess of the required distribution over the sum of (1) the amounts actually distributed (taking into account excess distributions from prior years), plus (2) retained amounts on which income tax is paid at the corporate level.

• We or the REIT affiliates may be required to pay monetary penalties to the IRS in certain circumstances, including if we or the REIT affiliates fail to meet record-keeping requirements intended to monitor our and the REIT affiliates’ compliance with rules relating to the composition of our and the REIT affiliates’ shareholders, as described below in “—Requirements for Qualification—General.”

• A 100% excise tax may be imposed on some items of income and expense that are directly or constructively paid between us and our TRSs and between Taberna and its TRSs (as described below) if and to the extent that the IRS successfully adjusts the reported amounts of these items.

• If we or the REIT affiliates acquire appreciated assets from a corporation that is not a REIT in a transaction in which the adjusted tax basis of the assets in our or the REIT affiliates’ hands is determined by reference to the adjusted tax basis of the assets in the hands of the non-REIT corporation, we or the REIT affiliates, as the case may be, will be subject to tax on such appreciation at the highest corporate income tax rate then applicable if we subsequently recognize gain on a disposition of any such assets during the 10-year period following their acquisition from the non-REIT corporation. The results described in this paragraph assume that the non-REIT corporation will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is acquired by us or the REIT affiliates.

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• We will generally be subject to tax on the portion of any excess inclusion income derived from an investment by us or the REIT affiliates in residual interests in real estate mortgage investment conduits, or REMICs, to the extent our shares are held in record name by specified tax-exempt organizations not subject to tax on unrelated business taxable income, or UBTI. Similar rules apply if we or the REIT affiliates own an equity interest in a taxable mortgage pool. To the extent that we own a REMIC residual interest or a taxable mortgage pool through a TRS, we will not be subject to this tax. For a discussion of “excess inclusion income,” see “—Effect of Subsidiary Entities—Taxable Mortgage Pools” and “—Excess Inclusion Income.”

• We may elect to retain and pay income tax on its net long-term capital gain. In that case, a shareholder would include its proportionate share of our undistributed long-term capital gain (to the extent we make a timely designation of such gain to the shareholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the shareholder’s basis in its shares.

• We or the REIT affiliates may have subsidiaries or own interests in other lower-tier entities that are C corporations, including our or the REIT affiliates’ domestic TRSs, the earnings of which will be subject to U.S. federal corporate income tax.

• In addition, we, the REIT affiliates and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state, local, and foreign income, property and other taxes on assets, income and operations. As further described below, RAIT TRS, LLC, or RAIT TRS, RAIT Securities, LLC, or RAIT Securities, Taberna Capital Management , LLC, or Taberna Capital, RAIT Funding LLC, or RAIT Funding, and other domestic TRSs will be subject to U.S. federal corporate income tax on their taxable income. We and the REIT affiliates could also be subject to tax in situations and on transactions not presently contemplated.

Requirements for Qualification—General

The Internal Revenue Code defines a REIT as a corporation, trust or association:

(1) that is managed by one or more trustees or directors;

(2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;

(3) that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;

(4) that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;

(5) the beneficial ownership of which is held by 100 or more persons;

(6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding shares is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include specified entities);

(7) which meets other tests described below, including with respect to the nature of its income and assets and the amount of its distributions; and

(8) that makes an election to be a REIT for the current taxable year or has made such an election for a previous taxable year that has not been terminated or revoked.

The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) do not need to be satisfied for the first taxable year for which an election to become a REIT has been made. Our and the REIT affiliates’ organizational documents provide restrictions regarding the ownership and transfer of shares, which are intended to assist in satisfying the share ownership requirements described in conditions (5) and (6) above. For purposes of condition (6), an “individual” generally includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust.

To monitor compliance with the share ownership requirements, we and the REIT affiliates are generally required to maintain records regarding the actual ownership of our and each of its shares. To do so, we and the REIT affiliates must demand written statements each year from the record holders of significant percentages of our and the REIT affiliates’ shares, in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the dividends paid by us). A list of those persons failing or refusing to comply with this demand must be maintained as part of our and Taberna’s records. Failure by us or the REIT affiliates to comply with these record-keeping requirements could subject us or the REIT affiliates to monetary

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penalties. If we and the REIT affiliates satisfy these requirements and have no reason to know that condition (6) is not satisfied, we and the REIT affiliates will be deemed to have satisfied such condition. A shareholder that fails or refuses to comply with the demand is required by the Treasury regulations to submit a statement with its tax return disclosing the actual ownership of the shares and other information.

In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. We and the REIT affiliates satisfy this requirement.

Effect of Subsidiary Entities

Ownership of Partnership Interests. In the case of a REIT that is a partner in a partnership, the Treasury regulations provide that the REIT is deemed to own its proportionate share of the partnership’s assets and to earn its proportionate share of the partnership’s gross income based on its pro rata share of its capital interest in the partnership for purposes of the asset and gross income tests applicable to REITs, as described below. However, solely for purposes of the 10% value test, described below, the determination of a REIT’s interest in partnership assets will be based on the REIT’s proportionate interest in any securities issued by the partnership, excluding for these purposes, certain excluded securities as described in the Internal Revenue Code. In addition, the assets and gross income of the partnership generally are deemed to retain the same character in the hands of the REIT. Thus, our and the REIT affiliates’ proportionate shares of the assets and items of income of partnerships in which we or either of them own an equity interest are treated as assets and items of income for purposes of applying the REIT requirements described below. Consequently, to the extent that we and the REIT affiliates directly or indirectly hold a preferred or other equity interest in a partnership, the partnership’s assets and operations may affect our or the REIT affiliates’ ability to qualify as a REIT, even though we and the REIT affiliates may have no control or only limited influence over the partnership.

Disregarded Subsidiaries. If a REIT owns a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is disregarded for U.S. federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT, including for purposes of the gross income and asset tests applicable to REITs, as summarized below. A qualified REIT subsidiary is any corporation, other than a TRS, that is wholly owned by a REIT, by other disregarded subsidiaries or by a combination of the two. Single member limited liability companies that are wholly owned by a REIT are also generally disregarded as separate entities for U.S. federal income tax purposes, including for purposes of the REIT gross income and asset tests. Disregarded subsidiaries, along with partnerships in which a REIT holds an equity interest, are sometimes referred to herein as “pass-through subsidiaries.” We expect that we and the REIT affiliates will each hold assets and conduct operations, in part, through qualified REIT subsidiaries and disregarded subsidiaries. Accordingly, all assets, liabilities, and items of income, deduction and credit of each such subsidiary will be treated as assets, liabilities, and items of income, deduction, and credit of ours or the REIT affiliates’, as the case may be.

In the event that a disregarded subsidiary ceases to be wholly owned by us or the REIT affiliates—for example, if any equity interest in the subsidiary is acquired by a person other than us or the REIT affiliates or another disregarded subsidiary of us or the REIT affiliates—the subsidiary’s separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, it would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our or the REIT affiliates’ ability to satisfy the various asset and gross income tests applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the value or voting power of the outstanding securities of another corporation. See “—Asset Tests” and “—Gross Income Tests.”

Taxable REIT Subsidiaries. A REIT may jointly elect with a non-REIT subsidiary corporation, whether or not wholly owned, to treat the subsidiary corporation as a TRS. The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly, such an entity would generally be subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries (including Taberna) in the aggregate and its ability to make distributions to its shareholders.

Taberna has made a TRS election with respect to Taberna Capital, RAIT Securities, RAIT Funding, RAIT TRS, Taberna Equity Funding, Ltd., or Taberna Equity, RAIT Capital, Limited, or RAIT Capital, Taberna Preferred Funding IX, Ltd., or Taberna IX, RAIT Jupiter Holdings, LLC, and RAIT Securities (UK) Ltd., or RAIT Securities UK. In addition, Taberna Funding Capital Trust I and Taberna Funding Capital Trust II, which are subsidiaries of RAIT Funding; Taberna Preferred Funding IX, Inc., or Taberna IX Inc., which is a subsidiary of Taberna IX; and Taberna Europe CDO I PLC, or Taberna Europe, which is a subsidiary of Taberna Equity, are therefore also TRSs of Taberna. We collectively refer to the TRSs listed above as the Taberna TRSs. It is expected that we and the REIT affiliates will make additional TRS elections, including with respect to future non-U.S. entities that issue equity interests to us or the REIT affiliates pursuant to collateralized debt obligation, or CDO, securitizations. The Internal Revenue Code and the Treasury regulations provide a specific exemption from federal income tax to non-U.S. corporations that restrict their activities in the United States to trading in shares and securities (or any activity closely related thereto) for their own account whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or

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other agent. Certain U.S. shareholders (as defined below) of such a non-U.S. corporation are required to include in their income currently their proportionate share of the earnings of such a corporation, whether or not such earnings are distributed. Taberna Equity and Taberna IX, and certain additional CDO entities in which we and the REIT affiliates may invest and with which we and the REIT affiliates will jointly make a TRS election, will be organized as Cayman Islands companies and will either rely on such exemption or otherwise operate in a manner so that they will not be subject to federal income tax on their net income. RAIT Capital also has operated and intends to operate in a manner so that it will not be subject to federal income tax on its net income. Therefore, despite such contemplated status of such CDO entities, RAIT Securities UK, RAIT Capital and Taberna Europe as TRSs, we expect that such entities should generally not be subject to federal corporate income tax on their earnings. However, Taberna will be required to include in its income, in certain cases, even without the receipt of actual distributions, on a current basis, the earnings of such CDO entities. This could affect Taberna’s, and thus our ability to comply with the REIT gross income tests and distribution requirement. See “—Gross Income Tests” and “—Annual Distribution Requirements.”

A REIT is not considered the owner of the assets of a TRS or other subsidiary corporation or (until dividends are paid by the TRS to the REIT) the recipient of any income that a domestic TRS earns. Rather, the shares issued by the subsidiary are an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from a domestic TRS. However, we or the REIT affiliates, as the case may be, will generally be required to include in income on a current basis the earnings of certain non-U.S. TRSs, including CDO entities, as described in the preceding paragraph. This treatment can affect the gross income and asset test calculations that apply to us or the REIT affiliates, as described below. Because a REIT does not include the assets and, in the case of a domestic TRS, income of such subsidiary corporations in determining the REIT’s compliance with the REIT requirements, such entities may be used by a REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries or render commercially unfeasible (for example, activities that give rise to certain categories of income such as non-qualifying hedging or prohibited transaction income). If dividends are paid to us or the REIT affiliates by one or more of our or its TRSs, other than a non-U.S. TRS as described in the preceding paragraph, then a portion of the dividends that we distribute to U.S. individual shareholders generally will be eligible for taxation at preferential qualified dividend income tax rates rather than at ordinary income rates. See “—Taxation of Shareholders—Taxation of Taxable U.S. Shareholders” and “—Taxation of Shareholders—Distributions.”

Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject to appropriate levels of U.S. federal income taxation. First, a TRS may not deduct interest payments made in any year to an affiliated REIT to the extent that such payments exceed, generally, 50% of the TRS’s adjusted taxable income for that year (although the TRS may carry forward to, and deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in that year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between a REIT, its tenants and/or a TRS, that exceed the amount that would be paid to or deducted by a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. Rents we or the REIT affiliates receive that include amounts for services furnished by one of our or the REIT affiliates’ TRSs to any of its tenants will not be subject to the excise tax if such amounts qualify for the safe harbor provisions contained in the Internal Revenue Code. Safe harbor provisions are provided where (1) amounts are excluded from the definition of impermissible tenant service income as a result of satisfying the 1% de minimis exception; (2) a TRS renders a significant amount of similar services to unrelated parties and the charges for such services are substantially comparable; (3) rents paid to its REIT shareholder from tenants that are not receiving services from the TRS are substantially comparable to the rents paid by the REIT’s tenants leasing comparable space that are receiving such services from the TRS and the charge for the services is separately stated; or (4) the TRS’s gross income from the service is not less than 150% of the TRS’s direct cost of furnishing the service.

To the extent that the Taberna TRSs, or any additional TRSs we and the REIT affiliates may form in the future, pay any taxes, they will have less cash available for distribution to Taberna or us. If dividends are paid by a taxable domestic TRS, such as Taberna Capital, RAIT Securities or RAIT Funding, to Taberna, then the dividends we designate and pay to our shareholders who are individuals, up to the amount of dividends we receive from such entities, generally will be eligible to be taxed at the reduced 15% maximum U.S. federal rate applicable to qualified dividend income. See “—Taxation of Shareholders—Taxation of Taxable U.S. Shareholders.” Currently, we anticipate that each of Taberna Capital, RAIT Securities and RAIT Funding will retain its after tax income, if any, subject to compliance with the 20% (25% for 2009 and subsequent tax years) asset test applicable to Taberna’s aggregate ownership of TRSs. See “—Asset Tests.”

The shares that Taberna holds in Taberna Capital have a tax basis below the basis such shares would have had if Taberna purchased such shares at their agreed value in connection with the completion of its initial private placement of common shares and related transactions, which we refer to as Taberna’s formation transactions. If Taberna were to sell these shares, the gain that it would recognize would be in excess of the amount of gain that would have been recognized had it purchased such shares in a taxable transaction. Accordingly, such a sale could result in the generation of a significant amount of income that would not qualify for the REIT 75% gross income test and an increased distribution requirement and, accordingly, could adversely affect Taberna’s ability to qualify as a REIT. See the discussion under “—Gross Income Tests” and “—Annual Distribution Requirements.” In addition, such a sale would result in a larger portion of RAIT’s dividend being subject to tax as a capital gain dividend as opposed to a return of capital.

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Taxable Mortgage Pools. An entity, or a portion of an entity, may be classified as a taxable mortgage pool under the Internal Revenue Code if:

• substantially all of its assets consist of debt obligations or interests in debt obligations;

• more than 50% of those debt obligations are real estate mortgage loans or interests in real estate mortgage loans as of specified testing dates;

• the entity has issued debt obligations that have two or more maturities; and

• the payments required to be made by the entity on its debt obligations “bear a relationship” to the payments to be received by the entity on the debt obligations that it holds as assets.

Under the Treasury regulations, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a taxable mortgage pool.

Taberna’s past securitizations of mortgage loans are likely classified as taxable mortgage pool securitizations. If we and the REIT affiliates continue to make significant investments in mortgage loans, commercial mortgage backed securities, or CMBS, or residential mortgage backed securities, or RMBS, we and the REIT affiliates would likely continue to engage in securitization structures, similar to these securitizations whereby we or the REIT affiliates convey one or more pools of real estate mortgage loans to a trust, which issues several classes of mortgage-backed bonds having different maturities, and the cash flow on the real estate mortgage loans will be the sole source of payment of principal and interest on the several classes of mortgage-backed bonds. As with Taberna’s historical securitizations, neither we nor Taberna would likely make a REMIC election with respect to such securitization transactions, and, as a result, each such similar transaction would also be a taxable mortgage pool securitization.

A taxable mortgage pool generally is treated as a corporation for U.S. federal income tax purposes. However, special rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that is a taxable mortgage pool. If a REIT owns directly, or indirectly through one or more qualified REIT subsidiaries or other entities that are disregarded as a separate entity for U.S. federal income tax purposes, 100% of the equity interest in the taxable mortgage pool, the taxable mortgage pool will be a qualified REIT subsidiary and, therefore, ignored as an entity separate from the parent REIT for federal income tax purposes and would not generally affect the qualification of the REIT. Rather, the consequences of the taxable mortgage pool classification would generally, except as described below, be limited to the REIT’s shareholders. See “—Excess Inclusion Income.”

If we or the REIT affiliates own less than 100% of the ownership interests in a subsidiary that is a taxable mortgage pool or fail to qualify as a REIT, the foregoing rules would not apply. Rather, the subsidiary would be treated as a corporation for U.S. federal income tax purposes, and would potentially be subject to corporate income tax. In addition, this characterization would alter our or the REIT affiliates’ REIT income and asset test calculations and could adversely affect our or the REIT affiliates’ compliance with those requirements. We do not expect that we or the REIT affiliates will form any subsidiary in which we or the REIT affiliates own some, but less than all, of the ownership interests that would become a taxable mortgage pool, and we intend to monitor the structure of any taxable mortgage pools in which we or the REIT affiliates have an interest to ensure that they will not adversely affect our or the REIT affiliates’ REIT qualification.

Gross Income Tests

In order to maintain each of our and the REIT affiliates’ qualification as REITs, each entity must satisfy two gross income tests annually. First, at least 75% of our and the REIT affiliates’ gross income for each taxable year, excluding gross income from “prohibited transactions,” must be derived from investments relating to real property or mortgages on real property, including “rents from real property,” dividends received from other REITs (including, in RAIT’s case, dividends from Taberna, provided Taberna qualifies as a REIT), interest income derived from mortgage loans secured by real property (including certain types of mortgage-backed securities), and gains from the sale of real estate assets, as well as income from certain kinds of temporary investments. Second, at least 95% of each of our and Taberna’s gross income in each taxable year, excluding gross income from prohibited transactions, must be derived from some combination of income that qualifies under the 75% gross income test described above, as well as other dividends, interest, and gain from the sale or disposition of shares of beneficial interest or securities, which need not have any relation to real property.

For purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned a proportionate share of the income earned by any partnership, or any limited liability company treated as a partnership for federal income tax purposes, in which it owns an interest, which share is determined by reference to its capital interest in such entity, and is deemed to have earned the income earned by any qualified REIT subsidiary.

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Interest Income. Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation is secured by a mortgage on real property. If a REIT receives interest income with respect to a mortgage loan that is secured by both real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property determined as of (1) the date such REIT acquired or originated the mortgage loan or (2) as discussed further below, in the event of a “significant modification,” the date we modified the loan, the interest income will be apportioned between the real property and the other property, and its income from the loan will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property or is under-secured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test.

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

To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a “shared appreciation provision”), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or the lender.

To the extent that a REIT derives interest income from a loan where all or a portion of the amount of interest payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales and not the net income or profits of any person. This limitation does not apply, however, to a mortgage loan where the borrower derives substantially all of its income from the property from the leasing of substantially all of its interest in the property to tenants, to the extent that the rental income derived by the borrower would qualify as rents from real property had it been earned directly by the lender.

Any amount includible in a REIT’s gross income with respect to a regular or residual interest in a REMIC generally is treated as interest on an obligation secured by a mortgage on real property. If, however, less than 95% of the assets of a REMIC consists of real estate assets (determined as if such REIT held such assets), such REIT will be treated as receiving directly its proportionate share of the income of the REMIC.

Among the assets that we hold are mezzanine loans secured by equity interests in a pass-through entity that directly or indirectly owns real property, rather than a direct mortgage on the real property. IRS Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from it will be treated as qualifying real estate income for purposes of the 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. Moreover, the mezzanine loans that we hold and that we may acquire in the future do not and may not meet all of the requirements for reliance on this safe harbor. Hence, there can be no assurance that the IRS will not challenge the qualification of our mezzanine loans as real estate assets or the interest generated by these loans as qualifying income under the 75% gross income test. To the extent we make corporate mezzanine loans, such loans will not qualify as real estate assets and interest income with respect to such loans will not be qualifying income for the 75% gross income test.

We believe that the interest, original issue discount, and market discount income that we and the REIT affiliates receive from mortgage-related securities generally will be qualifying income for purposes of both gross income tests. However, to the extent that we or the REIT affiliates own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities that are not secured by mortgages on real property or interests in real property, the interest income received with respect to such securities generally will be qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. In addition, the loan amount of a mortgage loan that we or the REIT affiliates own may exceed the value of the real property securing the loan. In that case, a portion of the income from the loan will be qualifying income for purposes of the 95% gross income test, but not the 75% gross income test.

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Dividend Income. We and the REIT affiliates may receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions will generally be classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. Any dividends received by us or the REIT affiliates from a REIT (including dividends RAIT receives from Taberna, provided Taberna qualifies as a REIT) will be qualifying income for purposes of both the 95% and 75% gross income tests. We and the REIT affiliates likely will be required to include in its income, even without the receipt of actual distributions, earnings from its foreign TRSs which are CDOs. We and the REIT affiliates treat certain of these income inclusions as qualifying income for purposes of the 95% gross income test but not the 75% gross income test. The provisions that set forth what income is qualifying income for purposes of the 95% gross income test provide that gross income derived from dividends, interest and certain other enumerated classes of passive income qualify for purposes of the 95% gross income test. Income inclusions from equity investments in foreign TRSs which are CDOs are technically neither dividends nor any of the other enumerated categories of income specified in the 95% gross income test for U.S. federal income tax purposes, and there is no other clear precedent with respect to the qualification of such income. However, based on advice of counsel, we and the REIT affiliates treat such income inclusions, to the extent distributed by a foreign TRS which are CDOs in the year accrued, as qualifying income for purposes of the 95% gross income test. In 2011, the IRS issued two private letter rulings considering situations in which a REIT had to include income from foreign corporations. The IRS ruled that such income would qualify for the 95% gross income test. Since private letter rulings only protect the recipient of the letter, it is still possible that, because this income does not meet the literal requirements of the REIT provisions, the IRS could successfully take the position that such income is not qualifying income. In the event that such income was determined not to qualify for the 95% gross income test, we and the REIT affiliates would be subject to a penalty tax with respect to such income to the extent it and other nonqualifying income exceeds 5% of gross income and/or we or the REIT affiliates could fail to qualify as a REIT. In addition, if such income was determined not to qualify for the 95% gross income test, we or the REIT affiliates would need to invest in sufficient qualifying assets, or sell some interests in foreign TRSs which are CDOs to ensure that the income recognized from foreign TRSs which are CDOs or such other corporations does not exceed 5% of gross income, or cease to qualify as a REIT. See “—Failure to Satisfy the Gross Income Tests.”

Hedging Transactions. We and the REIT affiliates may enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swaps or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent provided by the Treasury regulations, any income from a hedging transaction we enter into in the normal course of its business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in the Treasury regulations before the close of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of such a transaction, will not constitute gross income for purposes of the 95% gross income test (and will generally constitute non-qualifying income for purposes of the 75% gross income test if the hedging transaction was entered into on or before July 30, 2008, but will not constitute non-qualifying income for purposes of the 75% gross income test if the hedging transaction was entered into after July 30, 2008). To the extent that we or the REIT affiliates enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. We and the REIT affiliates’ intend to structure any hedging transactions in a manner that does not jeopardize our or the REIT affiliates’ qualification as a REIT.

Rents from Real Property. To the extent that a REIT owns real property or interests therein, rents it receives will qualify as “rents from real property” in satisfying the gross income tests described above only if several conditions are met, including the following. If rent attributable to personal property leased in connection with real property is greater than 15% of the total rent received under any particular lease, then all of the rent attributable to such personal property will not qualify as rents from real property. The determination of whether an item of personal property constitutes real or personal property under the REIT provisions of the Internal Revenue Code is subject to both legal and factual considerations and is therefore subject to different interpretations.

In addition, in order for rents received by a REIT to qualify as “rents from real property,” the rent must not be based in whole or in part on the income or profits of any person. However, an amount will not be excluded from rents from real property solely by being based on a fixed percentage or percentages of sales or if it is based on the net income of a tenant which derives substantially all of its income with respect to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would qualify as rents from real property, if earned directly by the REIT. Moreover, for rents received to qualify as “rents from real property,” a REIT generally must not operate or manage the property or furnish or render certain services to the tenants of such property, other than through an “independent contractor” who is adequately compensated and from which we derive no income, or through a TRS, as discussed below. A REIT is permitted, however, to perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, a REIT may directly or indirectly provide non-customary services to tenants of its properties without disqualifying all of the rent from the property if the payment for such services does not exceed 1% of the total gross income from the property. In such a case, only the amounts for non-customary services are not treated as rents from real property and the provision of the services does not disqualify the related rent. Moreover, a REIT is permitted to provide services to tenants through a TRS without disqualifying the rental income received from tenants for purposes of the REIT gross income tests.

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Rental income will qualify as rents from real property only to the extent that we a REIT does not directly or constructively own, (1) in the case of any tenant which is a corporation, shares of beneficial interest possessing 10% or more of the total combined voting power of all classes of shares entitled to vote, or 10% or more of the total value of shares of all classes of shares of such tenant, or (2) in the case of any tenant which is not a corporation, an interest of 10% or more in the assets or net profits of such tenant. However, rental payments from a TRS will qualify as rents from real property even if a REIT owns more than 10% of the combined voting power of the TRS if at least 90% of the property is leased to unrelated tenants and the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space.

Failure to Satisfy the Gross Income Tests. We intend to monitor our and the REIT affiliates’ sources of income, including any non-qualifying income received by us or the REIT affiliates, so as to ensure our and the REIT affiliates’ compliance with the gross income tests. If we or the REIT affiliates fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we or the REIT affiliates, as the case may be, may still qualify as a REIT for the year if entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions will generally be available if the failure to meet these tests was due to reasonable cause and not due to willful neglect and, following the identification of such failure, we or the REIT affiliates set forth a description of each item of our or the REIT affiliates’ gross income that satisfies the gross income tests in a schedule for the taxable year filed in accordance with the Treasury regulations. It is not possible to state whether we or the REIT affiliates would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances, we or the REIT affiliates will not qualify as a REIT. As discussed above under “—Taxation of REITs in General,” even where these relief provisions apply, a tax would be imposed upon the profit attributable to the amount by which we or the REIT affiliates fail to satisfy the particular gross income test multiplied by a fraction intended to reflect our or its profitability. If the IRS were to determine that Taberna failed the 95% gross income test because income inclusions with respect to its equity investments in foreign CDO TRSs that were distributed by the foreign CDO TRSs during the year such income was accrued are not qualifying income, it is possible that the IRS would not consider Taberna’s position taken with respect to such income, and accordingly its failure to satisfy the 95% gross income test, to be considered to be due to reasonable cause and not due to willful neglect. If the IRS were to successfully assert this position, Taberna, and therefore very likely RAIT, would fail to qualify as a REIT. See “Failure to Qualify.”

Asset Tests

A REIT, at the close of each calendar quarter, must also satisfy four tests relating to the nature of its assets. First, at least 75% of the value of the REIT’s total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities and, under some circumstances, shares or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, shares of other corporations that qualify as REITs (including Taberna shares owned by RAIT, provided Taberna qualifies as a REIT) and certain kinds of mortgage-backed securities and mortgage loans. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below.

Second, the value of any one issuer’s securities owned by the REIT may not exceed 5% of the value of the REIT’s gross assets. Third, the REIT may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. Fourth, the aggregate value of all securities of TRSs held by a REIT may not exceed 20% (25% for 2009 and subsequent tax years) of the value of such REIT’s gross assets.

The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries. The 10% value test does not apply to certain “straight debt” and other excluded securities, as described in the Internal Revenue Code, including but not limited to any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, (a) a REIT’s interest as a partner in a partnership is not considered a security for purposes of applying the 10% value test; (b) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership if at least 75% of the partnership’s gross income is derived from sources that would qualify for the 75% REIT gross income test; and (c) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership to the extent of the REIT’s interest as a partner in the partnership.

For purposes of the 10% value test, “straight debt” means a written unconditional promise to pay on demand on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into shares, (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors other than certain contingencies relating to the timing and amount of principal and interest payments, as described in the Internal Revenue Code and (iii) in the case of an issuer which is a corporation or a partnership, securities that otherwise would be considered straight debt will not be so considered if the REIT, and any of its “controlled TRSs” as defined in the Internal Revenue Code, hold any securities of the corporate or partnership issuer which: (a) are not straight debt or other excluded securities (prior to the application of this rule), and (b) have an aggregate value greater than 1% of the issuer’s outstanding securities (including, for the purposes of a partnership issuer, the REIT’s interest as a partner in the partnership).

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After initially meeting the asset tests at the close of any quarter, a REIT will not lose its qualification as such for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If a REIT fails to satisfy the asset tests because it acquires securities during a quarter, it can cure this failure by disposing of sufficient non-qualifying assets within 30 days after the close of that quarter. If a REIT fails the 5% asset test, or the 10% vote or value asset tests at the end of any quarter and such failure is not cured within 30 days thereafter, the REIT may dispose of sufficient assets (generally within six months after the last day of the quarter in which such REIT’s identification of the failure to satisfy these asset tests occurred) to cure such a violation that does not exceed the lesser of 1% of its assets at the end of the relevant quarter or $10,000,000. If a REIT fails any of the other asset tests or its failure of the 5% and 10% asset tests is in excess of the de minimis amount described above, as long as such failure was due to reasonable cause and not willful neglect, the REIT is permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps including the disposition of sufficient assets to meet the asset test (generally within six months after the last day of the quarter in which the identification of the failure to satisfy the REIT asset test occurred) and paying a tax equal to the greater of $50,000 or the highest corporate income tax rate (currently 35%) of the net income generated by the non-qualifying assets during the period in which the REIT fails to satisfy the asset test.

We expect that the assets and mortgage-related securities that we and the REIT affiliates own generally will be qualifying assets for purposes of the 75% asset test. However, to the extent that we or the REIT affiliates own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities issued by corporations that are not secured by mortgages on real property, those securities may not be qualifying assets for purposes of the 75% asset test. In addition, to the extent we or the REIT affiliates own the equity of a TruPS securitization and do not make a TRS election with respect to such entity, we or the REIT affiliates, as the case may be, will be deemed to own such TruPS, which will not be a qualifying real estate asset for purposes of the 75% asset test described above. We believe that our or the REIT affiliates’ holdings of securities and other assets will be structured in a manner that will comply with the foregoing REIT asset requirements and intend to monitor compliance on an ongoing basis. Moreover, values of some assets may not be susceptible to a precise determination and are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset tests. As an example, if we or the REIT affiliates were to make an investment in preferred securities or other equity securities of a REIT issuer that were determined by the IRS to represent debt securities of such issuer, such securities would also not qualify as real estate assets. Accordingly, there can be no assurance that the IRS will not contend that interests in subsidiaries or in the securities of other issuers (including REIT issuers) cause a violation of the REIT asset tests.

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

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

Annual Distribution Requirements

In order to qualify as REITs, we and the REIT affiliates are required to make distributions, other than capital gain dividends, to our respective shareholders (principally us, in the case of Taberna) in an amount at least equal to:

(a) the sum of:

• 90% of our “REIT taxable income” (computed without regard to its deduction for dividends paid and our net capital gains); and

• 90% of the net income (after tax), if any, from foreclosure property (as described below); minus

(b) the sum of specified items of non-cash income that exceeds a percentage of its income.

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These distributions must be paid in the taxable year to which they relate or in the following taxable year if such distributions are declared in October, November or December of the taxable year, are payable to shareholders of record on a specified date in any such month and are actually paid before the end of January of the following year. Such distributions are treated as both paid by us and received by each shareholder on December 31 of the year in which they are declared. In addition, at its election, a distribution for a taxable year may be declared before a REIT timely files its tax return for the year and be paid with or before the first regular dividend payment after such declaration, provided that such payment is made during the 12-month period following the close of such taxable year. These distributions are taxable to the REIT’s shareholders in the year in which paid, even though the distributions relate to its prior taxable year for purposes of the 90% distribution requirement.

In order for distributions to be counted towards our distribution requirement and to provide us with a tax deduction, they must not be “preferential dividends.” A dividend is not a preferential dividend if it is pro rata among all outstanding shares within a particular class and is in accordance with the preferences among different classes of shares as set forth in our organizational documents.

To the extent that we or the REIT affiliates distribute at least 90%, but less than 100%, of our or its “REIT taxable income,” as adjusted, we or it, as the case may be, will be subject to tax at ordinary corporate tax rates on the retained portion. In addition, we or the REIT affiliates may elect to retain, rather than distribute, our or its net long-term capital gains and pay tax on such gains. In this case, we or the REIT affiliates, as the case may be, could elect to have our or its shareholders include their proportionate share of such undistributed long-term capital gains in income and receive a corresponding credit for their proportionate share of the tax paid by us or the REIT affiliates. Our or the REIT affiliates’ shareholders would then increase the adjusted basis of their shares of beneficial interest in us or the REIT affiliates by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their proportionate shares.

If we or the REIT affiliates fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our or its REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, we or the REIT affiliates, as the case may be, will be subject to a 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed (taking into account excess distributions from prior periods) and (y) the amounts of income retained on which we or the REIT affiliates, as the case may be, have paid corporate income tax. We intend to make and to have the REIT affiliates make timely distributions so that we and the REIT affiliates are not subject to the 4% excise tax.

It is possible that we or the REIT affiliates, from time to time, may not have sufficient cash to meet the distribution requirements due to timing differences between (a) the actual receipt of cash, including receipt of distributions from our or the REIT affiliates’ subsidiaries and (b) the inclusion of items in income by us or the REIT affiliates for U.S. federal income tax purposes including the inclusion of items of income from CDO entities in which we or the REIT affiliates, as the case may be, hold an equity interest. See “—Effect of Subsidiary Entities—Taxable REIT Subsidiaries.” In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary to arrange for short-term, or possibly long-term, borrowings or to pay dividends in the form of taxable in-kind distributions of property.

A REIT is also treated as having paid a dividend if it and its shareholders elect to treat certain amounts as distributed, although no actual distribution is made. The election may be filed at any time not later than the date (including extensions) of the REIT’s income tax return for the taxable year for which the dividend paid deduction is claimed. Taberna used this “consent dividend” election to comply with its distribution requirement for 2007, 2008, 2009 and 2010 and may do so in 2011 and subsequent years. It, and we, as the holder of all of the common shares of Taberna filed such an election with Taberna’s 2007, 2008, 2009 and 2010 tax returns and intend to do so for 2011. As a result, we had dividend income from Taberna for 2007, 2008, 2009, 2010 and 2011 in amounts equal to such consent dividends. We believe we have distributed to our shareholders sufficient dividends for 2007, 2008, 2009, 2010 and 2011 so that we were in compliance with our distribution requirements even after including the consent dividends from Taberna in our income.

We or the REIT affiliates may be able to rectify a failure to meet the distribution requirements for a year by paying “deficiency dividends” to shareholders in a later year, which may be included in our or the REIT affiliates’ deduction for dividends paid for the earlier year. In this case, we or the REIT affiliates, as the case may be, may be able to avoid losing our or its qualification as a REIT or being taxed on amounts distributed as deficiency dividends. However, we or the REIT affiliates, as the case may be, will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.

Excess Inclusion Income

If we or the REIT affiliates own a residual interest in a REMIC, we or the REIT affiliates may realize excess inclusion income. If we or the REIT affiliates are deemed to have issued debt obligations having two or more maturities, the payments on which correspond to payments on mortgage loans owned by us or the REIT affiliates, such arrangement will be treated as a taxable mortgage pool for U.S. federal income tax purposes. See “—Effect of Subsidiary Entities—Taxable Mortgage Pools.” If all or a portion of us or the REIT affiliates is treated as a taxable mortgage pool, our or the REIT affiliates’ qualification as a REIT generally should not be impaired.

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Neither we nor Taberna have ever had any excess inclusion income, and we intend to manage our investments and take all necessary steps to prevent us from having excess inclusion income in the future.

Prohibited Transactions

Net income derived from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (other than foreclosure property) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business by a REIT, by a pass-through entity in which the REIT holds an equity interest or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the REIT. We intend to conduct our operations so that no asset owned by us, the REIT affiliates or our pass-through subsidiaries will be held as inventory or for sale to customers in the ordinary course of business. However, whether property is held “for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any particular property in which we or the REIT affiliates hold a direct or indirect interest will not be treated as property held for sale to customers or that certain safe-harbor provisions of the Internal Revenue Code that prevent such treatment will apply. The 100% tax will not apply to gains from the sale of property by a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular U.S. federal corporate income tax rates.

Foreclosure Property

Foreclosure property is real property and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid on the property at foreclosure or having otherwise reduced the property to ownership or possession by agreement or process of law after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was acquired by the REIT at a time when default was not imminent or anticipated and (3) for which such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or property held for sale to customers in the ordinary course of business in the hands of the selling REIT. We do not anticipate that we or the REIT affiliates will receive any income from foreclosure property that is not qualifying income for purposes of the 75% gross income test, but, if we or the REIT affiliates do receive any such income, we intend to elect, or to have Taberna elect, to treat the related property as foreclosure property.

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Failure to Qualify

In the event that we or the REIT affiliates violate a provision of the Internal Revenue Code that would result in our or its failure to qualify as a REIT, specified relief provisions will be available to us or the REIT affiliates to avoid such disqualification if (1) the violation is due to reasonable cause and not due to willful neglect, (2) we or the REIT affiliates pay a penalty of $50,000 for each failure to satisfy the provision and (3) the violation does not include a violation under the gross income or asset tests described above (for which other specified relief provisions are available). This cure provision reduces the instances that could lead to our or the REIT affiliates’ disqualification as a REIT for violations due to reasonable cause and not due to willful neglect. If we or the REIT affiliates fail to qualify for taxation as a REIT in any taxable year and none of the relief provisions of the Internal Revenue Code apply, we or the REIT affiliates will be subject to tax, including any applicable alternative minimum tax, on our or the REIT affiliates’ taxable income at regular corporate rates. Distributions to our shareholders in any year in which we are not a REIT will not be deductible by us or the REIT affiliates, nor will they be required to be made. In this situation, to the extent of current and accumulated earnings and profits, and, subject to limitations of the Internal Revenue Code, distributions to our or the REIT affiliates’ shareholders will generally be taxable in the case of our shareholders who are individual U.S. shareholders (as defined below), at a maximum rate of 15%, and dividends in the hands of our corporate U.S. shareholders may be eligible for the dividends received deduction. In addition, our or the REIT affiliates’ taxable mortgage pool securitizations will be treated as separate taxable corporations for U.S. federal income tax purposes. Unless we are entitled to relief under the specific statutory provisions, we or the REIT affiliates will also be disqualified from re-electing to be taxed as a REIT for the four taxable years following a year during which qualification was lost. It is not possible to state whether, in all circumstances, we or the REIT affiliates will be entitled to statutory relief.

Use of Net Operating Loss Carryovers

We have net operating loss carryovers that we have used and may use in the future to reduce REIT taxable income, thereby reducing our distribution requirement. Under section 382 of the Code, if there has been a more than fifty percent change in ownership of the equity of a corporation (including a REIT), the ability to use net operating losses incurred prior to the change in ownership will be limited. If it is determined that a requisite ownership change has occurred, and we have used our net operating losses to reduce our distribution for any post-change year, we would have to pay a deficiency dividend and an interest charge to satisfy the distribution requirement for any such year.

Taxation of Shareholders

Taxation of Taxable U.S. Shareholders. This section summarizes the taxation of U.S. shareholders that are not tax-exempt organizations. For these purposes, a U.S. shareholder is a beneficial owner of either our shares of beneficial interest that for U.S. federal income tax purposes is:

• a citizen or resident of the United States;

• a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of a political subdivision thereof (including the District of Columbia);

• an estate whose income is subject to U.S. federal income taxation regardless of its source; or

• any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our shares of beneficial interest, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding our shares of beneficial interest should consult its tax advisor regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition of our shares of beneficial interest by the partnership.

For taxable years beginning after December 31, 2012, certain U.S. shareholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax. The Medicare tax will apply to, among other things, dividends and other income derived from certain trades or business and net gains from the sale or other disposition of property subject to certain exceptions. Our dividends generally will be subject to the Medicare tax.

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U.S. shareholders that hold our shares of beneficial interest through foreign accounts or intermediaries will be subject to U.S. federal withholding tax at a rate of 30% on dividends paid after December 31, 2013 and proceeds of sale of our stock paid after December 31, 2014 if certain disclosure requirements related to U.S. accounts are not satisfied.

Distributions. Provided that we qualify as a REIT, distributions made to our taxable U.S. shareholders out of our current and accumulated earnings and profits, and not designated as capital gain dividends, will generally be taken into account by them as ordinary dividend income and will not be eligible for the dividends received deduction generally available to corporate U.S. shareholders. In determining the extent to which a distribution with respect to our shares of beneficial interest constitutes a dividend for U.S. federal income tax purposes, our earnings and profits will be allocated first to distributions with respect to our preferred shares of beneficial interest and then to our common shares. Dividends received from REITs generally are not eligible to be taxed at the preferential qualified dividend income rates applicable to individual U.S. shareholders who receive dividends from regular corporations.

In addition, distributions from us that are designated as capital gain dividends will be taxed to U.S. shareholders as long-term capital gains, to the extent that they do not exceed the actual net capital gain of us for the taxable year, without regard to the period for which the U.S. shareholder has held its shares. To the extent that we elect under the applicable provisions of the Internal Revenue Code to retain our net capital gains, U.S. shareholders will be treated as having received, for U.S. federal income tax purposes, our undistributed capital gains as well as a corresponding credit for taxes paid by us on such retained capital gains. U.S. shareholders will increase their adjusted tax basis in our shares of beneficial interest by the difference between their allocable share of such retained capital gain and their share of the tax paid by us. Corporate U.S. shareholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum U.S. federal income tax rates of 15% (through 2012) in the case of U.S. shareholders taxed at individual rates, and 35% for corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum U.S. federal income tax rate for U.S. shareholders taxed at individual rates to the extent of previously claimed depreciation deductions.

Distributions in excess of our current and accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the adjusted tax basis of the U.S. shareholder’s shares in respect of which the distributions were made, but rather will reduce the adjusted tax basis of these shares. To the extent that such distributions exceed the adjusted tax basis of an individual U.S. shareholder’s shares, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend declared by us in October, November or December of any year and payable to a U.S. shareholder of record on a specified date in any such month will be treated as both paid by us and received by the U.S. shareholder on December 31 of such year, provided that the dividend is actually paid by us before the end of January of the following calendar year.

With respect to U.S. shareholders taxed at individual rates, we may elect to designate a portion of its distributions paid to such U.S. shareholders as “qualified dividend income.” A portion of a distribution that is properly designated as qualified dividend income is taxable to non-corporate U.S. shareholders as capital gain, provided that the U.S. shareholder has held the shares with respect to which the distribution is made for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which such shares became ex-dividend with respect to the relevant distribution. The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:

(a) the qualified dividend income received by us during such taxable year from non-REIT corporations that are subject to U.S. federal income tax;

(b) the excess of any “undistributed” REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by us with respect to such undistributed REIT taxable income; and

(c) the excess of any income recognized during the immediately preceding year attributable to the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a non-REIT C corporation over the U.S. federal income tax paid by us with respect to such built-in gain.

In addition, to the extent Taberna pays dividends to us comprised of the above items, our dividends should generally be treated as qualified dividend income.

Generally, dividends that we receive will be treated as qualified dividend income for purposes of (a) above if the dividends are received from a domestic corporation (other than a REIT or a RIC) that is subject to U.S. federal income tax, or a “qualifying foreign corporation” and specified holding period requirements and other requirements are met. We expect that any foreign corporate CDO entity in which we or the REIT affiliates invest would not be a “qualifying foreign corporation,” and accordingly our distribution of any income with respect to such entities will not constitute “qualified dividend income.”

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To the extent that we or the REIT affiliates have available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that must be made in order to comply with the REIT distribution requirements. See “—Taxation of REITs in General,” “—Annual Distribution Requirements” and “Use of Net Operating Loss Carry Forwards.” Such losses, however, are not passed through to our shareholders (and, in the case of Taberna, are not passed through to us) and do not offset income of our shareholders from other sources, nor do they affect the character of any distributions that are actually made by us, which are generally subject to tax in the hands of our shareholders to the extent that we have current or accumulated earnings and profits.

Dispositions of Our Shares of Beneficial Interest. In general, a U.S. shareholder will realize gain or loss upon the sale, redemption or other taxable disposition of our shares of beneficial interest in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. shareholder’s adjusted tax basis in the shares at the time of the disposition. In general, a U.S. shareholder’s adjusted tax basis will equal the U.S. shareholder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. shareholder (discussed above) less tax deemed paid on it and reduced by returns of capital. In general, capital gains recognized by individual U.S. shareholders upon the sale or disposition of our shares of beneficial interest will be subject to a maximum U.S. federal income tax rate of 15% for taxable years through 2012, if our shares of beneficial interest are held for more than 12 months, and will be taxed at ordinary income rates (of up to 35% through 2012) if our shares of beneficial interest are held for 12 months or less. Gains recognized by U.S. shareholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. The IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a U.S. federal income tax rate of 25% (which is generally higher than the long-term capital gain tax rates for non-corporate holders) to a portion of capital gain realized by U.S. shareholders taxed at individual rates on the sale of REIT shares that would correspond to the REIT’s “unrecaptured Section 1250 gain.” Capital losses recognized by a U.S. shareholder upon the disposition of our shares of beneficial interest held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. shareholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of our shares of beneficial interest by a U.S. shareholder who has held the shares of beneficial interest for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from us that were required to be treated by the U.S. shareholder as long-term capital gain.

Redemption of Offered Preferred Shares. Redemption of offered preferred shares for cash will be treated under Section 302 of the Code as a distribution taxable as a dividend (to the extent of our current and accumulated earnings and profits) at ordinary income rates, unless the redemption satisfies one of the tests set forth in Section 302(b) of the Code for the sale or exchange of the redeemable shares. The redemption will be treated as a sale or exchange if it (i) is “substantially disproportionate” with respect to you, (ii) results in a “complete termination” of your share interest in us, or (iii) is “not essentially equivalent to a dividend” with respect to you, all within the meaning of Section 302(b) of the Code.

In determining whether any of these tests have been met, common shares, all series of preferred shares and any options to acquire the foregoing considered to be owned by you by reason of certain constructive ownership rules set forth in the Code, as well as common shares, all series of preferred shares and any options to acquire the foregoing actually owned by you, must generally be taken into account. If you do not own (actually or constructively) any of our common shares, or you own an insubstantial percentage of our outstanding common shares or preferred shares, based upon current law, a redemption of your preferred shares is likely to qualify for sale or exchange treatment because the redemption would not be “essentially equivalent to a dividend.” However, because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to your [preferred shares] depends upon the facts and circumstances at the time the determination must be made, you are advised to consult your own tax advisor to determine such tax treatment.

If a redemption of preferred shares is not treated as a distribution taxable as a dividend to you, it will be treated as a taxable sale or exchange of the shares. As a result, you will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the amount of cash and the fair market value of any property received (less any portion thereof attributable to accumulated and declared but unpaid dividends, which will be taxable as a dividend to the extent of our current and accumulated earnings and profits), and (ii) your adjusted basis in the preferred shares for tax purposes. Such gain or loss will be capital gain or loss if the preferred shares have been held as a capital asset, and will be long-term gain or loss if the preferred shares have been held for more than one year at the time of the redemption. If a redemption of preferred shares is treated as a distribution taxable as a dividend, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received by you. Your adjusted basis in the redeemable preferred shares for tax purposes will be transferred to your remaining shares in us. If you do not own any of our other shares, such basis may, under certain circumstances, be transferred to a related person or it may be lost entirely.

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The IRS published proposed Treasury regulations that would require a share-by-share determination upon redemption so that a holder with varying tax basis for its shares of preferred stock could have taxable income with respect some shares, even though the holder’s aggregate basis for the shares would be sufficient to absorb the entire redemption distribution. Additionally, these proposed Treasury regulations would not permit the transfer of basis in the redeemed shares to the remaining shares of our stock held (directly or indirectly) by the redeemed holder. Instead, the unrecovered basis in our preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied. These proposed Treasury regulations would be effective for transactions that occur after the date the regulations are published as final Treasury regulations.

Passive Activity Losses and Investment Interest Limitations. Distributions made by us and gain arising from the sale or exchange by a U.S. shareholder of our shares of beneficial interest will not be treated as passive activity income. As a result, U.S. shareholders will not be able to apply any “passive losses” against income or gain relating to its ownership of our shares of beneficial interest. Distributions made by us, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation. A U.S. shareholder that elects to treat capital gain dividends, capital gains from the disposition of shares of beneficial interest or qualified dividend income as investment income for purposes of the investment interest limitation will be taxed at ordinary income rates on such amounts.

Taxation of Tax-Exempt U.S. Shareholders. U.S. tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their UBTI. While many investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt U.S. shareholder has not held our shares of beneficial interest as “debt financed property” within the meaning of the Internal Revenue Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt shareholder), (2) the shares of beneficial interest of us are not otherwise used in an unrelated trade or business, and (3) we and the REIT affiliates do not hold an asset that generates “excess inclusion income” (See “—Effect of Subsidiary Entities—Taxable Mortgage Pools” and “—Excess Inclusion Income”), distributions from us and income from the sale of our shares of beneficial interest should generally not be treated as UBTI to a tax-exempt U.S. shareholder. We do not currently own and we do not intend to acquire in the future any UBTI producing assets.

Tax-exempt U.S. shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different UBTI rules, which generally will require them to characterize distributions from us as UBTI. In certain circumstances, a pension trust (1) that is described in Section 401(a) of the Internal Revenue Code, (2) is tax exempt under Section 501(a) of the Internal Revenue Code, and (3) that owns more than 10% of our shares of beneficial interest could be required to treat a percentage of the dividends from us as UBTI if we are a “pension-held REIT.” We will not be a pension-held REIT unless (1) either (A) one pension trust owns more than 25% of the value of our shares of beneficial interest, or (B) a group of pension trusts, each individually holding more than 10% of the value of our shares of beneficial interest, collectively owns more than 50% of such shares; and (2) we would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Internal Revenue Code provides that shares owned by such trusts shall be treated, for purposes of the requirement that not more than 50% of the value of the outstanding shares of a REIT is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include certain entities) by the beneficiaries of such trusts. Certain restrictions on ownership and transfer of our shares of beneficial interest should generally prevent a tax-exempt entity from owning more than 10% of the value of our shares of beneficial interest, or us from becoming a pension-held REIT.

Tax-exempt U.S. shareholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences of owning our shares of beneficial interest.

Taxation of Non-U.S. Shareholders. The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of our shares of beneficial interest applicable to non-U.S. shareholders of our shares of beneficial interest. For purposes of this summary, a non-U.S. shareholder is a beneficial owner of our shares of beneficial interest that is not a U.S. shareholder or an entity taxed as a partnership for U.S. federal income tax purposes. The discussion is based on current law and is for general information only. It addresses only selective and not all aspects of U.S. federal income taxation.

Ordinary Dividends. The portion of dividends received by non-U.S. shareholders payable out of our earnings and profits that are not attributable to gains from sales or exchanges of U.S. real property interests, or USRPIs, and which are not effectively connected with a U.S. trade or business of the non-U.S. shareholder will generally be subject to U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by an applicable income tax treaty. Under some treaties, however, lower rates generally applicable to

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dividends do not apply to dividends from REITs. In addition, any portion of the dividends paid to non-U.S. shareholders that are treated as excess inclusion income will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate. As previously noted, we and the REIT affiliates may engage in transactions that result in a portion of our dividends being considered “excess inclusion income,” and accordingly, it is possible that a portion of our dividends received by a non-U.S. shareholder will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate.

In general, non-U.S. shareholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our shares of beneficial interest. In cases where the dividend income from a non-U.S. shareholder’s investment in our shares of beneficial interest is, or is treated as, effectively connected with the non-U.S. shareholder’s conduct of a U.S. trade or business, the non-U.S. shareholder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such dividends, and may also be subject to a 30% branch profits tax, after the application of the U.S. federal income tax, in the case of a non-U.S. shareholder-that is a corporation.

For taxable years beginning after December 31, 2013, certain non-U.S. shareholders will be subject to U.S. federal withholding tax at a rate of 30% on dividends paid on our shares of beneficial interest, if certain disclosure requirements related to U.S. ownership are not satisfied. In addition, if those disclosure requirements are not satisfied, a U.S. federal withholding tax at a rate of 30% will be imposed, for taxable years beginning after December 31, 2014, on proceeds from the sale of shares received by certain non-U.S. shareholders. If payment of withholding taxes is required, non-U.S. shareholders that are otherwise eligible for an exemption from, or reduction of, U.S. federal withholding taxes with respect to such distributions and proceeds will be required to seek a refund from the Internal Revenue Service to obtain the benefit or such exemption or reduction.

Non-Dividend Distributions. Unless (A) our shares of beneficial interest constitute a USRPI or (B) either (1) if the non-U.S. shareholder’s investment in our shares of beneficial interest is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder (in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain) or (2) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States (in which case the non-U.S. shareholder will be subject to a 30% tax on the individual’s net capital gain for the year), distributions by us which are not dividends out of our earnings and profits will not be subject to U.S. federal income tax. If it cannot be determined at the time at which a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the non-U.S. shareholder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits. If our shares of beneficial interest constitute a USRPI, as described below, distributions by us in excess of the sum of our earnings and profits plus the non-U.S. shareholder’s adjusted tax basis in our shares of beneficial interest will be taxed under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. shareholder of the same type (e.g., an individual or a corporation), and the collection of the tax will be enforced by a withholding at a rate of 10% of the amount by which the distribution exceeds the shareholder’s share of our earnings and profits.

Capital Gain Dividends. Under FIRPTA, a distribution made by us to a non-U.S. shareholder, to the extent attributable to gains from dispositions of USRPIs held by us directly or through pass-through subsidiaries, or USRPI capital gains, will be considered effectively connected with a U.S. trade or business of the non-U.S. shareholder and will be subject to U.S. federal income tax at the rates applicable to U.S. shareholders, without regard to whether the distribution is designated as a capital gain dividend. In addition, we will be required to withhold tax equal to 35% of the amount of capital gain dividends to the extent the dividends constitute USRPI capital gains. Moreover, if a non-U.S. shareholder disposes of our shares of beneficial interest during the 30-day period preceding a dividend payment by us, and such non-U.S. shareholder (or a person related to such non-U.S. shareholder) acquires or enters into a contract or option to acquire our shares of beneficial interest within 61 days of the first day of the 30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. shareholder, then such non-U.S. shareholder shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax when received by a non-U.S. shareholder that is a corporation. However, the 35% withholding tax will not apply to any capital gain dividend with respect to any class of our shares of beneficial interest which is regularly traded on an established securities market located in the United States if the non-U.S. shareholder did not own more than 5% of such class of shares at any time during the taxable year. Instead any capital gain dividend will be treated as a distribution subject to the rules discussed above under “—Taxation of Non-U.S. Shareholders” and “—Ordinary Dividends.” Also, the branch profits tax will not apply to such a distribution. A distribution is not a USRPI capital gain if we held the underlying asset solely as a creditor, although the holding of a shared appreciation mortgage loan would not be solely as a creditor. Capital gain dividends received by a non-U.S. shareholder from a REIT that are not USRPI capital gains generally are not subject to U.S. federal income or withholding tax, unless either (1) if the non-U.S. shareholder’s investment in our shares of beneficial interest is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder (in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain) or (2) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States (in which case the non-U.S. shareholder will be subject to a 30% tax on the individual’s net capital gain for the year).

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Dispositions of Our Shares of Beneficial Interest. Unless our shares of beneficial interest constitute a USRPI, a sale of the shares by a non-U.S. shareholder generally will not be subject to U.S. federal income taxation under FIRPTA. The shares will not be treated as a USRPI if less than 50% of our assets throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor. We do not expect that more than 50% of our assets (including our proportionate share of Taberna’s assets) will consist of interests in real property located in the United States.

In addition, our shares of beneficial interest will not constitute a USRPI if we are a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its outstanding shares is held directly or indirectly by non-U.S. shareholders. We believe that we are, and expect us to continue to be, a domestically controlled REIT and, therefore, the sale of our shares of beneficial interest should not be subject to taxation under FIRPTA. However, because our shares of beneficial interest are widely held and publicly traded, we cannot assure investors that we are or will remain a domestically controlled REIT. Even if we do not qualify as a domestically controlled REIT, a non-U.S. shareholder’s sale of our shares of beneficial interest nonetheless will generally not be subject to tax under FIRPTA as a sale of a USRPI, provided that (a) our shares of beneficial interest owned are of a class that is “regularly traded,” as defined by the applicable Treasury regulations, on an established securities market, and (b) the selling non-U.S. shareholder owned, actually or constructively, 5% or less of our outstanding shares of that class at all times during a specified testing period.

If gain on the sale of our shares of beneficial interest were subject to taxation under FIRPTA, the non-U.S. shareholder would be subject to the same treatment as a U.S. shareholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals, and the purchaser of the shares could be required to withhold 10% of the purchase price and remit such amount to the IRS.

Gain from the sale of our shares of beneficial interest that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. shareholder in two cases: (a) if the non-U.S. shareholder’s investment in our shares of beneficial interest is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder, the non-U.S. shareholder will be subject to the same treatment as a U.S. shareholder with respect to such gain, or (b) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.

Backup Withholding and Information Reporting

We will report to our U.S. shareholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. Under the backup withholding rules, a U.S. shareholder may be subject to backup withholding with respect to dividends paid unless the holder is a corporation or comes within other exempt categories and, when required, demonstrates this fact or provides a taxpayer identification number or social security number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. shareholder that does not provide his or her correct taxpayer identification number or social security number may also be subject to penalties imposed by the IRS. In addition, we may be required to withhold a portion of capital gain distribution to any U.S. shareholder who fails to certify its non-foreign status.

We must report annually to the IRS and to each non-U.S. shareholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. shareholder resides under the provisions of an applicable income tax treaty. A non-U.S. shareholder may be subject to backup withholding unless applicable certification requirements are met.

Payment of the proceeds of a sale of our shares of beneficial interest within the United States is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is a non-U.S. shareholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an exemption. Payment of the proceeds of a sale of our shares of beneficial interest conducted through certain United States related financial intermediaries is subject to information reporting (but not backup withholding) unless the financial intermediary has documentary evidence in its records that the beneficial owner is a non-U.S. shareholder and specified conditions are met or an exemption is otherwise established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be claimed as a refund or a credit against such holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.

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State, Local and Foreign Taxes

We and our subsidiaries (including Taberna and its subsidiaries) and our shareholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which we or they transact business, own property or reside. We and the REIT affiliates may own interests in properties located in a number of jurisdictions, and may be required to file tax returns in certain of those jurisdictions. The state, local or foreign tax treatment of Taberna, us and our shareholders may not conform to the U.S. federal income tax treatment discussed above. Any foreign taxes incurred by us or the REIT affiliates would not pass through to our shareholders as a credit against their U.S. federal income tax liability. Prospective shareholders should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in our shares of beneficial interest.

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Investments In Loans

3 Months Ended

Mar. 31, 2012

Investments In Loans [Abstract]

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 March 31, 2012:

	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	$	642,349		$	(3,874	)	$	638,475			42		6.4	%	May 2012 to Apr. 2022
Mezzanine loans		286,037			(5,282	)		280,755			88		9.3	%	May 2012 to Nov. 2038
Preferred equity interests		61,935			(1,092	)		60,843			21		9.5	%	May 2012 to Aug. 2025
Total CRE Loans		990,321			(10,248	)		980,073			151		7.4	%
Other loans		53,615			118			53,733			4		4.4	%	May 2012 to Oct. 2016
Total Loans	$	1,043,936		$	(10,130	)	$	1,033,806			155		7.3	%
Deferred fees		(962	)		0			(962	)
Total investments in loans	$	1,042,974		$	(10,130	)	$	1,032,844

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

During the three-month period ended March 31, 2011, we completed the conversion of one commercial real estate loan with a carrying value of $22,078 to real estate owned property. We did not convert any commercial real estate loans to real estate owned property during the three-month period ended March 31, 2012. During the three-month periods ended March 31, 2011, we charged off $1,778 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 March 31, 2012 and December 31, 2011:

Delinquency Status	As of March 31, 2012		As of December 31, 2011
30 to 59 days	$	18,500	$	3,500
60 to 89 days		0		0
90 days or more		22,257		16,857
In foreclosure or bankruptcy proceedings		10,952		10,320
Total	$	51,709	$	30,677

As of March 31, 2012 and December 31, 2011, approximately $56,113 and $54,334, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 9.8%. As of March 31, 2012 and December 31, 2011, approximately $18,273 and $19,501 of one Other loan was on non-accrual status and had a weighted-average interest rate of 7.2%.

Allowance For Losses And Impaired Loans

The following table provides a roll-forward of our allowance for losses for our commercial mortgages, mezzanine loans, and other loans for the three-month periods ended March 31, 2012 and 2011:

	For the Three-Month Period Ended March 31, 2012			For the Three-Month Period Ended March 31, 2011
Beginning balance	$	46,082		$	69,691
Provision		500			1,950
Charge-offs, net of recoveries		(6,867	)		(4,872	)
Ending balance	$	39,715		$	66,769

As of March 31, 2012 and December 31, 2011, we identified 17 and 19 commercial mortgages, mezzanine loans and other loans with unpaid principal balances of $81,411 and $87,977 as impaired.

The average unpaid principal balance of total impaired loans was $84,694 and $151,006 during the three-month periods ended March 31, 2012 and 2011. We recorded interest income from impaired loans of $63 and $506 for the three-month periods ended March 31, 2012 and 2011.

We have evaluated modifications to our commercial real estate loans to determine if the modification constitutes a troubled debt restructuring (TDR) under FASB ASC Topic 310, "Receivables". During the three-month period ended March 31, 2012, we have determined that there were no modifications to any commercial real estate loans that constituted a TDR. As of March 31, 2012, there were no TDRs that subsequently defaulted.

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Summary Of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

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, 2011 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.

b. Principles of Consolidation

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

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." A loan is impaired when it is probable that we may not collect all principal and interest payments according to the contractual terms. As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower's financial capability and other characteristics. If any trends or characteristics indicate that it is probable that other loans, with similar characteristics to those of impaired loans, have incurred a loss, we consider whether an allowance for loss is needed pursuant to FASB ASC Topic 450, "Contingencies." Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days. Payments received for non-accrual or impaired loans are applied to principal until the loan is removed from non-accrual status or no longer impaired. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for losses is increased by charges to operations and decreased by charge-offs (net of recoveries). Management charges off loans when the investment is no longer realizable and legally discharged.

f. Investments in Real Estate

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

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 fair value. Our investments in security-related receivables represent securities that were transferred to issuers of collateralized debt obligations, or CDOs, in which the transferors maintained some level of continuing involvement. We use 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 securitizations while such securitizations are consolidated. During the three-month periods ended March 31, 2012 and 2011, we received $1,285 and $1,298, respectively, of earned asset management fees associated with consolidated securitizations, of which we eliminated $969 and $959, respectively, of management fee income with consolidated securitizations.

i. Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, "Fair Value Measurements and Disclosures", fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management 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 buyers in the market are willing to pay for an asset. Ask prices represent the lowest price that sellers in the market are willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, we do not require that fair value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that results in our best estimate of fair value.

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

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 dividends 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 dividends 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 securitizations. Some of these fees paid to the TRS entities are capitalized as deferred financing costs by the securitizations. Certain securitizations may be consolidated in our financial statements pursuant to FASB ASC Topic 810, "Consolidation." In consolidation, these fees are eliminated when the securitization 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 dividend 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, 2012, we adopted ASU No. 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This accounting standard changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. These disclosures are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2011, The FASB issued an accounting standard classified under FASB ASC Topic 360, "Property, Plant, and Equipment". This accounting standard amends existing guidance to resolve the diversity in practice about whether the guidance for real estate sales applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary's nonrecourse debt. This accounting standard is effective for fiscal years, and interim periods with those years, beginning on or after June 15, 2012. Management is currently evaluating the impact that these standards may have on our consolidated financial statements.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Assets
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$ 1,032,844	$ 996,363
Allowance for losses	(39,715)	(46,082)
Total investments in mortgages and loans	993,129	950,281
Investments in real estate, net of accumulated depreciation of $76,122 and $69,372, respectively	887,130	891,502
Investments in securities and security-related receivables, at fair value	653,589	647,461
Cash and cash equivalents	53,841	29,720
Restricted cash	153,285	278,607
Accrued interest receivable	41,059	39,455
Other assets	42,648	39,771
Deferred financing costs, net of accumulated amortization of $12,687 and $11,613, respectively	22,156	23,178
Intangible assets, net of accumulated amortization of $2,477 and $2,337, respectively	2,489	2,629
Total assets	2,849,326	2,902,604
Liabilities and Equity
Indebtedness (including $171,840 and $144,956 at fair value, respectively)	1,764,971	1,748,274
Accrued interest payable	25,525	22,541
Accounts payable and accrued expenses	18,209	20,825
Derivative liabilities	170,997	181,499
Deferred taxes, borrowers' escrows and other liabilities	18,448	15,371
Total liabilities	1,998,150	1,988,510
Equity:
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 49,899,392 and 41,289,566 issued and outstanding	1,489	1,236
Additional paid in capital	1,777,974	1,735,969
Accumulated other comprehensive income (loss)	(112,284)	(118,294)
Retained earnings (deficit)	(819,802)	(708,671)
Total shareholders' equity	847,444	910,307
Noncontrolling interests	3,732	3,787
Total equity	851,176	914,094
Total liabilities and equity	2,849,326	2,902,604
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

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Operating activities:
Net income (loss)	$ (103,664)	$ 9,131
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for losses	500	1,950
Share-based compensation expense	557	259
Depreciation and amortization	7,663	7,119
Amortization of deferred financing costs and debt discounts	1,746	868
Accretion of discounts on investments	(394)	(305)
(Gains) losses on sales of assets	(11)	(1,415)
(Gains) losses on extinguishment of debt	(1,574)	537
Change in fair value of financial instruments	108,923	(5,611)
Changes in assets and liabilities:
Accrued interest receivable	(1,761)	(748)
Other assets	(2,957)	(3,432)
Accrued interest payable	(7,877)	(10,810)
Accounts payable and accrued expenses	(2,708)	529
Deferred taxes, borrowers' escrows and other liabilities	615	2,392
Cash flow from operating activities	(942)	464
Investing activities:
Proceeds from sales of other securities	1	4,883
Purchase and origination of loans for investment	(72,215)	(5,172)
Principal repayments on loans	29,460	11,436
Investments in real estate	(3,009)	(14,225)
Business acquisition	0	(2,731)
(Increase) Decrease in restricted cash	125,797	8,847
Cash flow from investing activities	80,034	3,038
Financing activities:
Repayments on secured credit facilities and loans payable on real estate	(806)	(15,782)
Repayments and repurchase of CDO notes payable	(93,164)	(12,469)
Proceeds from issuance of 7.0% convertible senior notes	0	115,000
Repayments and repurchase of 6.875% convertible senior notes	0	(86,336)
Proceeds from repurchase agreements	3,471	0
Issuance (acquisition) of noncontrolling interests	0	3,582
Payments for deferred costs	(257)	(6,369)
Preferred share issuance, net of costs incurred	101	0
Common share issuance, net of costs incurred	41,601	17,738
Distributions paid to preferred shareholders	(3,414)	(3,414)
Distributions paid to common shareholders	(2,503)	(3,219)
Cash flow from financing activities	(54,971)	8,731
Net change in cash and cash equivalents	24,121	12,233
Cash and cash equivalents at the beginning of the period	29,720	27,230
Cash and cash equivalents at the end of the period	53,841	39,463
Supplemental cash flow information:
Cash paid for interest	4,808	9,722
Cash paid (refunds received) for taxes	45	85
Non-cash increase in investments in real estate from the conversion of loans	0	20,300
Non-cash decrease in indebtedness from conversion to shares or debt extinguishments	$ (1,574)	$ (6,914)

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The Company

3 Months Ended

Mar. 31, 2012

The Company [Abstract]

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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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Real Estate, accumulated depreciation	$ 76,122	$ 69,372
Deferred financing costs, accumulated amortization	12,687	11,613
Intangible assets, accumulated amortization	2,477	2,337
Indebtedness, fair value	$ 171,840	$ 144,956
Common shares, par value	$ 0.03	$ 0.03
Common shares, shares authorized	200,000,000	200,000,000
Common shares, shares issued	49,899,392	41,289,566
Common shares, shares outstanding	49,899,392	41,289,566
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

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Earnings (Loss) Per Share

3 Months Ended

Mar. 31, 2012

Earnings (Loss) Per Share [Abstract]

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 periods ended March 31, 2012 and 2011:

	For the Three-Month Periods Ended March 31
	2012			2011
Income (loss) from continuing operations	$	(103,664	)	$	8,340
(Income) loss allocated to preferred shares		(3,410	)		(3,414	)
(Income) loss allocated to noncontrolling interests		55			50
Income (loss) from continuing operations allocable to common shares		(107,019	)		4,976
Income (loss) from discontinued operations		0			791
Net income (loss) allocable to common shares	$	(107,019	)	$	5,767
Weighted-average shares outstanding—Basic		44,150,924			36,618,910
Dilutive securities under the treasury stock method		0			349,210
Weighted-average shares outstanding—Diluted		44,150,924			36,968,120
Earnings (loss) per share—Basic:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Basic	$	(2.42	)	$	0.16
Earnings (loss) per share—Diluted:
Continuing operations	$	(2.42	)	$	0.14
Discontinued operations		0.00			0.02
Total earnings (loss) per share—Diluted	$	(2.42	)	$	0.16

For the three-month periods ended March 31, 2012 and 2011, securities convertible into 15,431,009 and 2,079,869 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

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Document And Entity Information	3 Months Ended
	Mar. 31, 2012	May 08, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
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		49,901,961

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Related Party Transactions

3 Months Ended

Mar. 31, 2012

Related Party Transactions [Abstract]

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 March 31, 2012 and December 31, 2011, we had $5,479 and $515, respectively, of cash and cash equivalents and $497 and $447, respectively, of restricted cash on deposit at Bancorp. We did not receive any interest income from the Bancorp during the three-month periods ended March 31, 2012 and 2011. 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 a sublease agreement with a third party for the remaining term of our sublease. Rent paid to Bancorp was $79 and $84 for the three-month periods ended March 31, 2012 and 2011, respectively. Rent received for our sublease was $43 and $42 for the three-month periods ended March 31, 2012 and 2011.

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Consolidated Statements Of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Revenue:
Interest income	$ 27,956	$ 33,558
Rental income	24,831	21,290
Fee and other income	1,458	3,431
Total revenue	54,245	58,279
Expenses:
Interest expense	19,348	23,367
Real estate operating expense	13,797	12,617
Compensation expense	5,738	6,544
General and administrative expense	3,825	4,968
Provision for losses	500	1,950
Depreciation and amortization expense	7,663	7,119
Total expenses	50,871	56,565
Operating Income	3,374	1,714
Interest and other income (expense)	33	83
Gains (losses) on sale of assets	11	1,415
Gains (losses) on extinguishment of debt	1,574	(537)
Change in fair value of financial instruments	(108,923)	5,611
Income (loss) before taxes and discontinued operations	(103,931)	8,286
Income tax benefit (provision)	267	54
Income (loss) from continuing operations	(103,664)	8,340
Income (loss) from discontinued operations	0	791
Net income (loss)	(103,664)	9,131
(Income) loss allocated to preferred shares	(3,410)	(3,414)
(Income) loss allocated to noncontrolling interests	55	50
Net income (loss) allocable to common shares	$ (107,019)	$ 5,767
Earnings (loss) per share-Basic:
Continuing operations	$ (2.42)	$ 0.14
Discontinued operations	$ 0.00	$ 0.02
Total earnings (loss) per share-Basic	$ (2.42)	$ 0.16
Weighted-average shares outstanding-Basic	44,150,924	36,618,910
Earnings (loss) per share-Diluted:
Continuing operations	$ (2.42)	$ 0.14
Discontinued operations	$ 0.00	$ 0.02
Total earnings (loss) per share-Diluted	$ (2.42)	$ 0.16
Weighted-average shares outstanding-Diluted	44,150,924	36,968,120
Distributions declared per common share	$ 0.08	$ 0.09

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Indebtedness

3 Months Ended

Mar. 31, 2012

Indebtedness [Abstract]

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 March 31, 2012:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	108,264		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		3,582		3,741		6.9	%	Apr. 2027
Secured credit facilities		9,497		9,497		3.0	%	Dec. 2016
Junior subordinated notes, at fair value (3)		38,052		22,450		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
CMBS facilities		3,471		3,471		2.7	%	Nov. 2012 to Oct. 2013
Total recourse indebtedness (4)		194,702		172,523		6.5	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (5)(6)		1,309,528		1,307,648		0.7	%	2045 to 2046
CDO notes payable, at fair value (3)(5)(7)		1,022,664		149,390		1.2	%	2037 to 2038
Loans payable on real estate		135,410		135,410		5.6	%	Sept. 2015 to May 2021
Total non-recourse indebtedness		2,467,602		1,592,448		1.1	%
Total indebtedness	$	2,662,304	$	1,764,971		1.5	%

(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) In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

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

(4) Excludes senior secured notes issued by us with an aggregate principal amount equal to $100,000 with a weighted average coupon of 7.0%, which are eliminated in consolidation.

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

(6) Collateralized by $1,695,976 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(7) Collateralized by $1,157,562 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of March 31, 2012 was $862,406. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

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

The current status or activity in our financing arrangements occurring as of or during the three-month period ended March 31, 2012 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. In April 2012, we redeemed all of our outstanding 6.875% convertible senior notes for cash.

7.0% convertible senior notes. The 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes, are convertible at the option of the holder at a current conversion rate of 132.9506 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $7.52 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. We include the 7.0% convertible senior notes in 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.

Secured credit facilities. As of March 31, 2012, we have $9,497 outstanding under our secured credit facility, which is payable in December 2016 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

CMBS Facilities. During the three-month period ended March 31, 2012, we financed $3,471 in aggregate principal amount of commercial mortgage loans pursuant to the $150,000 CMBS facility. As of March 31, 2012, $246,529 in aggregate principal amount remained available under the our CMBS facilities.

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 March 31, 2012.

During the three-month period ended March 31, 2012, we repurchased, from the market, a total of $2,500 in aggregate principal amount of CDO notes payable issued by our RAIT I CDO securitization. The aggregate purchase price was $926 and we recorded a gain on extinguishment of debt of $1,574.

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 three-month period ended March 31, 2012, $81,420 of restricted cash, including cash flow that was re-directed from our retained interests in these CDOs, was used to repay the most senior holders of our CDO notes payable.

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Investments In Real Estate

3 Months Ended

Mar. 31, 2012

Investments In Real Estate [Abstract]

Investments In Real Estate

NOTE 5: INVESTMENTS IN REAL ESTATE

The table below summarizes our investments in real estate:

	As of March 31, 2012					As of December 31, 2011
	Book Value			Number of Properties		Book Value			Number of Properties
Multi-family real estate properties	$	592,937			33	$	591,915			33
Office real estate properties		251,663			10		251,303			10
Retail real estate properties		71,994			3		71,405			3
Parcels of land		46,658			10		46,251			10
Subtotal		963,252			56		960,874			56
Less: Accumulated depreciation and amortization		(76,122	)				(69,372	)
Investments in real estate	$	887,130				$	891,502

As of March 31, 2012, our investments in real estate of $887,130 are financed through $135,376 of mortgages held by third parties and $799,457 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.

During the three-month period ended March 31, 2012, we did not acquire or dispose of any real estate properties.

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Discontinued Operations

3 Months Ended

Mar. 31, 2012

Discontinued Operations [Abstract]

Discontinued Operations

NOTE 13: DISCONTINUED OPERATIONS

For the three-month periods ended March 31, 2011, income (loss) from discontinued operations relates to one real estate property sold since January 1, 2011. There was no income (loss) from discontinued operations during the three-month period ended March 31, 2012. The following table summarizes revenue and expense information for real estate properties classified as discontinued operations:

	For the Three-Month Period Ended March 31, 2011
Revenue:
Rental income	$	1,777
Expenses:
Real estate operating expense		985
General and administrative expense		1
Total expenses		986
Total income (loss) from discontinued operations	$	791

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

3 Months Ended

Mar. 31, 2012

Variable Interest Entities [Abstract]

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 March 31, 2012 and December 31, 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 March 31, 2012			As of December 31, 2011
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,878,442		$	1,856,106
Allowance for losses		(30,557	)		(36,210	)
Total investments in mortgages and loans		1,847,885			1,819,896
Investments in real estate		20,800			20,910
Investments in securities and security-related receivables, at fair value		652,724			645,915
Cash and cash equivalents		244			201
Restricted cash		123,077			235,682
Accrued interest receivable		59,850			57,560
Deferred financing costs, net of accumulated amortization of $11,640 and $10,995, respectively		14,733			15,378
Total assets	$	2,719,313		$	2,795,542
Liabilities and Equity
Indebtedness (including $149,390 and $122,506 at fair value, respectively)	$	1,698,594		$	1,682,487
Accrued interest payable		51,914			48,417
Accounts payable and accrued expenses		3,215			1,537
Derivative liabilities		170,997			181,499
Deferred taxes, borrowers' escrows and other liabilities		2,654			4,570
Total liabilities		1,927,374			1,918,510
Equity:
Shareholders' equity:
Accumulated other comprehensive income (loss)		(108,226	)		(114,186	)
RAIT Investment		20,008			31,004
Retained earnings		880,157			960,214
Total shareholders' equity		791,939			877,032
Total liabilities and equity	$	2,719,313		$	2,795,542

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

3 Months Ended

Mar. 31, 2012

Derivative Financial Instruments [Abstract]

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 March 31, 2012, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of March 31, 2012 and December 31, 2011:

	As of March 31, 2012					As of December 31, 2011
	Notional		Fair Value			Notional		Fair Value
Cash flow hedges:
Interest rate swaps	$	1,560,845	$	(170,947	)	$	1,570,787	$	(181,499	)
Interest rate caps		36,000		1,207			36,000		1,360
Net fair value	$	1,596,845	$	(169,740	)	$	1,606,787	$	(180,139	)

During 2012, interest rate swap agreements with a notional amount of $185,625 and a weighted average strike rate of 4.15% as of March 31, 2012, will terminate in accordance with their terms.

For interest rate swaps that are considered effective hedges, we reclassified realized losses of $8,910 and $10,889 to earnings for the three-month periods ended March 31, 2012 and 2011.

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 March 31, 2012, 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 $88,709. See Note 8: "Fair Value of Financial Instruments" for the changes in value of these hedges during the three-month periods ended March 31, 2012 and 2011. 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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Fair Value Of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value Of Financial Instruments [Abstract]

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, CMBS facilities and loans payable on real estate 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 March 31, 2012:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Commercial mortgages, mezzanine loans and other loans	$	1,032,844	$	989,078
Investments in securities and security-related receivables		653,589		653,589
Cash and cash equivalents		53,841		53,841
Restricted cash		153,285		153,285
Derivative assets		1,257		1,257
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		108,264		107,525
6.875% convertible senior notes		3,741		3,604
Secured credit facilities		9,497		9,497
Junior subordinated notes, at fair value		22,450		22,450
Junior subordinated notes, at amortized cost		25,100		14,809
CMBS facilities		3,471		3,471
Non-recourse indebtedness:
CDO notes payable, at amortized cost		1,307,648		800,627
CDO notes payable, at fair value		149,390		149,390
Loans payable on real estate		135,410		135,410
Derivative liabilities		170,997		170,997

Fair Value Measurements

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2012, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2012
Trading securities
TruPS	$	0	$	0	$	482,744	$	482,744
Other securities		0		0		0		0
Available-for-sale securities		0		2		0		2
Security-related receivables
TruPS receivables		0		0		84,720		84,720
Unsecured REIT note receivables		0		31,333		0		31,333
CMBS receivables		0		37,181		0		37,181
Other securities		0		17,609		0		17,609
Derivative assets		0		1,257		0		1,257
Total assets	$	0	$	87,382	$	567,464	$	654,846

Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of March 31, 2012
Junior subordinated notes, at fair value	$	0	$	0	$	22,450	$	22,450
CDO notes payable, at fair value		0		0		149,390		149,390
Derivative liabilities		0		86,382		84,615		170,997
Total liabilities	$	0	$	86,382	$	256,455	$	342,837

(a) During the three-month period ended March 31, 2012, there were no transfers between Level 1 and Level 2, as well as, there were no transfers into and out of Level 3.

When estimating the fair value of our Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include yields, credit spreads, effective dollar prices and overall market conditions on not only the exact financial instrument for which management is estimating the fair value but also financial instruments that are similar or issued by the same issuer when such inputs are unavailable. Management uses these inputs to estimate the effective dollar price for our specific Level 3 financial instrument. Changes in these inputs over time cause changes in the fair value of our financial instruments. The weighted average effective dollar price of our TruPS and TruPS receivables as of March 31, 2012 is $75.81.

The following tables summarize additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the three-month period ended March 31, 2012:

Assets	Trading Securities—TruPS and Subordinated Debentures		Security-Related Receivables—TruPS and Subordinated Debenture Receivables		Total Level 3 Assets
Balance, as of December 31, 2011	$	481,736	$	82,863	$	564,599
Change in fair value of financial instruments		1,008		1,857		2,865
Purchases		0		0		0
Sales		0		0		0
Balance, as of March 31, 2012	$	482,744	$	84,720	$	567,464

Liabilities	Derivative Liabilities			CDO Notes Payable, at Fair Value			Junior Subordinated Notes, at Fair Value		Total Level 3 Liabilities
Balance, as of December 31, 2011	$	90,080		$	122,506		$	22,450	$	235,036
Change in fair value of financial instruments		(5,465	)		108,304			0		102,839
Purchases		0			0			0		0
Sales		0			0			0		0
Principal repayments		0			(81,420	)		0		(81,420	)
Balance, as of March 31, 2012	$	84,615		$	149,390		$	22,450	$	256,455

The following table summarizes the valuation technique and the level of the fair value hierarchy for financial instruments that are not fair valued in the accompanying balance sheets but for which fair value is required to be disclosed. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities and loans payable on real estate approximates cost due to the nature of these instruments and are not included in the table below.

						Fair Value Measurement
	Carrying Amount as of March 31, 2012		Estimated Fair Value as of March 31, 2012		Valuation Technique	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Commercial mortgages, mezzanine loans and other loans	$	1,032,844	$	989,078	Discounted cash flows	$	0	$	0	$	989,078
7.0% convertible senior notes		108,264		107,525	Trading price		107,525		0		0
6.875% convertible senior notes		3,741		3,604	Trading price		3,604		0		0
Junior subordinated notes, at amortized cost		25,100		14,809	Discounted cash flows		0		0		14,809
CDO notes payable, at amortized cost		1,307,648		800,627	Discounted cash flows		0		0		800,627

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 March 31
Description	2012			2011
Change in fair value of trading securities and security-related receivables	$	6,132		$	16,554
Change in fair value of CDO notes payable, trust preferred obligations and other liabilities		(108,304	)		(7,031	)
Change in fair value of derivatives		(6,751	)		(3,912	)
Change in fair value of financial instruments	$	(108,923	)	$	5,611

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 periods ended March 31, 2012 and 2011 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of the CDO notes payable for which the fair value option was elected was due to repayments at par because of OC failures when the CDO notes have a fair value of less than par. The changes in the fair value of derivatives for which the fair value option was elected for the three-month periods ended March 31, 2012 and 2011 was mainly due to changes in interest rates.

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Equity

3 Months Ended

Mar. 31, 2012

Equity [Abstract]

Equity

NOTE 10: EQUITY

Preferred Shares

On January 24, 2012, our board of trustees declared a first quarter 2012 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 April 2, 2012 to holders of record on March 1, 2012 and totaled $3,407.

On May 1, 2012, our board of trustees declared a second quarter 2012 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 July 2, 2012 to holders of record on June 1, 2012.

Common Shares

Dividends:

On February 29, 2012, the board of trustees declared a $0.08 dividend on our common shares to holders of record as of March 28, 2012. The dividend was paid on April 27, 2012 and totaled $3,992.

Share Repurchases:

On January 24, 2012, the compensation committee of our board of trustees approved a cash payment to the board's seven non-management trustees intended to constitute a portion of their respective 2012 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 letter agreement documented the election of each trustee to 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 used by all of the non-management trustees to purchase common shares was $210 and was used to purchase 36,750 common shares, in the aggregate, in February 2012.

Equity Compensation:

During the three-month period ended March 31, 2012, 220,823 phantom unit awards were redeemed for common shares, a portion of which was withheld in order to satisfy the applicable withholding taxes. These phantom units were fully vested at the time of redemption.

On January 24, 2012, the compensation committee awarded 2,172,000 stock appreciation rights, or SARs, valued at $6,091 based on a Black-Scholes option pricing model at the date of grant, to our executive officers and non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and January 24, 2017, the expiration date of the SARs.

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, in the aggregate, 10,500,000 common shares. During the three-month period ended March 31, 2012, we issued a total of 1,491,160 common shares pursuant to the DRSPP at a weighted-average price of $5.10 per share and we received $7,570 of net proceeds. As of March 31, 2012, 7,796,422 common shares, in aggregate, remain available for issuance under the DRSPP.

Common Share Public Offering:

During the three-month period ended March 31, 2012, we issued 6,950,000 common shares in an underwritten public offering. The public offering price was $5.30 per share and we received $34,750 of net proceeds.

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Net income (loss)	$ (103,664)	$ 9,131
Other comprehensive income (loss):
Change in fair value of interest rate hedges	(2,950)	2,052
Realized (gains) losses on interest rate hedges reclassified to earnings	8,910	10,889
Change in fair value of available-for-sale securities	50	147
Total other comprehensive income (loss)	6,010	13,088
Comprehensive income (loss) before allocation to noncontrolling interests	(97,654)	22,219
Allocation to noncontrolling interests	55	50
Comprehensive income (loss)	$ (97,599)	$ 22,269

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Investments In Securities

3 Months Ended

Mar. 31, 2012

Investments In Securities [Abstract]

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 March 31, 2012:

Investment Description	Amortized Cost		Net Fair Value Adjustments			Estimated Fair Value		Weighted Average Coupon (1)			Weighted Average Years to Maturity
Trading securities
TruPS	$	637,376	$	(154,632	)	$	482,744		4.2	%		22.3
Other securities		11,162		(11,162	)		0		5.0	%		40.6
Total trading securities		648,538		(165,794	)		482,744		4.3	%		22.6
Available-for-sale securities		3,600		(3,598	)		2		2.3	%		30.6
Security-related receivables
TruPS receivables		111,199		(26,479	)		84,720		6.5	%		10.7
Unsecured REIT note receivables		30,000		1,333			31,333		6.7	%		4.9
CMBS receivables (2)		86,443		(49,262	)		37,181		5.6	%		31.5
Other securities		53,238		(35,629	)		17,609		4.1	%		28.6
Total security-related receivables		280,880		(110,037	)		170,843		5.8	%		19.9
Total investments in securities	$	933,018	$	(279,429	)	$	653,589		4.7	%		22.0

(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 $7,828 that are rated between "AAA" and "A-" by Standard & Poor's, securities with a fair value totaling $23,325 that are rated "BBB+" and "B-" by Standard & Poor's, securities with a fair value totaling $5,470 that are rated "CCC" by Standard & Poor's and securities with a fair value totaling $558 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 March 31, 2012							As of December 31, 2011
	Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value		Principal /Par Amount on Non-accrual		Weighted Average Coupon			Fair Value
TruPS and TruPS receivables	$	83,557		1.9	%	$	5,705	$	83,557		1.9	%	$	5,766
Other securities		34,320		3.3	%		2		34,240		3.3	%		2
CMBS receivables		33,291		5.9	%		558		32,462		5.9	%		915

The assets of our consolidated CDOs collateralize the debt of such entities and are not available to our creditors. As of March 31, 2012 and December 31, 2011, investment in securities of $748,575 in principal amount of TruPS and subordinated debentures, and $103,674 and $104,122, 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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Commitments And Contingencies

3 Months Ended

Mar. 31, 2012

Commitments And Contingencies [Abstract]

Commitments And Contingencies

NOTE 14: COMMITMENTS AND CONTINGENCIES

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